Listing by latest editionClick on an article heading to view the synopsis and link to read more. Edition 43 view edition↓Tax changes following carbon tax and mining tax repealThe Abbott government has introduced into Parliament proposed legislation to repeal the carbon tax and the mining tax. Importantly, the Bill to remove the mining tax also proposes to repeal or revise a number of tax and superannuation measures. Key changes include:
↓No GST following purchase of leased apartmentsA taxpayer has been successful before the Full Federal Court in a matter concerning a GST assessment following the purchase of three residential apartments. The taxpayer (a company) had purchased the apartments in a hotel complex from the vendor on a GST-free basis as supply of a going concern. The apartments were subject to leases that the vendor had previously granted to a hotel management company, which was obliged to let the apartments as part of its serviced apartment business. The taxpayer had also elected to participate in a “management rights scheme”, which provided the taxpayer a right to income in exchange for allowing its apartments to be used in the serviced apartment business. The Commissioner assessed the taxpayer as having a GST liability of $215,000 (ie an increasing adjustment), which represented 10% of the total purchase price paid by the taxpayer for the apartments. On appeal, the Full Court found that the primary judge had made an error in concluding that, following the sale of the reversion from the vendor to the taxpayer, there was a continuing supply, being the supply of residential premises by lease, by the vendor to the hotel management company. The Full Court said there was no continuing supply in relation to the lease; rather, the supply was the grant of the lease, which did not continue for the term of the lease. As a result, the taxpayer’s objection to the GST assessment was allowed. At the time of writing it remained unclear whether the Commissioner would apply to the High Court for special leave to appeal against the decision. Assuming that the Full Court’s decision will not be appealed or overturned, purchasers who have previously acquired residential premises as a going concern and then included an increasing adjustment in a subsequent GST return may want to consider whether there is potential for a refund. Note that there are time limits that can restrict entitlement to refunds. Purchasers who are contemplating acquiring residential premises as a going concern should exercise caution until it is clear whether the decision will be appealed, or whether the government may look into introducing amending legislation.
↓Individual not a tax resident of AustraliaAn individual taxpayer has been successful before the Administrative Appeals Tribunal (AAT) in arguing that he was not an Australian resident for tax purposes for the relevant years. In June 2006, after his release from jail for drug offences, the man decided he had no future in Australia and moved to Thailand. In 2008, he moved to Bali and obtained the right to live in Indonesia as a retired person. During 2008 and 2010, the man made regular trips back to Australia, but during his last visit he was arrested and charged with possession of a precursor to a dangerous drug. The man was convicted and sentenced to 18 months’ imprisonment. While in prison, the Commissioner commenced an audit of the taxpayer’s affairs and decided that he was an Australian resident with unexplained income, and issued assessments for the 2009 to 2011 income years. The Commissioner also assessed penalties in excess of $350,000. The Commissioner based his decision on documents showing bank interest payments to the taxpayer as well as payments he had made towards the cost of building a boat. However, the AAT was satisfied that the man was not a resident of Australia in the years in question. It said the man had not been residing in Australia since mid-2006 and that he had established a home in Bali from early 2008.
↓Legal expense deductions to fight ASIC charges refusedA stockbroker has been unsuccessful before the AAT in arguing that legal expenses he had incurred in the 2011 income year were deductible. The taxpayer had incurred legal expenses challenging an ASIC banning order in proceedings before the Federal Court and the Full Federal Court. Both courts dismissed his appeals. The banning order, which became operative from 7 May 2010, prohibited the man from providing financial services for five years. The taxpayer had also incurred legal expenses in defending 20 criminal charges for alleged insider trading; he was eventually acquitted on 17 of the charges, with the remaining three withdrawn by ASIC. The AAT was of view that the legal expenses were not incurred by the taxpayer “in the course” of gaining or producing assessable income. The AAT found that when the taxpayer had incurred the expenses, his position as an authorised representative at the company he worked for had ceased. Accordingly, the AAT held that the expenses incurred in the 2011 income year were not deductible.
↓Tax debt release based on serious hardship refusedThe AAT has affirmed the Commissioner’s decision to refuse to release an individual from his tax liability based on serious hardship grounds. Under the Taxation Administration Act, the Commissioner has a discretion to release an individual from paying a tax liability (in whole or in part) if satisfying the liability would cause that person serious hardship. The man argued that due to his wife’s illness, he had been increasingly required to care for her and their children and that this has reduced his capacity to earn income. The AAT was satisfied that the individual was facing serious hardship in the immediate future in the sense of lacking the means to purchase food, clothing and medical supplies for his family, and other basic requirements such as accommodation. However, it said the serious hardship was not caused by him being required to meet the tax liability. Rather, the serious hardship was due to the taxpayer’s liabilities, of which tax debt was just one, exceeding his assets, and the outgoings required to service those liabilities exceeding his income. As he had not met the relevant criterion, the AAT said it did not have the power to release him from his tax debts. Even if the Commissioner is satisfied that serious hardship will result from payment of a tax liability, the Commissioner is not obliged to exercise his discretion in favour of the individual taxpayer. Nevertheless, it is clear that the ATO is obliged to act reasonably and responsibly, and should not act arbitrarily or capriciously. An application for release from an eligible tax liability must be in the approved form.
↓GST refund request made too lateAn individual taxpayer has been unsuccessful before the AAT in seeking a review of the Commissioner’s decision to refuse a GST refund in relation to the June 2004 quarter. The Commissioner had refused the refund on the basis that the taxpayer’s application was made after the four-year cut-off date for the June 2004 quarter (that is, 28 July 2008). The taxpayer explained that due to his ill health and troubles with his then business, he did not get around to lodging tax returns until 2011. The Commissioner acknowledged that the man was owed a refund and had recommended that he approach the Department of Finance and Deregulation to obtain an act of grace payment, but said that because more than four years had elapsed since the time the taxpayer could have claimed the money, there was no discretion that could be exercised in the taxpayer’s favour. The AAT agreed with the Commissioner. It also refused the taxpayer’s request for an extension of time to apply to the AAT for review of the Commissioner’s objection decision (dated 31 October 2011) refusing the GST refund for the June 2004 quarter.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 42 view edition↓Residency requirement for CGT home exemption failedThe Administrative Appeals Tribunal (AAT) has denied an individual's claim that an exemption from capital gains tax (CGT) should apply to a property that he and his ex-de facto partner had sold. The individual had purchased land in 2002 with his then partner, and construction of a house on the land commenced in April 2004. However, the couple ended their relationship in September 2004. Despite this, the individual argued that they had moved into the house in around May or June 2005 to meet the requirements under the law to sell the property without being subject to CGT. The AAT found that the evidence before it failed to establish that the house became the individual's main residence "as soon as practicable" after construction was completed, and failed to establish that the house continued to be his main residence for at least three months after that. In this case, both requirements had to be met in order for the exemption to apply.
↓Parent liable to CGT on half-share of townhouseAn individual has been unsuccessful before the AAT in arguing that he should not have to pay CGT on the sale of a townhouse he owned jointly with his son because, he argued, he was only holding his interest in the property to protect his inexperienced son from selling it on a whim. The individual had purchased the property for his adult son to live in and transferred the property to himself and his son as joint tenants. After living in the townhouse for a few years, the son moved out to another property. The townhouse was then sold and all of the funds were used to pay down the mortgage on a new property. The individual argued that he received no proceeds from the sale and that he held his interest in the property in trust for his son, or alternatively, that an exemption under the CGT law should apply. The AAT did not accept the arguments and held that as a joint tenant, the individual was liable to CGT on 50 per cent of the net capital gain on the sale.
↓Penalty for unsubstantiated work-related deduction claimsThe AAT has recently affirmed a decision of the Tax Commissioner to impose a penalty on an individual equal to 50 per cent of the tax shortfall amount arising from deduction claims for work-related expenses that were unsubstantiated. The individual worked as a cars salesman and in his 2011–2012 tax return made various claims for work-related expenses amounting to around $34,300. The Tax Commissioner determined that most of the claims were unsubstantiated and imposed a penalty of around $6,100, representing 50 per cent of the tax shortfall. The Commissioner also told the AAT that the individual had made similar claims in previous years. The individual did not dispute that the claims were unsubstantiated, but argued that the penalty was severe and that he was unable to pay an outstanding portion of the penalty of $1,400. The AAT noted, among other things, that the individual did not retain invoices or receipts, or provide satisfactory evidence to substantiate the claims. The AAT was of the view that the individual's conduct was more serious than mere failure to take reasonable care, and held that the penalty imposed was appropriate.
↓No enterprise, so GST credits refusedThe AAT has refused an individual's claim for input tax credits as it found no evidence that the individual was carrying on an "enterprise". The individual claimed that before she was required to serve a term of imprisonment, she had tried to start a "services business". She claimed that she had purchased, among other things, two motor vehicles, various office equipment, and business promotional materials. The individual made claims for input tax credits totalling almost $74,000 in respect of the various purchases over four years. However, the individual said the attempts to start the business did not succeed and straddled her term of imprisonment. The individual also claimed that any records she had of the purchases were lost or destroyed, or that she had not been asked to produce documentation by the Tax Commissioner. The AAT said the individual was given various opportunities to produce documents to back her claims before the hearing; however, it noted that her evidence, being mostly personal testimony, did not satisfy the burden of proof that the Commissioner's assessment denying the input tax credits was excessive. The AAT found that there was no "enterprise" for the purposes of the GST law and that the decision to deny the input tax credits was correct.
↓Special GST clause in contract unclearA company (a trustee of a family trust) that had sold a property to an individual has been unsuccessful before the Victorian Supreme Court in a matter concerning whether the individual was required to pay GST in addition to the purchase price on the property. The purchase price was set out in the Particulars of Sale in the contract as $2,250,000. The Supreme Court reviewed the contract, and in particular, a "special condition" dealing with GST. While the Court accepted that the commercial aim of the special clause may have been to allocate responsibility for any GST liability attached to the sale of the property, it considered that the contract said nothing about whether the purchase price in the Particulars of Sale was actually intended to include GST. Further, it could not discern from the special clause any particular contractual intention of the parties. In conclusion, the Court held that the special clause should be removed from the contract. As a result, it said the $2,250,000 amount in the Particulars of Sale should be understood to be inclusive of any GST payable on the sale. This case highlights the importance of ensuring that a contract for the sale of property clearly specifies whether the sale is subject to GST and whether the price is GST-inclusive or GST-exclusive.
↓Plumbers were full-time casuals, not contractorsThe AAT has found that individuals working for a plumbing business were employees of the business and that the business was required to provide superannuation contributions for them. The business argued that the workers were independent contractors and that there was no superannuation requirement. After reviewing the individuals' relationship with the business, the AAT was of the view that, effectively, the workers were full-time casuals paid on an hourly rate and not eligible for holiday or sick leave. The AAT considered various factors, including that the individuals all had the same contract (with the same terms) with the business. The AAT said one would expect independent contractors to have differing terms, but the fact that their contracts were the same was "extraordinary". Another key factor was that the hourly rates charged by the workers to customers were largely set by the business. Overall, the AAT concluded that the workers were employees and affirmed the requirement to pay superannuation.
↓ATO warns of schemes to access additional franking creditsThe ATO has cautioned taxpayers against trading shares on a special market operated by the Australian Securities Exchange (ASX) with the sole purpose of obtaining additional franking credits. The ATO says these arrangements involve a taxpayer selling shares in a company on the ordinary market after a franked dividend has been announced, and retaining the franked dividends. Then, within days, the taxpayer buys back a similar parcel of shares in the same company on the special market, which also has franked dividends. The ATO says the transactions could constitute “dividend washing” and that the taxpayer could face penalties under the law. Dividend washing occurs where shareholders seek to claim two sets of franking credits on what is effectively the same parcel of shares. Taxpayers who are unsure about their own circumstances should seek independent advice or apply for an ATO private ruling.
↓ATO focuses on dodgy financial productsThe ATO has highlighted areas of concern in relation to certain financial products, particularly a small number of financial products that may offer the promise of tax benefits that may not actually be available to some or all investors who invest in the product. Key factors that draw the ATO’s attention include suggestions that the investor could obtain tax advantages (that most taxpayers would not in fact receive in their individual circumstances), or that the tax law's anti-avoidance provisions may not apply.
↓The tax landscape under the new Coalition GovernmentApart from the much publicised intention to repeal the mining tax there are other measures that were planned and will now be repealed which will likely have a greater impact on private businesses. We now understand the transitional arrangements for these measures as follows:
↓Fringe Benefits Tax (FBT)With the celebratory season for many fast approaching it is time to consider taxes, of course! In particular, this time of the year turns our attention to the tax impost on gifts in connection with operating a business.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 41 view edition↓Are casual employees protected by unfair dismissal laws?In Marie Axmann v Global Players Network Pty Ltd t/a GP Network Pty Ltd (2013), GP Network was found to have unfairly dismissed casual employee Marie Axmann. Ms Axmann started working as a customer service consultant with GP Network on 14 February 2012 and was notified of her dismissal on 7 February 2013. Ms Axmann was employed on a casual basis throughout the period of her employment with GP Network.
↓Beware of artificial trust arrangements to avoid taxThe ATO has issued an alert to warn taxpayers that it is aware of arrangements where a discretionary trust is used to effectively funnel large capital gains to a newly incorporated company that is then wound up to avoid paying taxes. The ATO says these arrangements concern situations where a trust has generated a small amount of income and a large capital gain during the year. The trust then distributes funds generated by the capital gain, tax free, to one beneficiary, while the newly incorporated company receives the tax liability, but does not have the funds to pay the tax. A liquidator is then appointed to wind up the company. The ATO says such arrangements may be shams and those involved could face serious consequences under the tax law.
↓Extra 15% super contributions tax for high income earnersThe superannuation law has recently been amended so that the effective contributions tax for certain concessional contributions (up to the concessional cap) has been doubled from 15% to 30% for "very high income earners", ie those with income (plus relevant concessional contributions) above a $300,000 threshold. The ATO has recently advised that it will start issuing the first assessments for the new tax in January 2014 for individuals who were above the $300,000 high income threshold for the 2012–2013 income year. Taxpayers who exceed the $300,000 high income threshold should consider reviewing their superannuation contributions and salary sacrificing arrangements to take into account any impact of the additional 15% tax.
↓Individual found to be an Australian tax residentAn individual has been unsuccessful before the Administrative Appeals Tribunal (AAT) in arguing that he was not a resident of Australia for tax purposes during the relevant years. The individual was a mechanical engineer and worked overseas in the 2007 and 2008 income years. The taxpayer argued that in mid-2006 he had formed an intention to live in the United Kingdom, but was ultimately unable to do so due to the failing health of his mother-in-law. The taxpayer eventually returned to Australia in 2009. The AAT held that the taxpayer had maintained a strong and continuing residency connection with Australia. The AAT noted, among other things, that the taxpayer had maintained an Australian bank account. He had also identified himself as a resident in official immigration arrival and departure cards.
↓A share investor, not a share traderThe AAT has held that an individual was a share investor, and not a share trader as claimed, during the relevant years. The individual was a full-time council employee and claimed that he had an arrangement with his employer where he could trade during business hours and then make up the time after hours. The Tax Commissioner argued that the individual was not carrying on a business of share trading and therefore was not entitled to deductions he had claimed on the premise that a business existed. The AAT held that, overall, the factors pointing against the existence of a share trading business outweighed the factors that were in the taxpayer's favour. Among various things, the AAT found there was a lack of a regular routine with buying and selling shares in the individual's case, which pointed towards the transactions being made on a speculative basis. The AAT was also of the view that full-time employment went against the conduct of a share trading business. If a taxpayer is a share trader, losses may be deductible against other income. If the taxpayer is not a share trader, indexation or the capital gains tax (CGT) 50% discount may apply to reduce the capital gain.
↓GST bill following hotel apartment purchasesThe AAT has confirmed a decision of the Tax Commissioner that a husband and wife partnership (which was registered for GST) had an increasing adjustment resulting in a GST payable amount following the purchase of two apartments in a hotel complex. The original owner of the apartments had previously granted leases in respect of each apartment to a hotel management company that was obliged to operate a serviced apartment business. The partnership had also elected to participate in a scheme that allowed the hotel management company to let the apartments as part of its serviced apartment business in return for income generated by the business. The supply of each apartment was treated as GST-free under the "going concern" concessions in the GST law. Since their purchase, the apartments were operated as part of the serviced apartment business. The AAT essentially agreed with the Commissioner that the partnership had an increasing adjustment because of continuing input taxed supplies made in relation to the apartments.
↓No relief from excess super contributions tax billThe AAT has affirmed the Tax Commissioner's decision to impose excess non-concessional contributions tax on an individual in relation to excess super contributions he had made in September 2009. Essentially, the taxpayer had withdrawn and redeposited his superannuation monies in an attempt to mitigate the effects of the global financial crisis. The Commissioner claimed the individual had breached the so-called "bring forward rule", which provides a $450,000 cap on non-concessional contributions for every three-year period for people under age 65. The AAT did not accept the individual's argument that his super fund should have warned him of the danger of breaching the $450,000 limit. The AAT also did not expect the individual to necessarily understand the law himself; however, it did expect that the individual "might have asked for some advice".
↓Departure from private ruling results in FBT assessmentsThe AAT has held that the Tax Commissioner was no longer bound by a private binding ruling that he had issued to a taxpayer company, because the taxpayer had implemented the scheme differently to the private ruling. As a result that the Commissioner was authorised to issue the taxpayer with fringe benefits tax (FBT) assessments for the relevant years. Broadly, the private ruling provided that there would be no housing fringe benefit in relation to a home that was half-owned by the company (with the other half owned by a couple, who were also the directors of the company) on the basis that the business use of the home was 50%. However, the AAT considered that, in fact, less than 50% of the home had a "business use", and therefore the private ruling was no longer binding.
↓Tax man’s refusal of tax debt compromise dealAn individual has been unsuccessful before the Federal Circuit Court in seeking a review of the Tax Commissioner's decision to refuse a tax compromise deal. The individual had taken over his father's jewellery business, but said he was not aware of the financial mismanagement of the business until unpaid creditors began calling. The taxpayer argued that the Commissioner had not taken into account the ill-health of his father and the effect the global financial crisis had on the business. However, Court said there was no reason to believe that they were not taken into account by the Commissioner. Further, it held it could not review the Commissioner's decision as it was not a decision made "under an enactment".
↓GST and adjustment notesThe ATO has issued a GST ruling that sets out the requirements for adjustment notes under the GST law. An adjustment note reflects the adjustment to the amount of GST charged on a taxable supply as a result of an adjustment event. An adjustment event will result in the original tax invoice issued by the supplier being incorrect. A supplier is required to issue an adjustment note for a taxable supply unless the supply was issued under a recipient created tax invoice. In that case, the recipient of the supply must issue the adjustment note. The GST ruling outlines when a document is in the approved form for an adjustment note, the information requirements determined by the Tax Commissioner, and when the Commissioner will treat a particular document as an adjustment note even though that document does not meet all of the requirements.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 40 view edition↓ATO compliance target areasThe ATO has released its compliance program for 2013–2014, setting out key activities and focus areas for the coming year. Some key points include the following:
↓CGT small business concessions deniedThe Administrative Appeals Tribunal (AAT) has held that the exclusion in the tax law from the capital gains tax (CGT) small business concessions for assets used “mainly to derive rent” applies even if the assets are used in “carrying on a business” of deriving rent. In this case, the taxpayer argued that in interpreting the rules, it was necessary to distinguish between those assets used to derive passive investment income such as rental income, and those actively used in carrying on a business. Essentially, the taxpayer argued that the strict view that all properties that are used mainly to derive rent are automatically excluded from the concessions unfairly discriminates against small leasing businesses. However, the AAT considered that the words in the law must be considered first and that it was not “unduly pedantic to begin with the assumption that words mean what they say”. This case demonstrates the need to be aware of the various conditions required to be satisfied in order to claim the CGT concessions for small businesses. In this case, the key issue was whether three commercial properties that the taxpayer used in carrying on a business of deriving rent qualified as “active assets” and were therefore potentially eligible for the concessions. However, the AAT found that a specific exclusion under the tax law for assets used mainly to derive rent applied. Please contact our office if you would like further information.
↓Deductions for accommodation and food refusedAn individual employed by a mining company at Port Hedland on a “fly-in fly-out” basis has been unsuccessful before the Federal Court in appealing an earlier decision that refused his deduction claim of $36,000 for accommodation and food against an allowance. In the earlier decision, it was held that the allowance was properly characterised as a living-away-from-home allowance (LAFHA) under the fringe benefits tax (FBT) rules. As a result, it was subject to FBT in the hands of the taxpayer’s employer, and travel expenses could not therefore be claimed in relation to it. In affirming the earlier decision, the Court said the expenses in relation to accommodation, food and travel were not incurred by the taxpayer in the course of gaining or producing his assessable income. Rather, the expenditure arose from the taxpayer’s decision not live in Port Hedland and to instead travel to Port Hedland on a fly-in fly-out basis.
↓Redundancy payment for overseas work assessableThe AAT has ruled that a taxpayer who was the managing director of a company in various countries from 2002 to 2007, and who was paid an employment termination payment (ETP) when he returned to Australia, was not assessable on the part of the annual and long service leave component of the ETP that was attributable to his foreign service (in view of the exemption in the tax law at the time). However, the AAT confirmed that he was assessable on the taxable component of the ETP, despite its foreign source, on the basis that he was a tax resident of Australia when the ETP was paid to him.
↓ATO telephone advice does not excuse wrong GST claimIn a recent decision, the AAT has affirmed the Commissioner’s decision to impose on a taxpayer an administrative penalty at the rate of 50% for “recklessness” in relation to incorrectly claimed input tax credits (ITCs). The taxpayer had lodged a claim in the relevant business activity statement (BAS) for almost $72,000 in ITCs in relation goods said to be from Hong Kong. This was despite the goods never having left the country or having been manufactured. The taxpayer’s representative claimed that he had relied on telephone conversations with the ATO in which the ATO had allegedly advised to the effect that the taxpayer could claim ITCs. However, the AAT did not accept the taxpayer’s arguments in that regard and affirmed the Commissioner’s decision. The AAT noted, among other things, that the discussions post-dated the filing of the BAS and, accordingly, any advice received at that time could not have influenced the making of a false or misleading statement. Most taxpayers will, often or not, rely on spoken advice. They may contact one of the many enquiry lines that have been set up by various governmental departments, which provide callers with free and quick advice on not only the operation of the law, but also how it is being put into practice within those departments. However, taxpayers need to be cautious about relying on such advice. As the AAT said in this case, given the size of the taxpayer’s claim, “a private taxation ruling, or at least informed professional advice, could and should have been sought”.
↓Money from ex-husband’s company assessableA taxpayer has been unsuccessful before the AAT in arguing that $1.6 million she received from a company run by her (then) husband was provided to her as part of a domestic arrangement with her husband and was not therefore assessable in her hands. Broadly, the taxpayer contended that she had agreed to finance her then husband’s purchase of shares in the company and that she was behaving as a “good” wife who deployed the resources at her disposal in support of her husband, and that she was not an independent investor in her husband’s business. The AAT did not accept that the taxpayer was simply acting as a supportive spouse who passively received benefits provided to her by her husband under a matrimonial arrangement. The AAT essentially agreed with the Commissioner that the taxpayer was an investor in the business and found that the payments were “income” assessable to her under the tax law.
↓Poor recordkeeping, so fuel tax credit claims refusedA trustee of a family trust that operated a construction and earthmoving equipment business has been unsuccessful before the AAT in its claim for fuel tax credits. Following an audit of the business in 2010, the Commissioner refused the credits, citing that records maintained by the taxpayer did not accurately describe the amount of fuel acquired or used, or adequately describe the purpose for which the fuel was used. The taxpayer acknowledged that there were problems with its recordkeeping but said the difficulties were caused by employee delinquency. Further, it said its true entitlements were actually much greater than the amount claimed. However, the AAT was not satisfied with estimates provided by the taxpayer. It was also critical of the taxpayer’s records, saying they “were a mess”. The AAT affirmed the Commissioner’s decision, as well as the imposition of penalties at 25%.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 39 view edition↓Specific tax rule to prevent dividend washingThe Assistant Treasurer, David Bradbury, has announced that the Government will prevent “dividend washing” by introducing a specific integrity rule into the tax law. This follows the Government’s announcement in the 2013–2014 Federal Budget that it will implement reforms to close, with effect from 1 July 2013, a loophole it believes currently enables some investors to engage in this practice. “Dividend washing” potentially allows investors who undertake certain sophisticated share transactions to receive two sets of franking credits on what is essentially the same parcel of shares. Mr Bradbury says the proposed specific integrity rule will end this practice. He adds that the measure will not impact typical “mum and dad investors” as it will only apply to investors who have franking credit tax offset entitlements in excess of $5,000.
↓Individual denied interest deductionIn a recent decision, the Administrative Appeals Tribunal (AAT) has affirmed a decision of the Tax Commissioner to deny a taxpayer’s claim for a personal deduction for interest and bank fees of over $120,000. These were incurred over a two-year period in relation to rental properties purchased by a family discretionary trust that had been set up for that purpose, and of which the taxpayer was the trustee. The AAT was of the view that the bank had lent the money to the taxpayer in his capacity as trustee of the trust, and not in his personal capacity. The AAT was also not convinced by the taxpayer’s argument that the bank had been mistaken in relation to the legal character of the person to whom it had lent the money. The AAT therefore upheld the Commissioner’s decision not to allow a personal deduction.
↓Overseas doctor a tax resident of AustraliaA doctor has been unsuccessful before the AAT in arguing that he should be declared a non-resident of Australia for tax purposes. The doctor had been working in East Timor since 2006 and submitted that he “resided” in East Timor as that was where he spent his time and lived. The AAT heard that the doctor was an Australian citizen and spent nine to 11 months of the year in East Timor, with the remainder of his time spent in Australia and Bali. However, the AAT noted that the doctor owned a property in Australia which the Tax Commissioner described as the “family home”. The AAT also noted that the doctor had a property in Bali which he and his wife called “home”. The AAT found that the doctor “resided” in Australia for tax purposes because the taxpayer had retained a “continuity of association” with Australia.
↓Partnership denied GST creditsThe AAT has held that a partnership was not carrying on an enterprise and was not entitled to input tax credits claimed in respect of the relevant period. The taxpayers, a married couple, argued that their partnership had provided handyman and other maintenance services to a hotel, a business they also controlled and which they had taken over from their sons. The AAT was not convinced that the partnership was an entity providing the claimed services to the hotel. Therefore, the taxpayers were not entitled to claim input tax credits during the relevant period. However, the AAT was of the view that the net amount of GST owed for the relevant period was zero, and not a positive net amount as argued by the Commissioner.
↓Division 7A benchmark interest rateThe ATO has advised that, for the income year that commenced on 1 July 2013, the benchmark interest rate to be used in calculating the interest component on the repayment of a private company loan received by a shareholder (or an associate of a shareholder) is 6.20%.
↓Reasonable travel and meal allowance amountsThe ATO has announced the amounts that the Commissioner considers are reasonable for the 2013–2014 income year in relation to claims made for:
↓Car depreciation limitThe ATO has announced that the car depreciation limit for the 2013–2014 income year is $57,466.
↓Key superannuation changesThe Government has recently enacted a number of key superannuation changes. These are discussed below. Importantly, these rule changes are not simple and individuals would be prudent to consider their options before deciding what to do. Excess concessional contributions The rules in relation to the taxation of excess concessional contributions have been amended with effect from 1 July 2013. The Government says the new rules will be “fairer for individuals who exceed their annual concessional cap”. Under the new rules, excess concessional contributions are automatically included in an individual’s assessable income and subject to an interest charge to account for the deferral of tax. Broadly, the new rules ensure that individuals who make excess concessional contributions are taxed on the contributions at their marginal tax rates, rather than at the effective 46.5% tax rate that previously applied for all taxpayers before the changes were introduced. These proposed changes will undoubtedly be welcomed by the 40,000-odd taxpayers who are expected to pay (on average) $1,100 less tax on their excess concessional contributions in 2013–2014. However, taxpayers on the top marginal tax rate are expected to have a slightly higher tax liability for their excess concessional contributions (due to the additional interest charge). Higher contributions cap of $35,000 On 1 July 2013, the concessional contributions cap increased from $25,000 to $35,000 for individuals aged 60 years and over. The same threshold will apply from 1 July 2014 for individuals aged 50 years and over. Eligibility for the higher cap depends on a person’s age on 30 June in the previous income year. This means:
Please contact our office if you wish to discuss your eligibility for the higher cap. Under the new cap, eligible individuals will potentially be able to claim greater deductions for superannuation contributions, or salary-sacrifice larger contributions. It is important to note that this temporary concessional cap will cease when the general cap reaches $35,000 through indexation (which is expected to be 1 July 2018). Taxpayers aged 59 years or over on 30 June 2013 should consider reviewing their salary-sacrificing arrangements, deductions for personal contributions and transition to retirement pensions to take into account the higher concessional cap of $35,000 for 2013–2014. Extra 15% contributions tax for $300,000+ incomes From 1 July 2012, individuals earning above $300,000 must pay an additional 15% tax on concessional contributions. That is, the effective contributions tax has doubled from 15% to 30% for concessional contributions (up to the cap of $25,000 or, for older taxpayers from 2013–2014, $35,000) made on behalf of individuals above the $300,000 income threshold. However, despite this extra 15% tax, it should be noted there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on concessional contributions up to the cap of $25,000 (or $35,000). Individuals with incomes above $300,000 may want to consider limiting their concessional contributions to compulsory superannuation guarantee contributions (9.25% for 2013–2014) where such benefits can be packaged in a more tax-effective manner. Alternatively, these individuals may want to consider whether it is more beneficial to instead make after-tax non-concessional contributions.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 38 view edition↓Medicare levy increase to fund DisabilityCare AustraliaThe Medicare levy has been increased by 0.5% to help fund the government’s National Disability Insurance Scheme, known as DisabilityCare Australia. This will take the Medicare levy from 1.5% to 2% of taxable income from 1 July 2014. Under the changes implemented by the government, low income earners continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The exemptions from the Medicare levy for blind pensioners and sickness allowance recipients also remain in place.
↓Closing the “dividend washing” loopholeThe government is seeking to close what it perceives to be a loophole allowing sophisticated investors to engage in what it calls “dividend washing”. The government says “dividend washing” is a process that allows sophisticated investors to effectively trade franking credits, and can result in some shareholders receiving two sets of franking credits for the same parcel of shares. The government has issued a discussion paper to facilitate consultation and has proposed tax law changes to take effect from 1 July 2013. The changes would aim to prevent shareholders from receiving two sets of franking credits for the same effective parcel of shares through dividend washing, and to ensure that there would be negligible impacts on legitimate market activities.
↓ATO taskforce to target trust structuresIn the 2013–2014 Federal Budget, the ATO was provided with $67.9 million over four years to undertake compliance activity in relation to trust structures. The taskforce will utilise intelligence systems as well as new tax return labels to gather information. The ATO says the taskforce will not target ordinary trust arrangements or tax planning associated with genuine business or family dealings, but will focus on what it refers to as “higher-risk taxpayers”. Situations that would attract the attention of the ATO include arrangements where trusts or their beneficiaries who have received substantial income are not registered.
↓Superannuation income stream following death of memberThe government has made tax law changes to provide tax certainty for superannuation trustees and deceased estates in situations where a person has died while in receipt of a superannuation income stream. Investment earnings derived by complying superannuation funds from assets supporting current pensions are generally exempt from tax. However, a draft tax ruling issued by the ATO in 2011 caused some uncertainty over the eligibility of this tax exemption in situations following the death of a member to whom a pension was being paid. In response to the uncertainty, the government last year announced that it would amend the law from 1 July 2012 to allow the tax exemption to continue following the death of the pension recipient until the deceased member’s benefits have been paid out of the fund (subject to the benefits being paid as soon as practicable).
↓Delivery drivers were common law employeesThe Administrative Appeals Tribunal (AAT) has recently affirmed tax assessments issued to a taxpayer after finding that delivery drivers hired by the taxpayer were common law “employees” and not independent contractors. The taxpayer had contracts to deliver bakery goods to supermarkets and had engaged a number of drivers to make those deliveries. It contended that those drivers were independent contractors and were responsible for their own taxes and superannuation. However, the Tax Commissioner determined that the drivers were common law “employees” of the taxpayer. Among other things, the Commissioner noted that the drivers did not own or lease their own vehicles, did not control or delegate any of the work, and wore uniforms (vests) identifying the taxpayer’s business name. Based on the evidence before it, the AAT was of the view that the drivers were “employees” of the taxpayer during the relevant period and held that the taxpayer had failed to withhold amounts as required under the pay-as-you-go (PAYG) withholding rules.
↓Losses from farming activities to be deferredA medical doctor has been unsuccessful before the AAT in arguing that the Tax Commissioner should exercise his discretion to allow the doctor to claim non-commercial business losses of his cattle and sheep farming activities against his medical practice income. The taxpayer had applied to the ATO for a private binding ruling, requesting that the Commissioner allow him to claim the losses from the farming activities against his medical practice income. However, the Commissioner issued a private ruling in which he refused to exercise the discretion sought. Notwithstanding the ruling, the taxpayer then lodged his 2010 tax return and claimed losses in relation to the farming business. The AAT affirmed the Commissioner’s decision and found that the taxpayer had not discharged the onus of proving that the conditions of the relief sought had been met. Accordingly, the AAT held that the losses incurred must be deferred until those activities produce assessable income against which the deductions could be claimed. There are rules in the tax law designed to prevent losses from a non-commercial business activity from being offset against income from other sources, unless the activity satisfies one of the commerciality tests, or the Commissioner exercises his discretion to not apply the non-commercial loss rules. However, there are strict requirements surrounding the exercise of this discretion. Note that there are specific exemptions from the non-commercial loss rules for low income primary producers and professional artists. Also, since 1 July 2009, losses incurred by individuals with an adjusted taxable income of $250,000 or more from non-commercial business activities have been quarantined, even if they satisfy the relevant commerciality tests. The effect is that these individuals are not able to offset excess deductions from non-commercial business activities against their salary, wages or other income. Please call our office for further information.
↓Superannuation redeposit during GFC results in tax hitA taxpayer, a retiree, who withdrew and re-deposited his superannuation savings during the global financial crisis has been hit with excess contributions tax of $31,620 after the AAT agreed with the Tax Commissioner that there were no “special circumstances” to disregard the excess contributions under the tax law. After observing a significant decline in his superannuation savings in a matter of months and following the government’s announcement that it would guarantee bank deposits, the retiree withdrew his superannuation savings in early 2009 and deposited the amounts in term deposits. When the term deposits matured six months later, he re-deposited the money back into his superannuation. In May 2012, the Tax Commissioner informed the taxpayer that he had exceeded his non-concessional contributions cap for the 2009–2010 financial year. The taxpayer argued that the imposition of excess contributions tax was “unfair” and that he had not obtained a tax advantage. However, while noting that the taxpayer had made an unfortunate error, the AAT still ruled that there was nothing “unique” or “special” to allow the relief sought. It also considered that it was reasonably foreseeable that the re-depositing would result in excess contributions. Managing an individual’s contributions caps for any year is a critical consideration to ensure that any tax benefits of superannuation contributions are not later reversed (and punished) via the imposition of excess contributions tax. Given the constant tinkering with the contributions caps, extreme care is needed with the amount and precise timing of contributions.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 37 view edition↓Cap on work-related self-education deductionsThe Government has announced that it will introduce a $2,000 per-person cap on tax deduction claims for work-related self-education expenses. The cap is proposed to apply from 1 July 2014. In making the announcement, Treasurer Swan said that without a cap, “it’s possible to make large claims for expenses such as first class airfares, 5-star accommodation and expensive courses”. However, the Treasurer said the Government “will consult with employees and employers to better target this concession while still supporting essential training”.
↓ATO data-matching programsThe ATO has recently announced the following new data-matching programs:
↓ASIC warns of property spruikers focusing on SMSFsThe Australian Securities and Investments Commission (ASIC) has warned people to be aware of property spruikers who might be encouraging them to set up a self managed superannuation fund (SMSF) in order to gear into real property. The warning comes with the release of ASIC’s review of financial advice provided in the SMSF sector. According to ASIC, the majority of advice reviewed was adequate. However, it noted a number of areas requiring improvement, including the need to better inform investors of the risks associated with investments. Investors should take care when considering advertisements pushing property purchases through SMSFs. A number of key considerations, such as legal obligations, risks and alternatives, should be taken into account before making a decision to invest in property via an SMSF. Please contact our office if you have any questions.
↓Major superannuation reforms announcedThe Government has recently made a number of important announcements affecting superannuation. A key proposal announced is that the Government will change the superannuation law to cap tax-free earnings at $100,000. That is, the tax exemption for earnings on superannuation fund assets supporting income streams will be capped at $100,000 per annum per person from 1 July 2014. A tax rate of 15% will apply to fund earnings above $100,000. According to the Government, the measure would affect around 16,000 individuals who have around $2 million in their superannuation funds and an estimated rate of return of 5%. However, the Government confirmed that withdrawals will continue to remain tax-free for those aged 60 years and over. Presumably, the proposals will be subject to public consultation before implementation.
↓“Holiday home” included in tax concession testA taxpayer company has been unsuccessful before the Administrative Appeals Tribunal (AAT) in a claim to secure the capital gains tax (CGT) concessions for small businesses. In this case, the AAT affirmed the Commissioner’s decision that the taxpayer did not satisfy the “maximum net asset value” test for the purposes of qualifying for the concessions. The AAT found that the individual who controlled the company could not exclude from the test his interest in a Queensland property, which he claimed was used for “personal use and enjoyment”. The small business CGT concessions are intended to offer small business taxpayers a range of unique tax concessions. However, despite being targeted towards taxpayers who typically have less complicated affairs, the rules are riddled with complexities that may not appear obvious at first glance. Each concession has its own particular rules. However, there are two basic conditions for the relief – either the taxpayer is a small business entity (SBE) or is a partner of a partnership that is an SBE, or the taxpayer satisfies the maximum net asset value test. If you have any questions, please contact our office.
↓Small business benchmarks catch out floristThe AAT has recently dismissed an appeal by a florist against the Tax Commissioner’s decision to issue income tax and GST assessments following an ATO audit of her florist business. The taxpayer had reported that the cost of goods sold in her business represented 83% of her reported business income. The ATO had selected the taxpayer for audit because this figure was outside what it considered to be the industry benchmark range of between 44% and 54%. In this case, the taxpayer was unable, due to a lack of evidence, to prove to the AAT that the assessments were excessive. The Tax Commissioner has warned that businesses operating outside the relevant benchmarks could be subject to ATO review and/or audit, and where the businesses do not have adequate records to substantiate their performance, the ATO will make a default assessment using the appropriate small business benchmark. Businesses may want to consider reviewing their record-keeping practices and assess whether they are at risk of an audit. Please contact our office for further information.
↓FBT rates and thresholds 2013–2014The ATO has announced important fringe benefits tax (FBT) rates and thresholds for the 2013–2014 FBT year that commenced on 1 April 2013. Some of the key rates and thresholds include the following:
↓GST tax invoice information requirementsThe ATO has released a Ruling setting out the minimum information requirements for a tax invoice under the GST law. The Ruling also explains the circumstances in which it is not necessary for the supplier to give a tax invoice, and the circumstances in which an input tax credit is attributable to a tax period without the recipient being required to hold a tax invoice for a creditable acquisition. However, the Ruling states that the recipient must have records to explain its entitlement to an input tax credit for a creditable acquisition. In certain situations, it may be difficult to ascertain whether a document is a “tax invoice” that complies with the requirements of the GST law. For example, a “quote” given by a professional or tradesperson to a single recipient would generally not qualify as a “tax invoice”. However, the Tax Commissioner has made a determination to waive the tax invoice requirement to cover particular situations such as “offer documents and renewal offers”. Please contact our office for further information.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 36 view edition↓Tax planningThere are many ways in which taxpayers can take advantage of tax planning initiatives to manage their taxable incomes. In order to maximise these opportunities, taxpayers need to start the year-end tax planning process early. Of course, when undertaking tax planning, taxpayers should be cognisant of the potential application of anti-avoidance provisions. However, if done correctly, tax planning can provide possible tax savings.
↓Deferring income
↓Maximising DeductionsBusiness taxpayers
Non-business taxpayers
↓Companies
↓Trusts
↓Capital gains tax
↓Personal services incomeBroadly, the personal services income (PSI) rules attribute income derived by an interposed entity to the individual providing services to the entity. This is achieved by “forcing” individuals to include the income generated by their personal skill or efforts in their personal tax returns. The deductions of a taxpayer who receives PSI are, generally, limited to the amount that they would be entitled to deduct if they had received the income as an employee.
↓Superannuation
↓Fringe benefits tax
↓Individuals
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 35 view edition↓PERSONAL TAXATION
↓SOCIAL SECURITY
↓BUSINESS TAXATIONFurther extension of monthly pay-as-you-go (PAYG) instalments The Government will extend the requirement to make monthly PAYG income tax instalments to all large entities in the PAYG instalment system, including trusts, superannuation funds, sole traders and large investors.
↓TAX COMPLIANCE
↓SUPERANNUATIONNo further major reforms announced The Treasurer did not announce any new major superannuation measures in the Budget. This will be a welcome relief for the superannuation industry, which is already suffering from "reform fatigue”.
↓OTHER CHANGESHELP discounts to be abolished The Government will remove the discounts applying to up-front and voluntary payments made under the Higher Education Loan Program (HELP) from 1 January 2014
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 34 view edition↓No more CGT discount for non-residentsThe Government has issued for comment draft legislation proposing to implement its 2012 Budget announcement that it will remove the capital gains tax (CGT) discount for non-resident individuals on taxable Australian property, such as residential and commercial real estate and mining assets. Under the current law, individual taxpayers are generally entitled to a 50% discount on capital gains made from assets they have held for at least 12 months, regardless of the individual’s residency status. The proposed changes will introduce new residency requirements. Under the changes, non-residents will still be entitled to a discount on capital gains that accrued prior to 9 May 2012 (ie, the day after the Government’s announcement), provided they obtain a market valuation of the asset as at 8 May 2012. Note that, if implemented, the changes will apply to affected individuals irrespective of whether the gain resulted from an asset owned by the individual or was a gain from an asset held by a trust and attributed to the individual. In summary, the effect of the measure will be to:
↓Tax certainty for beneficiaries of superannuation death benefitsThe Government has released draft regulations that propose to give effect to an earlier announcement made in October 2012 that it will provide certainty to the beneficiaries of superannuation death benefits. The changes will allow the tax exemption for earnings on assets supporting superannuation income streams to continue following the death of a fund member who was in the pension phase until the deceased member’s benefits have been paid out of the fund. If implemented, the changes will apply from 1 July 2012. The proposed changes appear to be a response to industry concern with the Tax Commissioner’s draft ruling on superannuation income streams issued in a 2011. In that draft ruling, the Commissioner took the position that a superannuation income stream ceases as soon as the member in receipt of the income stream dies, unless a dependent beneficiary of the deceased is automatically entitled to receive an income stream. According to the Commissioner’s preliminary view, tax would generally apply to a fund’s investment earnings, including realised capital gains, following the death of a pension member. However, the proposed new regulations will ensure that this is not the case.
↓Disposal date critical for CGT small business concessionsIn a recent decision, the Administrative Appeals Tribunal (AAT) decided that a taxpayer’s interest in a business was disposed of when a “heads of agreement was executed”, and not when the formal contract of sale was executed. An agent had testified that it was long-standing practice in the industry for an intending purchaser and vendor to enter into an “in-confidence” period of exclusivity during which the intending purchaser would use professional advisers to carry out due diligence. Despite evidence suggesting that the industry did not regard the heads of agreement as a binding contract, the AAT was of the view that the parties to the heads of agreement had agreed to the sale and purchase of the business in question. As a result, as it was found that it was the date of the heads of agreement that was the applicable date of the transaction for CGT purposes. As a result, the taxpayer was not entitled to access the CGT small business concessions because he did not satisfy the relevant test for the concessions just before that date.
↓Car expenses – Rates per kilometre for 2012¬–2013The Government has announced the “cents per kilometre” rates for calculating tax deductions for car expenses for the 2012–2013 income year. Note that they are unchanged from 2011–2012 and are as follows:
↓LAFHA reasonable amounts for food and drink 2013With the changes to the living-away-from-home rules (effective from 1 October 2012) affecting employees who are required by their employers to live away from home for work, greater care needs to be taken in assessing the fringe benefits tax (FBT) implications of living-away-from-home allowances (LAFHAs). With a narrower scope for eligibility for concessional treatment and increased substantiation requirements, the level of risk is greater. The Commissioner has recently determined the amounts that he considers reasonable for food and drink expenses incurred by employees receiving a LAFHA fringe benefit for the FBT year commencing on 1 April 2013. Broadly, if an employee’s food or drink expenses exceed the amount the Commissioner considers reasonable, the employee will have to substantiate all the expenses incurred, or the employer will be liable to FBT on the amount of LAFHA paid to the employee that is in excess of the reasonable amount. The new rules will require careful consideration when planning for and preparing the 2013 FBT return – this may include identifying whether the transitional rules apply, obtaining evidence if substantiation is required, and checking contracts to see if food and drink is clearly identified. Where food and drink is greater than the ATO reasonable amounts, future restructuring should be contemplated. Please contact our office for further information.
↓Tax anti-avoidance law to be amendedIn response to a number of high profile cases lost by the Tax Commissioner, the Government has introduced legislation into Parliament that proposes to ensure the effective operation of the income tax general anti-avoidance law. In those cases, the taxpayers successfully argued that the income tax general anti-avoidance law did not apply as tax was a legitimate consideration in commercial decision-making, and where the tax cost of a transaction was considerable the taxpayer would have done nothing. The changes, once enacted, will apply retrospectively from 16 November 2012. The changes aim, among other things, to rectify what the Government considers to be perceived weaknesses in the “tax benefit” concept, which have reduced the effectiveness of the law in countering tax avoidance arrangements. Broadly, the amended law will continue to apply where a taxpayer enters into a scheme with a sole or dominant purpose of obtaining a tax benefit. However, in considering alternative postulates (ie what the taxpayers might otherwise have done), tax costs will be disregarded under the amended law. Consequently, it will be necessary to compare the scheme entered into with other ways of achieving the same commercial outcome, regardless of the tax cost. Eliminating the defence that the taxpayer would otherwise have done nothing will broaden the potential application of the rules significantly.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 33 view edition↓No splitting of rental income for coupleThe Administrative Appeals Tribunal (AAT) has refused a husband’s argument that he could split his rental income with his (now estranged) wife even though the commercial property was registered under his name only. The taxpayer had lodged tax returns on the basis that the property was shared equally between him and his wife. However, the Commissioner formed the view that as the property was in the husband’s name only, the rental income from that property belonged to him alone. The husband claimed that the property was an asset of a “tax law partnership” between him and his wife. He also argued that the property was a “joint marital asset” held by them on a 50/50 basis, that the property was purchased from joint marital funds, and that both he and his wife each applied the income from the property for their own use. However, the AAT was not satisfied with the evidence presented before it. It noted the absence of the wife from giving evidence, as well as a lack of written documentation, to prove there was a partnership. The AAT found that there was no evidence to show that the property was “jointly owned” or that the couple was in receipt of income jointly.
↓Winery losses cannot offset other incomeA taxpayer has been unsuccessful before the AAT in seeking a discretion under the tax law to allow her to offset losses from a winery business against her other income. The taxpayer had sought for the discretion to cover the income years ending 30 June 2010 to 30 June 2018. She argued, among other things, that it was acceptable commercial practice in the winery business to stagger the plantation of vines over such a period. However, the AAT sided with the Commissioner and held that the vines could be planted and become productive within five years. It therefore held that the taxpayer was unable to satisfy the relevant test for the discretion. Under the tax law, an individual conducting a business (either alone or in a partnership) may offset losses from the business against income from other sources, such as wages, but only if certain tests are met. If the individual does not meet any of the tests, the individual may seek the Tax Commissioner’s discretion to allow him or her to claim the loss. Note that there are exceptions for primary producers and artists under the rules. Please contact our office if you have any questions.
↓Property developers denied GST margin schemeThe AAT has affirmed GST assessments levied at two property developers associated with the sale of real property between 2008 and 2009. The taxpayers had purchased property, which was eventually subdivided and on-sold. The taxpayers said they “never had an intention of not including GST in returns or defrauding the Commissioner” and that “they wanted their returns to be correct”. However, the AAT affirmed the Commissioner’s assessments. It also decided that the margin scheme could not apply in the circumstances as there was no agreement in writing between the vendor and purchaser that the margin scheme was to apply to the property transaction. The use of the margin scheme can provide a lower GST cost to the supplier than would normally be the case under the general GST rules. However, in addition to meeting various eligibility requirements, there must be an agreement in writing between the supplier and recipient that the margin scheme is to apply. Please contact our office for further information.
↓Superannuation top-up brings on 93% taxThe AAT has affirmed an individual’s excess superannuation contributions tax liability. On 27 June 2008, the individual’s employer made a “top-up” superannuation contribution to a clearing account. However, the funds were not allocated to the individual’s superannuation account until 23 July 2008. The AAT considered that the payment could not be said to have been “made” in the 2008 income year. This resulted in a $69,665 excess superannuation contributions tax liability for the individual, representing an effective tax rate of 93%! The AAT also decided that there were no “special circumstances” in this case to warrant the Commissioner’s discretion under the tax law to reallocate the amount to the 2008 year. The AAT said that the imposition of a tax under the tax laws – even a large tax such as the effective 93% tax rate in this case – is not in itself “special circumstances”. There must be some “special circumstances” that exist beyond that in order to warrant the Commissioner’s discretion. This case highlights the importance of managing the timing of all concessional contributions against an individual’s contribution caps for each financial year. As if this was not challenging enough, the concessional contributions cap has been frozen at $25,000 for 2012–2013 and 2013–2014, regardless of age. This unfortunately sets a trap for the unwary that could generate unexpected tax liabilities if contributions intended for June in a particular financial year are not “received” by the fund until July in the following financial year.
↓GST and residential premisesThe ATO has issued a suite of rulings on:
↓In-house fringe benefits – rule changes on the wayThe Government has recently said that the existing fringe benefits tax (FBT) concessions in the law were not intended to allow employees to purchase goods and services (usually sold by the employer to the public) from their pre-tax income through salary packaging arrangements. According to the Government, these employees are receiving tax-free, non-cash remuneration benefits for goods and services, while other employees who do not have access to such salary packaging arrangements must pay for the goods and services from their after-tax income. The Government has introduced a Bill into Parliament in order to deal with this issue. It proposes to remove the concessional treatment for such “in-house fringe benefits” accessed by way of a salary packaging arrangement. If implemented, the changes will apply to all salary-sacrifice arrangements entered into on or after 22 October 2012. For pre-existing arrangements, the new measures will not apply until 1 April 2014 – but the renewal of, or changes to, an arrangement will trigger the new provisions. This proposed change means that employees will lose their ability to pay for in-house benefits with pre-tax salary without their employer incurring FBT. However, it is essential to note that the concessional treatment of in-house benefits will be retained where the benefits are not provided via salary sacrifice. If you have any questions, please contact our office.
↓Goods taken from private stockThe ATO has updated the amounts the Commissioner will accept for 2012–2013 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries. For example, for a restaurant/cafe (licensed), the Commissioner will accept $4,350 (excluding GST) for each adult or child over 16 years of age. Note that the ATO intends to adjust the values annually.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 32 view edition↓Tasmanian bushfires – lodgment and payment deferralFor victims affected by the Tasmanian bushfires of January 2013, the ATO announced that it will make arrangements to defer lodgment and payment of certain monthly and quarterly activity statements. The arrangements are automatic, which means taxpayers who reside in certain identified postcodes will not have to apply for a deferral. Taxpayers who are located outside of the identified postcodes and who have been affected by a natural disaster are encouraged to contact the ATO for further assistance. The TasmanianState Revenue Office has also announced an extension of the time to pay land tax bills for persons affected by the bushfires.
↓SMSF investment in property requires careThe ATO has warned trustees of self managed superannuation funds (SMSFs) to exercise care in ensuring that arrangements entered into to invest in property are properly implemented, particularly those involving limited recourse loans. The ATO is concerned about arrangements that do not comply with the superannuation law. It warned that such arrangements may not be simple to rectify. Further, it added that unwinding an arrangement may involve a force sale of the asset, which could cause a substantial loss to the fund. Given the complexity involved, a trustee should obtain detailed advice in relation to a borrowing arrangement. It is vital to plan ahead to mitigate any adverse tax or stamp duty consequences. Please contact our office for further information.
↓ATO data-matching programsThe ATO has announced data-matching programs to identify instances where taxpayers may not be meeting their tax obligations. The ATO says it will collect data from various banks and credit card companies relating to credit and debit cards sales of entities for the period 1 July 2011 to 30 June 2012. This will assist in identifying circumstances requiring ATO administrative action. Records relating to approximately 900,000 merchants will be matched. The ATO says it will also collect from state revenue offices and other government agencies the names and addresses of individuals and entities transacting with real property in order to identify non-compliance with the tax law. Records relating to over 10 million individuals will be matched.
↓Deductions for rental properties allowedIn a recent decision, the Administrative Appeals Tribunal (AAT) allowed a taxpayer’s claim for rental deductions in respect of two properties for the 2008 income year. The taxpayer owned the properties with her two sons as joint tenants and for part of the year, the properties were rented to her ex-husband and one of her sons. The taxpayer, in her 2008 tax return, declared a 50 per cent share of the rental income. She also claimed a 50 per cent share of the rental deductions. The Tax Commissioner argued the tenancies were not commercial and therefore the deductions claimed were not allowable. However, the AAT found that there was no evidence that the taxpayer was assisting her ex-husband or her son. Further, the AAT noted the rent charged by the taxpayer did not differ greatly from the figures presented by the Commissioner. In conclusion, the AAT held the rental income was assessable and the expenses incurred were deductible.
↓Foreign income assessableThe AAT has found that a taxpayer was a resident of Australia and therefore affirmed the Tax Commissioner’s decision to assess the taxpayer’s foreign income earned for the 2006 to 2008 income years. The taxpayer migrated to Australia in 2005 with his family on a business migration permanent visa. He worked as a pilot, which required him to be away from Australia for extended periods of time. The taxpayer argued that he was a foreign resident and should not be taxed on the income. However, the AAT said this was a case where the taxpayer was “clearly an Australian resident for tax purposes”. Among other things, the AAT took into account the taxpayer’s desire to live in Australia as stated in his permanent resident visa application, that his family lived in Australia and that he stayed in hotels when working overseas. The AAT also noted that the taxpayer held an Australian driver’s licence, retained private health insurance in Australia, had Australian bank accounts and owned an investment property in Australia.
↓Mistaken belief does not revoke excess super tax billA taxpayer has been unsuccessful before the AAT in arguing that her “mistaken belief” as to the timing of a superannuation contribution was a “special circumstance” that warranted reallocating excess superannuation contributions to an earlier financial year. The taxpayer had started salary sacrificing in 2005 to build up her superannuation balance, which was relatively low due to her work patterns being affected by child care responsibilities over her working life. The taxpayer exceeded her $25,000 concessional contributions cap for 2009–2010 by $3,398 and was issued with an excess contributions tax assessment of $1,070.The issue in dispute centred around an employer contribution that was made on 3 July 2009, but which was attributed to the 2009–2010 financial year. The taxpayer was under the mistaken belief that an employer contribution made before 28 July would be treated as a concessional contribution for June 2009 and therefore allocated to the 2008–2009 year. The taxpayer argued that the timing of the contribution was beyond her control. She also claimed that the superannuation law could not have been intended to adversely affect women in her situation who have had child caring responsibilities. Although the AAT was sympathetic, it nevertheless upheld the Tax Commissioner’s decision not to reallocate the contribution because it found that the taxpayer’s “mistaken belief” as to the timing of concessional contributions did not, in its view, constitute the “special circumstances” that are required under the superannuation law in order to reallocate a contribution. This case highlights the need for individuals to know when their super contributions are being paid into their super fund by their employer. Individuals should also consider checking their salary sacrifice arrangements to see if there is an agreement as to when salary sacrifice amounts will be transferred by their employer to their super fund. Please contact our office if you have any questions.
↓Taxman’s new power to address super law contraventionsThe Government has proposed to establish what it calls a fairer administrative penalty regime for trustees of SMSFs for certain contraventions of the superannuation law. Administrative penalties would range from $850 to $10,200. Broadly, the new regime will give the Tax Commissioner another way to encourage recalcitrant SMSF trustees to remedy defects quickly, rather than rely purely on existing heavy-handed enforcement powers. The changes also propose to give the Tax Commissioner a new power to issue SMSF trustees with “rectification directions” and “education directions” for superannuation law contraventions. A rectification direction may require the person to take a specified action to “rectify” the contravention and to provide the ATO with evidence of the person’s compliance with the direction. An education direction may require a person to undertake a specified approved course of education within a specified time frame and to provide the ATO with evidence of completion of the course. If implemented, the new regime will apply from 1 July 2013.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 31 view edition↓Mini-budget tightens fringe benefits, health rebates and moreThe Government’s mid-year budget update was handed down in late October 2012. The Treasurer revised down the expected Budget underlying cash surplus to $1.1 billion for 2012–2013 – down from $1.5 billion estimated in the May 2012 Budget. The Government did not announce anticipated changes to claw-back superannuation tax concessions (much to the relief of many superannuation investors). However, the update did contain a host of small, but not insignificant, tax proposals. In the mini-budget update the Government announced the removal of the concessional treatment for in-house fringe benefits that are accessed through a salary sacrifice arrangement. The proposal will apply from 22 October 2012 to salary sacrifice arrangements entered into on or after 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into prior to 22 October 2012. Changes to the Private Health Insurance Rebate were also announced. From April 2014, the premium to which the rebate is applied will move in line with the CPI or commercial premium increase, whichever is lower. The Government is also widening the circumstances for which monies in “lost” or “inactive” superannuation accounts are to be transferred to the ATO. However, the Government said that from 1 July 2013, interest at a rate equivalent to CPI inflation will be paid on lost superannuation monies reclaimed from the ATO. These proposals, including many others, are subject to the formal enactment of legislation. Please contact our office for further information.
↓ATO to data-match motor vehicle purchasesThe ATO is collecting details of individuals and businesses who have purchased or acquired a vehicle with a transaction value of $10,000 or greater in the 2011–2012 or 2012–2013 financial years. The information will be collected from state and territory motor vehicle registries and matched electronically with the ATO’s records. The ATO is seeking to address potential non-compliance in the following areas:
↓AUSTRAC shares information with the ATOAUSTRAC has recently highlighted the growing role of financial intelligence in tackling crime, including tax evasion. In 2011–2012, AUSTRAC reported that information sharing with the ATO assisted with over 3,500 cases that resulted in $252 million in additional tax assessments being raised. The year before, AUSTRAC reported that its information directly contributed to some 1,600 ATO investigations, leading to tax assessments of around $241 million.
↓Honest mistake in not documenting private company loansA taxpayer has been, in most part, successful before the Administrative Appeals Tribunal (AAT) in relation to a matter concerning loans from a private company. These loans were made to him, over various years, as a shareholder and director of the private company. The ATO had treated the loans, which were made in the 2005, 2006 and 2007 income years, as assessable dividends. The AAT sided with the ATO in relation to the 2005 loans. However, the AAT decided differently in respect of the 2006 and 2007 loans. It found that a discretion under the tax law should be exercised to disregard the deemed dividends because it found that there was an “honest mistake” in failing to properly document the loans. The Tax Commissioner has the ability to disregard a deemed dividend, or allow it to be franked, if certain conditions are met. Generally, a taxpayer must apply to the Commissioner to ask for the discretion to be exercised, and must be able to demonstrate that the failure to meet the requirements of the law was due to an honest mistake or an inadvertent omission. In making his decision, the Commissioner must have regard to various factors specified in the law. Please contact our office if you have any questions.
↓Depreciation deduction allowed for certain equipmentA recent case before the AAT has highlighted the need for businesses to maintain appropriate records of plant and equipment used in business. The taxpayer, who was a partner of a box manufacturing business, was partially successful before the AAT in relation to claims for depreciation for certain items of plant and equipment used in the business. The AAT found that there was sufficient evidence that some items of plant and equipment were used in the business for the purpose of deriving assessable income. However, the AAT found it was not possible to allow the depreciation claimed for a number of other items. A key problem noted by the AAT “was the fact that the partnership did not keep basic business records”. The depreciation rules for small businesses have recently been amended. The changes only apply to small businesses (including connected or affiliated businesses) that have an aggregated turnover of less than $2 million. Businesses must keep appropriate records. From the 2012–2013 income year:
↓Special circumstances found to set aside excess contributions taxA taxpayer has successfully argued before the AAT that there were special circumstances in his situation to allow for the exercise of the Commissioner’s discretion under the law to reallocate superannuation contributions. Accordingly, monies paid into his superannuation account in late July 2009 could be attributed to the 2008–2009 financial year, and this meant that the taxpayer would not exceed the (then) $50,000 contributions cap. The taxpayer had a salary sacrifice arrangement with his employer, whereby funds were paid on his behalf to his super fund. The taxpayer had the intention of contributing super each month and staying below the relevant cap. However, the AAT heard that the disputed payments occurred because salary sacrifice amounts for the months of April, May and June 2009 were not transferred by the taxpayer’s employer to the fund until July 2009. The taxpayer claimed that he had been unaware of the delay because he believed the sums were transferred to the fund, based on his monthly payslips. The AAT found that, in this case, there were “special circumstances” that allowed the reallocation of the monies to the previous year. This case highlights the need for individuals to check their payslips for their super contributions (especially year-to-date amounts) and know when their super contributions are being paid into their super fund by their employer. Individuals should also consider reviewing their salary sacrifice arrangements to check whether there is an agreement as to when salary sacrifice amounts will be transferred by the employer to the individual’s super fund. Please contact our office if you have any questions.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 30 view edition↓ATO benchmarking can be improved: reportThe Inspector-General of Taxation’s report into the ATO’s use of performance benchmarks to target small businesses who may not be reporting all their income has been released by the Government and it says that improvements can be made. The report was sparked by concerns raised by tax practitioners and their clients concerning the ATO’s use of the benchmarks. The ATO uses the benchmarks to compare the performance of businesses with similar businesses in the same industry. One purpose of the benchmarking is to help identify potential cases for audits, with a particular focus on unreported cash transactions. The report made 11 recommendations for the ATO to improve its use of the benchmarks, which the ATO has largely accepted. According to the Government, the recommendations should improve the ATO’s risk identification and audit selection processes to further exclude compliant businesses from audits, thereby minimising unnecessary compliance costs in relation to the cash economy and GST obligations. TIP: Reporting more net income than industry peers could be a sign that a business might have forgotten to claim a business deduction. However, reporting significantly lower income than industry peers would attract ATO attention.
↓Living-away-from-home concessions: new lawsThe Government has made a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. The changes started on 1 October 2012, although there are grandfathering provisions to preserve tax concessions for a limited time for some arrangements that were in place prior to Budget night (8 May 2012). TIP: The changes raise significant issues for affected employers and employees. If you have any questions, please contact our office.
↓Contractual promises can have GST implicationsA recent High Court case has highlighted a need to take a closer look at contracts for the provision of services or goods. The majority of the High Court recently allowed the Tax Commissioner’s appeal in relation to a case concerning whether an airline, Qantas, was liable for GST on purchased airfares where the passenger does not turn up for the flight. Qantas had argued that no GST was payable on unused fares and that the GST that had been paid should be refunded by the Commissioner. The majority held that Qantas was liable for GST and that the taxable supply for which the consideration, being the fare, was received was something less than the actual air travel – namely, Qantas’ contractual promise to use “best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline”.
↓Contractor payments undergo ATO data-matchingThe ATO has recently released details of a data-matching program focusing on contractor payments. Under the program, the ATO intends to collect information in relation to payments made to contractors for the 2009–2010 to the 2011–2012 income years by businesses audited by the ATO’s employer obligations area. The program will also cover this financial year. According to the ATO, records relating to around 75,000 individuals and entities who have received contract payments from the employers or businesses will be matched. TIP: The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
↓Property developers and GST under ATO spotlightThe ATO has advised that it intends to increase its focus this financial year on property developers who have a history of non-compliance with GST obligations. The ATO has observed that some developers have claimed input tax credits throughout the life of a development, but then avoided paying the GST when they sell. The ATO says it has adopted a new approach of identifying and engaging with these developers prior to the sale of a development.
↓ATO warning on dodgy offshore emission unit schemesThe ATO has issued a warning for individuals to be aware of arrangements that promote deductions for the purchase of offshore “emission units” that do not exist at the time of the arrangement. “These arrangements, entered into with an offshore entity which may be incorporated in a tax haven, claim to allow participants to deduct the entire purchase price of the offshore ‘emission units’, while making only a small initial payment,” the Commissioner of Taxation Michael D’Ascenzo said. The ATO warns these arrangements may not be legitimate and that those involved could face a large tax bill, substantial penalties or even prosecution.
↓Excess super contributions: once-only refund offerThe ATO has started offering refunds to some individuals who have exceeded their annual superannuation concessional contributions cap. From the 2011–2012 year, there is a once-only opportunity to have excess concessional contributions refunded. The offer will only be made once. If individuals decide to accept the offer, they will pay marginal tax rates on the amount above the cap, instead of paying excess contributions tax. An individual’s choice as to whether to accept the one time only offer, or not, is a final decision and cannot be revoked. Once a taxpayer has received an offer, regardless of whether or not they accept it, they will not be eligible for an offer in future years. The ATO says the offers will be sent directly to the taxpayer’s postal address. Election to accept the offer must be returned to the ATO within 28 days of the issue date of the offer. TIP: The refund offer provides some relief, but is not without conditions and limitations. Please contact our office for further information.
↓Goods taken from stock for private useThe ATO has determined for the 2011–2012 year the amounts the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by businesses in certain specified industries. The amounts (which exclude GST) are...
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 29 view editionEdition 28 view edition↓New company loss carry-back regimeThe Government intends to introduce a company loss carry-back regime and has released draft legislation for public consultation. Under the proposal, which will have effect from 1 July 2012, companies will be able to carry back up to $1 million worth of losses to obtain a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier. The regime is proposed to be available only to “corporate tax entities” as currently defined under the tax law. The Government has said that restricting loss carry-back to those companies that have recently paid tax would target the measure to companies that have had a history of being profitable, and would improve companies' cash flow by allowing access to losses in a more timely manner.
↓ATO focus on small businesses and wealthy individualsThe ATO has launched a public online resource that spells out its tax compliance approach to small businesses and wealthy individuals. The new resource is available on the ATO website at www.ato.gov.au/smecompliance. This online resource contains information on how the ATO conducts itself in compliance activities and the tax risks that may attract its attention. It also explains that the ATO can, through powerful data-mining techniques, obtain an indicative view of a “private group” of entities that is under the control of an individual and their associates. Key tax risks that may attract ATO attention include:
The ATO’s main tool for detecting non-compliance is matching information reported to it by taxpayers and third parties, such as financial institutions both in Australia and overseas. The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
↓Bakery finds itself on the wrong side of ATO benchmarksIn a recent decision, the Administrative Appeals Tribunal (AAT) affirmed an amended assessment issued to a bakery business for undeclared income and incorrectly calculated GST. Among the factors considered by the AAT was the fact that the taxpayer’s costs were 58% of reported sales income, which was considerably higher than the 32% to 40% range identified by the Commissioner of Taxation as the benchmark for costs in bakeries and hot bread shops. The ATO publishes small business performance benchmarks that it uses to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. There are benchmarks for over 900,000 small businesses in over 100 industries. The ATO says approximately 90% of businesses in benchmarked industries fall within a benchmark range. This means around 800,000 businesses are likely to be competing on a level playing field with their peers. Reporting greater net income than industry peers could be a sign that a business has forgotten to claim a relevant business deduction. However, reporting significantly lower income than industry peers would attract ATO attention.
↓Worked overseas, but still an Australian resident, says TribunalThe AAT has recently heard two cases relating to whether the individual taxpayers involved, men who worked in the oil and gas industry in the Middle East, were Australian residents for tax purposes. In both cases, the AAT affirmed that they were Australian residents, and foreign sourced income derived by the men was therefore included as assessable income for Australian tax purposes. The men had argued that they were not Australian residents during the 2009 income year. Taxpayers classified as residents of Australia pay Australian tax on their worldwide income, whether derived in or outside of Australia, subject to certain exceptions. In respect of foreign sourced income, a resident pays tax in Australia on that income but receives a foreign income tax offset for any overseas tax they are personally liable to pay on that foreign income. Foreign sourced income derived by Australian residents remains a key ATO compliance focus area. The ATO increasingly obtains information from financial institutions and other organisations, both in Australia and overseas, that may identify employment-related income.
↓Superannuation: excess contributions tax assessment set asideA taxpayer has been successful in convincing the AAT that there were “special circumstances” that warranted the setting aside of his excess contributions tax assessment. As a result, the AAT ordered that superannuation contributions paid by the taxpayer’s employer in early July 2009 be reallocated to the previous financial year. The AAT was satisfied that there were “special circumstances” in this case. Among various factors noted by the AAT was an agreement between the taxpayer and his employer, requiring the employer to cease making contributions to a particular fund from 1 July 2009. The AAT was of the view that payments made by the employer into that fund in July 2009 were in fact intended for the 2008–2009 financial year. The Commissioner may only exercise his discretion to reallocate or disregard excess contributions if “special circumstances” exist and the making of such a determination is consistent with the objective of the superannuation regime, ie that individuals build their superannuation gradually over their lifetimes. The Government has recently amended the law to allow a limited, once-only refund option for excess concessional contributions of up to $10,000. The new refund option is only available for excess concessional contributions in respect of the 2011–2012 or later years, and only for the first year. The refund option provides some relief, but is not without conditions and limitations.
↓Goods taken from stock for private useThe ATO has updated the amounts that the Commissioner will accept for 2011–2012 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries. For example, for a restaurant/cafe (licensed) the Commissioner will accept $4,300 (excluding GST) for each adult or child over 16 years of age. Note that the ATO intends to adjust these values annually.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 27 view edition↓Company tax rate cut comes with compromisesThe Government’s Business Tax Working Group has recently released a discussion paper highlighting a number of possible ways in which a company tax rate cut could be funded from within the business tax system. According to the Working Group, a comprehensive tax base that contains minimal special exemptions and deductions for certain investments can result in a more productive mix of different investment options and a broader tax base that will generate greater revenue to fund a lower company tax rate. Public consultation closes on 21 September 2012.
↓ATO compliance activitiesThe ATO has highlighted a number of areas that it will focus on in its compliance activities this year. This includes:
TIP: The ATO’s main tool for detecting non-compliance is matching information reported to it by taxpayers and third parties, such as financial institutions both in Australia and overseas. The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
↓ATO small business benchmarksThe ATO has been publishing small business benchmarks since 2009 as part of its strategy to help small businesses to compare their performances against similar businesses. The benchmarks are also used by the ATO to identify taxpayers who may be under-declaring income. The Commissioner of Taxation, Michael D’Ascenzo, recently said that approximately 90% of small businesses in benchmarked industries fall within a benchmark ratio. However, he said around 76,000 businesses have reported income that is significantly below those benchmarks. To address this issue, Mr D’Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010–2011. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO. TIP: According to the ATO, the benchmarks may also prompt taxpayers to consider whether they have forgotten to claim any relevant deductions if they report significantly more net income than their industry peers. Please contact our office if you have further questions. TIP: There are currently benchmarks covering over 100 industries including: accommodation and food services; building and construction trade services; education, training, recreation and support services; health care and personal services; manufacturing; professional, scientific and technical services; retail trade; and transport, postal and warehousing.
↓ATO alert on “dividend access share arrangements”The ATO has warned taxpayers about arrangements where accumulated profits of a private company are distributed substantially tax-free to an entity associated with the ordinary shareholders of the private company. The ATO says the dividends are generally distributed on a new class of shares that the private company has created and issued to the associated entity for nominal consideration. In addition, it says the dividends will often be fully franked such that the associated entity will bear little or no additional income tax. The Commissioner said the ATO is concerned the arrangements are set up with the dominant purpose of avoiding tax. “While some arrangements may be claimed to be done for commercial and other non-tax purposes, we will be closely examining whether the way these arrangements have been set up would show a tax avoidance purpose,” said Mr D’Ascenzo.
↓Taxpayer fails to prove bank deposits were loansThe Commissioner has been successful before the Federal Court in overturning an earlier decision that had held that around $4.7 million deposited into a taxpayer’s bank account from an overseas bank were loans and that payments made in respect of the loans were deductible interest. The taxpayer’s financial statements for the 1997 to 2008 income years recorded a loan liability to an overseas bank and substantial related interest expenses. The Commissioner argued that the asserted loan liability related to funds that the taxpayer received as assessable, and that none of the asserted interest payments were deductible. In allowing the Commissioner’s appeal, the Federal Court held that the Administrative Appeals Tribunal (AAT) had made an error in finding that the taxpayer had discharged the onus of proving that the amounts were not income. The taxpayer is seeking to appeal to the Full Federal Court against the decision.
↓Amended assessment issued four years later was within timeIn a recent decision, the AAT found a taxpayer was at all relevant times a beneficiary of a trust estate and that an amended assessment issued in April 2010 for the 2005 tax year was issued within time – that is, the Commissioner was allowed, in this instance, up to four years to issue an amended assessment. The amended assessment included an additional amount of $2.1 million. The taxpayer lodged his 2005 tax return in April 2006, disclosing nil distributions from a family trust. He argued that as he had received no distributions in relation to the 2005 tax year, he was not a beneficiary of the trust estate at any time in that year and that the Commissioner therefore only had the standard two years to issue an amended assessment. However, the AAT disagreed and found that the amended assessment made within four years was within time.
↓Illegal early super release promoters to face penaltiesThe Government has announced that it will introduce penalties to deter promoters of illegal early release superannuation schemes. These schemes usually involve a promoter offering to assist individuals to gain early access to their super before they retire. The Minister of Superannuation, Bill Shorten, said promoters of such schemes have in the past targeted vulnerable people, including those from non-English speaking backgrounds. He said promoters have taken fees of up to 50% of the members’ superannuation balances. Mr Shorten said legislation to give effect to this measure is being progressed and will commence on formal enactment. TIP: Early release of super is not always illegal. There are very limited circumstances in which members can legally access their super savings early, such as on compassionate grounds or where members experience severe financial hardship. There are very strict conditions to be met, and they include some restrictions.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 26 view edition↓ATO data-matching programsThe ATO has revealed details of two new data-matching programs aimed at identifying tax non-compliance. These will affect individual taxpayers. The ATO has advised that it will collect share transaction details from various organisations relating to securities held in ASX-listed entities. The details will be electronically matched with ATO data holdings. Areas of concern for the ATO include incorrect compliance with capital gains tax, income tax and GST obligations. The ATO said around 1.2 million individuals will be affected by the program. The ATO has also advised that it will request from Centrelink details of individuals who were eligible for Family Tax Benefit Part B for the 2010 to 2013 income years and/or received parental leave pay for the 2010 to 2013 income years. The details will be electronically matched with ATO data holdings to identify incorrect claims for the dependent spouse tax offset. According to the ATO, some 1.3 million individuals will be affected.
↓Living-away-from-home tax law changes on the wayThe Government has introduced into Parliament proposed changes to the tax treatment of living-away-from-home (LAFH) allowances and benefits. The Government said it is reforming the tax concession “by better targeting it at people who are legitimately living away from their actual home in Australia (which they continue to maintain) for an initial period”. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. The proposed changes are set to take effect on 1 October 2012 (not 1 July 2012, as originally proposed). However, there will be grandfathering provisions to preserve tax concessions for some arrangements that were in place prior to Budget night (8 May 2012). TIP: As a result of these developments, it will be critical for employers and employees to identify, before the enactment of the legislation, if and how the changes might apply.
↓Trust beneficiaries: amended assessments were excessiveTwo beneficiaries of a family trust, a father and son, have been successful before the Administrative Appeals Tribunal (AAT) in arguing that amended assessments issued to them were excessive. The family trust owned all the units in a unit trust that operated a fuel distribution business. The Commissioner issued the amended assessments for the 2004 and 2005 income years to increase the taxpayers’ tax liability following the disallowance of a large deduction for payments made by the unit trust to an employee entitlement fund. Before the AAT, the taxpayers effectively argued that the assessments were excessive because the taxpayers, as beneficiaries, were not presently entitled to the income from the family trust in the years in question (except to the extent that they might be entitled as two of the 46 default beneficiaries of the trust). The AAT found in the taxpayers’ favour. TIP: Some commentators have noted that this case highlights the need for trustees to consider documenting distribution minutes by 30 June. The issues in the case are complex. If you have any questions, please contact our office.
↓SMSF notice of non-compliance set asideThe husband and wife trustees of a self managed superannuation fund (SMSF) have had a “notice of non-compliance” that was issued by the Commissioner of Taxation set aside by the AAT. This was despite regulatory breaches involving loans to a related-party company. Between the years 2004 to 2007, the SMSF loaned money to a property development company of which the trustees were the directors. The loans were partially repaid. The trustees provided an undertaking to the Commissioner that the loans would be repaid by September 2009. However, the loans were not repaid by that time because the taxpayers did not want to sell the properties in a fire sale during the global financial crisis. The Commissioner issued a “notice of non-compliance”, making the fund non-complying and removing the concessional tax treatment enjoyed by complying funds. While the AAT found that the contraventions of the superannuation rules were “serious”, it set aside the notice of non-compliance. It noted, among other things, the fact that the loans were eventually paid (albeit late), the poor health of one of the trustees and the significant tax consequences that would affect the trustees given their age (who were aged 65).
↓Excess super contributions: Commissioner’s discretion refusedIn a number of recent decisions, the AAT has affirmed the Commissioner’s refusal to reallocate excess superannuation contributions received by superannuation funds to an earlier financial year, and has therefore affirmed the excess contributions tax assessments made in those cases. In one decision, the AAT found that the taxpayer had tried to stay under the relevant contribution cap, but had simply “miscalculated” and that the law had been correctly applied by the Commissioner. In two other cases, the AAT held that contributions that were made by way of electronic funds transfer and BPAY just before (or on) 30 June, but that were received by the relevant fund on 1 July (ie in the next financial year), were not situations that amounted to “special circumstances” that would warrant the Commissioner’s discretion to reallocate the excess contributions to another financial year. However, in one recent decision, the taxpayer was successful in convincing the AAT that there were “special circumstances” to warrant the Commissioner’s discretion. Among other things, the AAT found that the taxpayer had missed the relevant deadline for contributions for the relevant year as a result of “misunderstanding” the rules. TIP: The above cases mainly involve contributions for the 2008–2009 financial year (and earlier). The Government has recently amended the law to allow a limited, once-only refund option for excess concessional contributions of up to $10,000. The new refund option is only available for excess concessional contributions in respect of the 2011–2012 or later years, and only for the first year. The refund option provides some relief, but is not without conditions and limitations.
↓Division 7A benchmark interest rateThe ATO has advised that, for the income year that commenced on 1 July 2012, the benchmark interest rate to be used in calculating the interest component on the repayment of a private company loan received by a shareholder (or the associate of a shareholder) is 7.05%.
↓Reasonable travel and meal allowance amountsThe ATO has announced the amounts the Commissioner considers are “reasonable” for the 2012–2013 income year in relation to claims made for:
↓Car depreciation limit and luxury car tax thresholdThe ATO has released the following limits and thresholds for the 2012–2013 income year:
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 25 view edition↓ATO targets disclosure of foreign sources of incomeFollowing recent compliance activities that have been conducted, the ATO says many Australian resident taxpayers may not be aware of their Australian taxation obligations in relation to their worldwide income. The ATO has reminded taxpayers to correctly report foreign sources of income when required. Examples of foreign sources of income can include:
The ATO has announced that for taxpayers who make full voluntary disclosure of their foreign source income, any applicable penalties may be reduced by 80%.
↓Investment loan interest payment arrangementsThe ATO has released a Taxation Determination that provides the Commissioner’s views in respect of certain “investment loan interest payment arrangements”. According to the Commissioner, the general anti-avoidance provisions in the tax law can apply to deny a deduction for some, or all, of the interest expenses incurred in respect of these arrangements. The type of arrangements discussed in the Determination broadly involve outstanding loans on a residential home, an investment property and a line of credit. The ATO says a key feature of these arrangements is the use of the line of credit to pay the interest on the investment loan. This results in all (or most) of the interest on the investment loan being, in effect, capitalised. That is, the payment of the investment loan interest is deferred. According to the ATO, the deferral has the economic effect of allowing the taxpayer to repay the home loan at a faster rate than would otherwise be possible.
↓ATO reporting requirements for builders and contractorsThe Government has introduced regulations that require certain businesses in the building and construction industry to report annually to the ATO details of payments made to contractors in the industry. The new requirements essentially mean that purchasers must report certain transactions for which they have been issued an invoice. The reporting requirements will commence on 1 July 2012.
↓Deduction for property expenses deniedIn a recent decision, the Administrative Appeals Tribunal (AAT) denied a taxpayer’s claim for a deduction for various expenses incurred in buying, renovating and selling properties. Among various issues, the AAT noted that the taxpayer was unable to produce documentary evidence in relation to stamp duty, legal expenses, renovations, wages and director fees, interest and legal expenses. All documents supporting deductions must be kept for five years from the due date or actual date of lodgment of the return for the year to which the expense relates, whichever is the later. If an objection, a review or appeal arising from an objection, or a request for an amendment of an assessment, is outstanding when the five-year period ends, records must be kept until the matter is resolved.
↓Pitfalls of “late” super paymentA taxpayer has been unsuccessful before the AAT in arguing that the Commissioner should exercise his discretion and reallocate excess super contributions to a previous financial year. The taxpayer had used an electronic funds transfer on 30 June 2007 to transfer the funds, but they were not credited to the super fund’s account by the bank until 2 July 2007, thereby pushing the transfer into the next financial year. The excess concessional contributions for the 2008 financial year amounted to almost $54,000 and the Commissioner imposed excess contributions tax of around $17,000. In rejecting the taxpayer’s arguments, the AAT noted the Commissioner’s practice to deem contributions as having been made “when the funds are credited to the superannuation provider’s account”. The AAT also disagreed that there were “special circumstances” that would allow the Commissioner to exercise his discretion. It noted that the taxpayer was in the same situation as every other taxpayer and that it was incumbent upon the taxpayer to ensure that the electronic funds transfer was effective and completed at the right time. Amounts contributed and counted in the “wrong” financial year, causing an investor to exceed the relevant superannuation contributions cap, could lead to an excess contributions tax bill. Investors should consider planning any extra contributions early and should not leave transfers to the “last minute”. Note that this year, 30 June 2012 falls on a Saturday. The Commissioner may only exercise his discretion to reallocate or disregard excess contributions if “special circumstances” exist and the making of a determination is consistent with the object of the superannuation law. Please contact our office for more information.
↓Doctor found to be a share traderIn a recent decision, the AAT held that a medical doctor was engaged in a share trading business not only in relation to listed shares she acquired, but also in relation to units she acquired in a listed aged care property trust that she had purchased from her family trust (albeit, for more than their market value at the time). Moreover, it was these units that generated an unrealised loss of over $1 million and which, as a result, enabled to her to reduce her other taxable income for the year ended 30 June 2009 below nil. In arriving at its decision that the taxpayer was carrying on a share trading business, the AAT took into account the following factors:
If the taxpayer is a share trader, losses may be deductible against other income. If the taxpayer is not carrying on a business of share trading, capital losses can only be applied to reduce capital gains.
↓FBT rates and thresholds for 2012-13The ATO has announced important FBT rates and thresholds for the 2012–13 FBT year (which commenced on 1 April 2012). Some of the key rates and thresholds include:
↓Car expenses – rates per km for 2011–12The Government has announced the “cents per kilometre” rates for calculating tax deductions for car expenses for the 2011–12 income year. Note that these are unchanged from 2010–11 and are as follows:
↓Private health insurance rebate changes loomingIncome testing of the 30% private health insurance rebate starts on 1 July 2012. Essentially, singles earning over $84,000 per annum and families earning over $168,000 per annum will receive a reduced rebate that is less than the current 30% rebate. The ATO says that it will calculate a taxpayer’s private health insurance rebate entitlement after they have lodged their income tax return for the 2012–2013 year. If a taxpayer has claimed too much of the rebate, the ATO says it will “recover the amount” as a tax liability by adding the amount to the tax bill. However, if the full entitlement was not claimed, the ATO says it will credit the amount to the taxpayer as a refundable tax offset. You may want to carefully consider your personal circumstances in response to the changes. Please contact our office if you have any questions.
↓CGT small business concessions deniedA recent case before the Administrative Appeals Tribunal (AAT) has demonstrated the need for great care when structuring arrangements to ensure a taxpayer’s eligibility for the small business capital gains tax (CGT) concessions. The Tribunal held that the taxpayer had not passed the “maximum net asset value” test for the purposes of the CGT small business concessions in respect of a capital gain made on selling shares to his family trust. The taxpayer was a director and shareholder of a series of interlocking companies. The issue turned on whether a bank loan to the family trust was a liability that could be taken into account in applying the “maximum net asset value” test. However, the Tribunal held the loan could not be taken into account for various reasons. One of the conditions for accessing the CGT small business concessions is that the taxpayer (other than those who qualify as small business entities) must satisfy the “maximum net asset value” test. To pass this test, the net value of all the CGT assets of taxpayer (including affiliates and connected entities) must not exceed $6 million (previously $5 million). The rules are complex. The AAT decision highlights the importance of careful planning when structuring transactions. Please contact our office if you have any questions.
↓Director penalty regime – take two!The Government has reintroduced legislation into Parliament to extend the director penalty regime. This will, among other things, make directors personally liable for their company’s unpaid superannuation guarantee amounts. The changes also aim to ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation while PAYG withholding or superannuation guarantee remains unpaid and unreported for three months after the due date. The changes also propose a new “PAYG withholding non-compliance tax” that arises when a company has failed to pay amounts withheld to the Commissioner of Taxation. This tax will be levied on directors or associates of directors, provided certain criteria are met. In 2011 the Government withdrew its original legislation from Parliament following calls for more consultation after a Parliamentary committee noted that innocent directors could be caught by the proposed rules.
↓Minors and low income tax offset changesThe Government has introduced legislation to implement its 2011 Budget announcement to bring an end to the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their “unearned income” such as dividends, interest, rent, royalties and other income from property. The changes are designed to discourage income splitting between adults and children, including through the use of trusts. Once formally enacted, the changes will apply to assessments from the 2011–2012 income year onwards. Under the new rules, a trustee who is assessed on the income of a minor will not have access to the LITO in circumstances where the income is considered to be unearned income of that minor.
↓Non-resident tax rate increases on the wayLegislation has been introduced into Parliament to amend the income tax rates for non-residents from 1 July 2012. The changes, pending formal enactment, will essentially increase the non-resident tax rates from the 2012–2013 year onwards. Changes have also been made to the tax rates applicable to non-resident minors. Please contact our office for further details.
↓Commissioner’s new power to withhold refundsLegislation is making its way through Parliament to give the Commissioner of Taxation a new power to withhold “high risk” refunds pending integrity checks of a taxpayer’s claim. The changes are being introduced in response to court proceedings in which the Commissioner was ordered to pay a GST refund to a taxpayer, despite the fact that the outcome of an ATO audit was still pending. The proposed legislation is designed to address this by providing the Commissioner with a new legislative power to retain refunds in such circumstances. It should be noted that the Commissioner’s power will apply to all refunds and claims arising under the tax law – not just GST. Some commentators have warned that the proposed measures are very broad and provide the Commissioner with the widest of discretions to withhold refunds.
↓Living-away-from-home concessions to be tightenedThe Government has proposed a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. Broadly, the following will apply:
In order to obtain a deduction, the proposed new regime will also create requirements for employees to provide written evidence of their expenditure in some circumstances. The proposed changes are set to take effect on 1 July 2012. However, there will be grandfathering provisions to preserve tax concessions for up to two years for some arrangements that were in place prior to Budget night (8 May 2012). The proposed changes are complex and will raise significant issues for affected employers and employees. Following these developments and before the enactment of the legislation, it will be critical to identify how the changes may apply to your circumstances. If you have any questions, please contact our office.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
↓ATO data-matching programsThe ATO has revealed details of two new data-matching programs aimed at identifying tax non-compliance. These will affect individual taxpayers
Edition 24 view edition↓Tax anti-avoidance rules to be tightenedThe Government has announced that it will amend the general anti-avoidance provisions in the tax law. First introduced in 1981, the provisions broadly allow the Commissioner to cancel a tax benefit obtained in connection with a scheme subject to some conditions. According to the Government, the changes will ensure the provisions will continue to be effective in countering tax avoidance schemes that are carried out as part of broader commercial transactions. The announcement was made on 1 March 2012 and the Government proposed that the changes would apply to schemes entered into or carried out after that date. Some commentators have expressed alarm over the Government's announcement, saying the move will only cause greater uncertainty for businesses when considering key transactions and that it is an overreaction to the Commissioner's recent court case losses. In particular, the arguments have centred on the announced retrospective start date of 1 March 2012 with little detail on the proposed changes. The Government said it intends to release draft legislation for public consultation before introducing the amendments in Parliament later this year.
↓Check your small business benchmarks regularlyThe ATO has recently updated its small business benchmarks. It has also added two new activity statement benchmark ratios for non-capital purchases and GST-free sales. The ATO uses the benchmarks to identify businesses that it considers may not be reporting some or all of their income. The ATO can also use the benchmarks to quantify income that it considers not reported. According to the ATO, the benchmarks provide the "most accurate predictor of business turnover for each industry". It recommended that taxpayers review their relevant business benchmarks regularly. The ATO has published benchmarks for a wide range of industries, including:
↓ATO data matching coffee sellers and buildersThe ATO has announced data matching programs targeting coffee sellers and hardware store trade account holders as part of its latest compliance activities to tackle the cash economy. The ATO said it has already obtained data from a number of coffee suppliers and a major warehouse chain and from NSW Fair Trading, Queensland Building Services Authority, and the Government of South Australia, Consumer and Business Services. Under the "coffee suppliers" data matching program, the ATO expects to match records of more than 8,000 individuals to ensure they are reporting all their business income. In relation to the "building industry" program, the ATO says around 20,000 individuals will have purchases cross-checked with reported income. TIP: If you are concerned these data matching programs will affect you, please contact our office.
↓Private health insurance rebate changesA package of Bills to means test the 30% private health insurance rebate has made its way through Parliament. The changes will mean the amount of rebate available will depend on an income test for each financial year for individuals and families. The changes will apply from 1 July 2012 and will introduce three new "Private Health Insurance Incentive Tiers". In conjunction with this, and also from 1 July 2012, the rate of Medicare levy surcharge for individuals and families without private patient hospital cover will increase depending on their level of income. TIP: Individuals and families should be mindful of the 1 July 2012 start date. Further, some health insurance companies have indicated their intention to increase premiums. Please contact our office for more information.
Note: The thresholds increase annually, based on growth in Average Weekly Ordinary Time Earnings (AWOTE). Single parents and couples (including de facto couples) are subject to the family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.
↓Tribunal finds businessman a resident for tax purposesA businessman has been unsuccessful before the Administrative Appeals Tribunal in arguing that he was not a resident of Australia for tax purposes as he had spent most of his time overseas. The businessman was a director of a company incorporated in NSW and he worked for that company as a sales agent on commission, selling Australian residential property to overseas investors mainly in Indonesia. However, the Tribunal noted, among other things, the businessman's family home in Australia and confirmed the tax assessments and penalties issued by the Commissioner of Taxation for the 2002, 2003, 2005 and 2006 income years. The Tribunal concluded the businessman had his home, or "settled place of abode", in Australia and was therefore a resident of Australia for tax purposes. TIP: A taxpayer's country of residence and the source of income are important issues. As a general principle, an Australian resident is subject to tax in Australia on income derived from all (worldwide) sources, whereas a foreign resident is only subject to tax in Australia on income from Australian sources. There are a number of tests under the tax law. If an individual passes any of the tests, the individual will be considered a "resident of Australia" for Australian domestic tax purposes.
↓Super rules breached for investment in related entitiesIn a recent decision, the Administrative Appeals Tribunal affirmed a non-compliance notice issued to a self-managed superannuation fund (SMSF). The Commissioner of Taxation had issued the notice for regulatory breaches in respect of "book entry" loans made via a related party trust. Broadly, the case concerned members of an SMSF who were also directors of the corporate trustee of the fund and other related trusts, including one which operated a family business. The SMSF had invested in a related unit trust which in turn had financial dealings with the family business. The Tribunal confirmed the non-compliance notice after finding there were breaches of the "sole purpose test" and "in-house asset rules" under the superannuation law. TIP: Broadly, the "sole purpose test" seeks to ensure that superannuation money is set aside and only applied to fund members' benefits in retirement, whereas the "in-house asset rules" generally restrict an SMSF from having more than 5% of its total assets invested in "in-house assets". An "in-house asset" can include a loan to, or investment in, a "related party" of the fund. The rules can be complex, so it is important for trustees to carefully consider their investments to avoid falling foul of the rules.
↓Tax planningSimply put, tax planning is the arrangement of a taxpayer’s affairs so as to comply with the tax law at the lowest possible cost. This involves objectively assessing and actively managing tax risk. Common tax planning techniques include deferring the derivation of assessable income and applying techniques to bring forward deductions.
↓Deferring income
↓Maximising deductionsBusiness taxpayers
Non-business taxpayers
↓Capital gains tax
↓Small business entities
↓Companies
↓Trusts
↓Personal services income
↓FBT – car fringe benefits
↓Superannuation
↓Individuals
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 23 view edition↓PERSONAL TAXATIONPersonal Tax Rates – ResidentsThe Government did not make any changes to the currently legislated tax rates for residents that are to apply from 1 July 2012:
The personal income tax rates and thresholds are summarised for resident taxpayers in the tables below:
Work-related Expenses Standard Deduction DroppedThe Government announced that it will not proceed with the 2010–2011 Budget announcement to allow a standard tax deduction for work-related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013. The Government is pursuing other simplification measures such as tripling the tax-free threshold to $18,200 from 1 July 2012. Interest Income Discount Not to ProceedThe Government announced that it will not proceed with the 2010–2011 Budget announcement for a 50% discount for interest income which was due to commence on 1 July 2013. The Government said its public consultation process involving key sector groups, industry participants and consumer groups “revealed concerns with the complexity involved in calculating the discount and its overall effectiveness”. Schoolkids BonusIn the lead-up to the Budget, the Prime Minister announced that the Government will make a new, no-strings cash payment, called the Schoolkids Bonus, to certain families with children at school. It will replace the current Education Tax Refund and will apply from 1 January 2013. Each year, families will receive the Schoolkids Bonus worth:
The Government said the payment will be “automatic and upfront”, which means eligible parents will not need to keep receipts. Flood Levy – Further ExemptionsThe Treasurer confirmed in the Budget that people who suffered flood damage in 2012 will also be made exempt from the flood and cyclone levy that applies for the 2011–2012 financial year only. He said that earlier this year, more flooding devastated parts of western Queensland and northern New South Wales.
↓BUSINESS TAXATIONCompany Tax Cut Proposal ShelvedThe Treasurer announced that the proposed reduction in the company tax rate to 29% will not proceed. The reason given by the Treasurer was that it had become clear that the proposed tax rate cut would not be approved by Parliament. The Treasurer added that the savings from not proceeding with the company tax cut will be used to fund other measures, including the loss carry-back arrangement for companies. Tax Loss Carry-back Regime ConfirmedThe Treasurer confirmed the Government will allow businesses to carry-back losses. Mr Swan said the proposed changes would “allow businesses to ‘carry back’ their losses, to offset past profits and get a refund of tax previously paid on that profit”. The carry-back will be available to companies and entities that are taxed like companies. As part of the loss carry-back, from 1 July 2012 companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1m worth of losses against tax paid up to two years earlier. According to the Government, in its first four years the regime “is estimated to provide much-needed assistance to nearly 110,000 companies”.
↓SUPERANNUATIONSuper Contributions Tax ChangesFrom 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012. Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates. The Minister for Financial Services and Superannuation, Bill Shorten, said a small number of people on high incomes are getting a better tax deal out of super than millions on average incomes.
The proposed reduction in the higher tax concession that is currently available for very high income earners on their concessional contributions will align it more closely with the concession received by average income earners, Mr Shorten said. However, there will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners. Contributions Cap for over 50sThe proposed higher concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014. Accordingly, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012–2013 and 2013–2014 income years. In 2014–2015, the general cap is expected to increase to $30,000 through indexation, and the higher cap would then commence at $55,000 for eligible taxpayers aged 50 and over.
↓Tax AdministrationFunding to Target Tax DebtsThe Government announced that it will provide $106 million over four years to the ATO to improve the management of outstanding taxation debts and superannuation guarantee charge. The Government said the funding is designed “to allow the ATO to support a greater range of taxpayers in meeting their reporting and payment obligations through contacting them earlier and by providing more targeted assistance”. GST Compliance ProgramThe Government is to provide $193.3 million to the ATO in 2014–2015 and 2015–2016 to continue to promote voluntary GST compliance. This extends a 2010–2011 Budget measure by two years. The funding will be directed at detecting fraudulent GST refunds, systematic under-reporting of GST liabilities, failure to lodge GST returns and outstanding GST debts.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 22 view edition↓Wrong property valuations can be costlyA few cases recently before the courts have centred on the issue of property valuations. If a valuation of a property is not above board, the ramifications could include a larger tax bill. The Australian Tax Office (ATO) has recently highlighted what it believes to be recurring issues concerning valuations of property in relation to the application of the GST margin scheme provisions. Often, when certain elements of a valuation are outside an acceptable range, the ATO says the ultimate valuation is higher than it should be, resulting in a lower margin and less GST payable. One common area of contention is the use of purported comparable sales figures in making a valuation. The ATO has warned that comparable sales must withstand objective scrutiny of their comparability.
↓ATO to hold refunds pending checksThe government has announced that it will amend the tax law to allow the Tax Commissioner to hold onto refunds pending “verification checks”. Assistant Treasurer Mark Arbib said the legislation would provide the Commissioner with “legislative discretion” to delay refunding certain amounts to taxpayers pending necessary verification of their claims. Interested stakeholders have a very small window of time to comment on the draft legislation, which is in response to a recent Full Federal Court decision which required the Commissioner to immediately pay to a taxpayer GST refunds worth around $930,000. The ATO had withheld the money pending the outcome of its audit of the taxpayer’s entitlement to the refunds.
↓Tricky excess super refund proposalThe government has released for comment draft legislation to implement its proposal to give individuals a once-only option to be refunded excess superannuation concessional contributions up to $10,000 from 1 July 2011. The proposal aims to stem the instances of inadvertent breaches of the caps which result in the “excess contributions tax”. However, there have been criticisms that the $10,000 amount may not be enough. Another concern is the application start date of 1 July 2011. Many commentators have said it should apply from at least the 2009–2010 year when the concessional contribution caps were halved to $25,000 ($50,000 for those over age 50 until 30 June 2012). Although the proposed refund may provide some welcome relief in limited situations, it is not without its complexities. Some commentators have indicated that many individuals could still find themselves inadvertently breaching the relevant caps. If you have any questions, please contact our office.
↓No more deductions with Youth AllowanceThe government is expected to introduce legislative amendments soon to prevent deductions against all government assistance payments for individuals from 1 July 2011, following a controversial High Court decision in 2010 (the Anstis decision). In that decision, the High Court had allowed an individual who incurred study expenses in gaining Youth Allowance to deduct the expenses from her assessable income. The government’s proposed legislative amendments will also affect students on Austudy and ABSTUDY.
↓Personal services income test failedThe Federal Court has recently confirmed an earlier Tribunal decision that the taxpayer had failed the “unrelated clients” test for the purposes of the personal services income (PSI) rules, in the tax law in relation to a drafting business he carried on through his private company. However, the Court found the Tribunal had not properly applied the “business premises” test. Many consultants and contractors operate as a sole trader or through a company, partnership or trust. In many cases, the income received for the work they do may be classified as PSI if certain tests are not passed. However, the PSI rules do not apply to individuals or interposed entities carrying on a “personal services business”. It should be noted the ATO has recently advised that it will hold onto some income tax returns to check for PSI where appropriate. Please contact our office for any assistance.
↓Unfranked dividends from off-market share buy-backA taxpayer has recently been unsuccessful before the Administrative Appeals Tribunal in arguing that an amended tax assessment was excessive. The amount of tax in question was around $195,000. The Tribunal concluded the amount of $451,600 for unfranked dividends, that the taxpayer had received from a selective off-market buy-back of her shares in a company, was properly included in her assessable income for the 2009 income year. Off-market share buy-backs can give rise to deemed dividends. In the above case, the Tribunal held the consideration for the buy-back was a “deemed dividend” that was assessable to the taxpayer under the tax law in the year in which the buy-back occurred. The rules to determine the deemed dividend in these situations can be complex. In addition, special rules may apply to determine a capital gain tax (CGT) liability. In the above case, it was determined that there was no CGT as the shares were acquired before the commencement of the CGT provisions (that is, they were “pre-CGT shares”).
↓Tribunal highlights responsibility of SMSF trusteeA recent matter before the Administrative Appeals Tribunal has highlighted the importance of what it means to be a trustee of a self-managed super fund (SMSF). The case involved a trustee of an SMSF along with her husband. In 2006, some $3,460,000 was removed from the SMSF and transferred to an overseas bank account of the husband. The Commissioner issued a non-complying notice to the taxpayer along with an income tax and penalty assessment. Among other things, the taxpayer argued she had no knowledge of her husband’s acts as co-trustee and that the SMSF was entitled to a deduction for the misappropriated funds. However, the Tribunal affirmed the non-complying status of the SMSF and held there was no deduction available in this case. It also affirmed the 75% shortfall penalty. The taxpayer has appealed to the Federal Court against the decision.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 21 view edition↓Super contributions caps – more tinkering of rulesDue to deteriorating global economic and financial conditions, the Government late last year announced its decision to "pause" the indexation of the general superannuation concessional contributions cap for one year in 2013–14, so that it will remain at $25,000. Indexation of the cap will be deferred until 2014–15, when it is expected to rise to $30,000. The Government said this will also result in a pause in the indexation of the concessional contributions cap for individuals aged 50 and over and the non-concessional contributions cap. Contributions above the annual contributions caps are subject to excess contributions tax levied on the individual. Different annual contributions caps apply depending on your age and whether your contributions are classified as "concessional" or "non-concessional".
↓Tax discount for interest income deferredThe Government has announced its decision to defer the start date of the 50% tax discount for interest income for individuals for 12 months. The proposal is now expected to commence on 1 July 2013. Under the proposal, the discount would apply on up to $500 (increasing to $1,000 the following year) of interest earned on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products.
↓ATO eye on education tax refund claimsThe Australian Tax Office (ATO) has commenced a data-matching program in which it will request and collect from Centrelink the names and addresses of taxpayers eligible for the Family Tax Benefit Part A. The program will cover the 2009, 2010 and 2011 financial years. It is expected the records of approximately two million individuals will be matched. The aim of the data-matching program is to identify potential non-compliance with taxation obligations in relation to taxpayers claiming the education tax refund. The education tax refund helps eligible families and independent students meet the cost of primary and secondary school education. There are eligibility requirements as well as limits on how much you can claim. If your expenses exceed your refund limit for the year, any excess can go towards your following year's refund claim, as long as you are still eligible.
↓Pleasurecraft and the "wealthy"In another example of the increasing use of data-matching, the ATO has advised that it will collect information from marine insurance companies relating to the ownership of pleasurecraft. The collection of data aims to identify individuals who have insured a pleasurecraft worth $25,000 or more. The ATO said the information, in addition to other indicators of wealth, will assist it to identify high net worth taxpayers who should be reviewed under its "highly wealthy individuals" or "wealthy Australians" programs. The ATO considers someone to be highly wealthy if he or she, together with associates, effectively controls $30 million or more in net wealth.
↓Court denies franking credits linked to "debt-like" securitiesThe majority of the Full Federal Court has confirmed that an anti-avoidance rule under the tax law applied to cancel franking credits that arose to an individual taxpayer from distributions paid on "debt-like" securities he had subscribed for in an Australian bank. The securities were Perpetual Exchangeable Resaleable Listed Securities V (PERLS V securities) issued by the Commonwealth Bank. The individual involved in the case is a representative taxpayer of some 33,000 investors. The taxpayer has sought an appeal against the decision in the High Court.
↓ATO valuation blocks CGT small business concessionsA taxpayer has been unsuccessful before the Administrative Appeals Tribunal in a case concerning a property sold in 2005 and a claim for the small business capital gains tax (CGT) concessions. The Tribunal held the taxpayer was not eligible for the concessions as it failed the (then) $5 million "maximum net asset value" test. The matter turned on the valuations relied upon by the taxpayer and the Commissioner in valuing the property. The Tribunal preferred the Commissioner's valuations despite having concerns with various aspects, including assumptions made. Small businesses can access a range of tax concessions to reduce CGT on the sale of certain assets if certain conditions are met. One of the conditions is that the taxpayer must satisfy the "maximum net asset value" test. To pass the test, the net value of all the CGT assets of taxpayer (including affiliates and connected entities) must not exceed $6 million (previously $5 million). The rules can be complex, so please contact our office for more information.
↓GST treatment of new residential premisesThe Government has recently introduced legislative amendments into Parliament which aim to clarify the GST treatment of new residential premises. Broadly, the proposed amendments to the GST law aim to ensure that sales or long-term leases of new residential premises by a registered entity are "taxable supplies", and that sales or long-term leases of other residential premises are "input taxed supplies". The amendments follow a court decision which had held that a developer's sales of newly constructed residential premises (constructed under a "development lease" arrangement) were input taxed supplies under the GST law. The Government said the outcome of the case was contrary to the policy intent of the GST legislation. The ATO has identified common GST errors concerning property transactions. Mistakes can often be made in working out when new residential premises are actually "new" and therefore taxable. Please contact our office if you have any questions.
↓Director penalty notice regime under reviewThe Government intends to introduce tax law changes this year to expand the current director penalty notice regime. The changes aim to tackle fraudulent phoenix activity that caused a loss of revenue and a loss of employee superannuation entitlements. Phoenix activity is the practice of individuals incorporating a company, incurring debts in the entity and then liquidating it in order to avoid repaying those debts. Following the liquidation of one company, the directors of the company simply incorporate a new company and repeat the process all over again. The Government had attempted to introduce legislation last year but agreed to a parliamentary committee's recommendation to consult further on the proposed amendments. A concern raised during the committee's consultation was that honest company directors could potentially be caught by the proposed changes.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 20 view edition↓Small business benchmarks under microscopeThe Inspector-General of Taxation, Ali Noroozi, has advised that he will review the Australian Tax Office’s use of small business performance benchmarks. The benchmarks produced by the Australian Tax Office (ATO) are used to identify taxpayers who may not be declaring all of their income and who may be involved in the cash economy. Mr Noroozi said he will investigate whether the benchmarks are an appropriate tool for identifying underreporting of income. There has been growing concern among tax advisers about the use of benchmarks. The Inspector-General said he will also consider whether the ATO’s expectations of small business in relation to record keeping are clearly communicated and reasonable. The investigation is expected to commence later this year.
↓Carbon tax scheme to commence on 1 July 2012The Government’s controversial carbon tax scheme has passed Parliament and will commence on 1 July 2012. From that date, the country’s biggest polluters will be required to pay $23 for each tonne of carbon pollution released into the atmosphere. As part of the scheme, tax cuts to assist households and support measures for businesses to assist them in adapting to the new carbon tax will also be implemented. TIP: Although the carbon tax scheme will not commence until next year, businesses should consider putting some serious thought into how they may be affected, both directly and indirectly, by the scheme. Please contact our office for any assistance.
↓Uncertainty with private rulings systemIn a recent case, the Full Federal Court unanimously affirmed assessments issued by the Commissioner to a taxpayer, a sports club, even though the assessments were inconsistent with a private ruling issued to the club. In 2004 the club had received a private ruling stating it was exempt from income tax for the 2003 to 2010 income years. However, the Commissioner in 2006 claimed the facts of the club’s situation had changed and withdrew the ruling. The club claimed it should be afforded with protection under the tax law. However, the Court disagreed. TIP: According to some commentators, the court’s decision could cause taxpayers to lose confidence in the private rulings system. If you have any questions, please contact our office.
↓Taxpayer entitled to prompt GST refund, says CourtAn exporter of mobile phone goods has been successful before the Federal Court in a case concerning GST refunds. The Federal Court ordered that the Commissioner comply with the GST and tax law and immediately pay the exporter the net amount notified in its GST returns for various tax periods covering January to May 2011. The ATO had alleged that the refunds claimed were unsubstantiated and were fraudulent. It refused to pay the amounts until an audit had concluded. However, the Court did not agree that in the circumstances the law allowed the withholding of a payment pending an investigation by the Commissioner. The Full Federal Court later also dismissed the Commissioner’s appeal against the decision.
↓CGT test includes commission liability after CGT eventIn a recent decision, the majority of the Full Federal Court held that for the purposes of accessing the small business capital gains tax (CGT) concessions, a real estate agent commission incurred on the sale of a hotel business could be included as a liability for the purposes of the maximum net asset value test. This was the case even though the taxpayer was invoiced for the commission after entering the contract of disposal. TIP: Small businesses can access a range of tax concessions to reduce CGT on the sale of certain assets if certain conditions are met. One of the conditions is that the taxpayer must satisfy the “maximum net asset value” test. To pass the test, the net value of all the CGT assets of the taxpayer (including affiliates and connected entities) must not exceed $6 million. Debts owed to the taxpayer are included as CGT assets for the purpose of the test. The rules can be complex: please contact our office for more information.
↓Personal services income rules apply, finds TribunalThe Administrative Appeals Tribunal has recently held that the personal services income (PSI) rules applied to an IT professional to include in his assessable income amounts derived by his company through the provision of his IT expertise to a small number of clients from the same company group. The Tribunal also held the company was not a “personal services business”. TIP: Many consultants and contractors operate as a sole trader or through a company, partnership or trust. In many cases, the income received for the work they do may be classified as PSI if certain tests are not passed. However, the PSI rules do not apply to individuals or interposed entities carrying on a “personal services business”. It should be noted that the PSI rules remain a tax compliance risk area for the ATO. Please contact our office for any assistance.
↓Tax changes for small businesses introducedThe Government has introduced legislation into Parliament which proposes to increase the small business instant asset write-off threshold from $1,000 to $6,500, and create a single depreciation pool to write-off assets at a rate of 30% (15% in the first year). The changes are proposed to commence from the 2012–2013 year; however, their formal enactment would first require the commencement of the Government’s carbon tax scheme (which will start on 1 July 2012) and the proposed Minerals Resource Rent Tax (MRRT). The changes also propose to allow an immediate write-off of up to $5,000 for motor vehicles from the 2012–2013 income year. The Assistant Treasurer, Bill Shorten, said under the changes small businesses would benefit from improved cash flow and reduced compliance costs.
↓Superannuation guarantee to be increased to 12%Legislation has been introduced into Parliament which proposes to increase the superannuation guarantee (SG) rate from 9% to 12%, phasing in from 1 July 2013. The Government also announced that it would abolish the age limit for which employers no longer need to provide superannuation guarantee. TIP: If the SG age limit is to be abolished, then from 1 July 2013, employers will be required to make SG contributions for employees regardless of an employee’s age.
Edition 19 view edition↓Business tax losses under Tax Forum spotlightThe treatment of business tax losses will be reviewed by a business tax reform working group announced by the Treasurer at the Tax Forum held in October 2011. It is understood the first priority of the working group is to identify options for losses and how the Government would fund them. "We need to consider things like loss carry back, uplifting losses, and what happens to the value of losses when business change composition or ownership", said Treasurer Wayne Swan. It is expected that the working group will deliver its initial report in November 2011 and a final report to the Government by March 2012, before the next budget.
↓Tax Office views on SMSFs, real property and borrowing rulesThe Australian Tax Office (ATO) has recently issued a draft ruling which concerns self-managed superannuation funds (SMSFs), real property and the application of certain borrowing rules under the superannuation law. The draft ruling outlines where money borrowed under a limited recourse borrowing arrangement (LRBA) can be applied in maintaining or repairing (but not improving) a single acquirable asset. TIP: While the draft ruling provides some welcome clarification on the ATO’s views on key aspects of the LRBA provisions, it only covers a few pieces of the LRBA puzzle. The rules can be complex and the penalties can be severe for getting it wrong. If you have any questions, please contact our office.
↓Tax law changes to tackle phoenix activitiesThe Government has recently introduced legislation in Parliament which aims to deter company directors from engaging in phoenix activities. Phoenix activities involve the deliberate liquidation of a company to avoid paying tax liabilities and employee superannuation. The business then "rises" again and continues operations controlled by the same person, but under another corporate entity and free of debts. The legislation also aims to encourage director compliance with tax and superannuation obligations. The proposed tax law changes will make directors personally liable for their company's failure to pay the employees' superannuation guarantee amounts. The changes will also allow the ATO to pursue directors without issuing a "director penalty notice" where the company's pay as you go (PAYG) withholding or superannuation guarantee liability remains unpaid and unreported three months after the due day. In addition, the Government proposes to deny directors (and their associates) entitlement to PAYG withholding credits (through the imposition of a new tax) where the company they are involved in has failed to remit PAYG withholding amounts. TIP: It is proposed that the changes commence once the legislation is formally enacted. However, there are special transitional provisions which can cover amounts that are due to the ATO or a superannuation fund at the time the legislation enters into force. Directors should ensure their company’s tax risk management policies and systems are up-to-date. Please contact our office if you have any questions.
↓Small business depreciation rule changes on the horizonThe Government has sought comments on draft legislation which proposes to make various tax law changes concerning the small business depreciation rules that apply to small business entities. The changes are subject to the passage of the mining tax legislation as well as the carbon tax legislation in Parliament. However, should these taxes be successfully implemented, the proposed changes could improve cash flow and reduce compliance costs for small businesses. The proposed changes include increasing the instant asset write-off threshold from $1,000 to $6,500, and simplifying the current depreciation pooling arrangements to allow small businesses to depreciate some assets more quickly. The changes are proposed to apply from the 2012–2013 income year.
↓Standard deduction for work expenses next yearPublic consultation has closed on the Government's draft legislation which proposes to provide individual taxpayers with a standard tax deduction to cover work-related expenses and the cost of managing their tax affairs. The standard deduction proposed is $500 for 2012–2013, increasing to $1,000 for 2013–2014 and thereafter. Taxpayers whose claims exceed the proposed standard deduction will still be allowed to make those claims provided receipts are kept. However, the Government has noted the deduction is dependent on the implementation of the mining tax legislation.
↓Partnership not ended, so director still liable, says CourtA businessman has been unsuccessful in appealing to the NSW Court of Appeal against an earlier District Court decision which had held that, as a director of a company, he was liable to pay monies to the ATO that were withheld from employees' wages. Under the tax law, a director of a company could face a tax penalty if amounts withheld from employee's wages are not paid to the ATO. Broadly, the director was part of a partnership operating a café/bar restaurant with another partner. However, the Court heard the relationship between the partners had deteriorated. The director argued the partnership had terminated, so therefore there could be no withholding by his company. However, the Court found it was the director's involvement in the management of the partnership that had actually ended, not the partnership itself.
↓Dutch retiree took reasonable care, finds TribunalIn a recent decision, the Administrative Appeals Tribunal held that a retiree had not failed to take reasonable care when he omitted foreign early retirement fund payments from the Netherlands from his 2003 to 2006 income tax returns. Among various factors, the Tribunal accepted the retiree's evidence that he had sought and received oral advice from the ATO in 2002 which was contrary to later advice contained in a "private binding ruling" issue by the ATO in 2005. The Tribunal also took into account in making its findings that the retiree had limited English and did not understand and was confused by the ruling.
↓Super guarantee charge is a valid tax, says High CourtA market research company has been unsuccessful in its constitutional challenge in the High Court against the validity of the superannuation guarantee charge. The High Court had unanimously held the charge to be valid tax. In doing so, the High Court also affirmed an earlier Tribunal's finding that market research interviewers were "employees" of the company for superannuation guarantee purposes, and not independent contractors.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 18 view edition↓Cash Economy Still On ATO’s RadarThe ATO has maintained a focus on its compliance activities in relation to small business performance benchmarking and the cash economy. In a recent speech, the Commissioner of Taxation said businesses outside the relevant benchmarks are subject to ATO review and/or audit. Where businesses do not have adequate records to substantiate their performance, the Commissioner said the ATO will make a default assessment using the relevant small business benchmark. The ATO uses a variety of tools to help it identify potential cash economy activities which include:
Undertaking a review of business records may help to identify whether you are at risk of review by the ATO. According to the ATO, taxpayers may be given concessional treatment in relation to penalties and interest, should they make a voluntary disclosure of a mistake.
↓Don’t Take The Bait On Tax Avoidance SchemesThe ATO has recently identified a number of tax avoidance schemes which it says are a risk to small businesses. These include:
Not all tax avoidance schemes are obvious and many can look legitimate. Only on close examination do higher risk features start to appear. Please contact our office if you have any questions.
↓Capital Gains Tax Bills For Failing TestThe Administrative Appeals Tribunal has recently handed down two separate decisions concerning capital gains tax (CGT) concessions for small businesses. The tax law offers a range of tax concessions for small businesses that have made a capital gain on a "CGT asset" that has been used in the business. The concessions can reduce, eliminate or roll-over a capital gain. However, the concessions are only available if certain tests are met. The main issue before the Tribunal was whether the taxpayers satisfied the "maximum net asset value" test. The test would be satisfied if, just before the "CGT event", the value of the assets of the taxpayers and their connected entities did not exceed $5 million. Broadly, the Tribunal held the taxpayers did not meet the then "maximum net asset value" test in order to qualify for the concessions. The taxpayers did not satisfy the onus of proving that the "maximum net asset value" of the assets of the taxpayers and their connected entities were less than $5 million. In the first case, the Tribunal denied the taxpayer the concessions with respect to the sale of a marina for $8.9 million. In the second case, the Tribunal also refused the taxpayer the concessions in respect of a gain he made on selling two $1 shares in a company for $4.9 million. There have been changes to the relevant rules. For example, the amount for the "maximum net asset value" test increased to $6 million. If you have any questions please contact our office.
↓Share Trading Business Existed, Says TribunalIn an unusual decision, the Administrative Appeals Tribunal held a taxpayer was not a passive investor in relation to share trading activities and was carrying on a business of share trading for the year ended 30 June 2008. The taxpayer was a chief executive of a services company and traded shares in his own name on the share market. The Commissioner argued the taxpayer was not conducting a share trading business as he did not have a formal business plan and did not sell many shares during the relevant period. The taxpayer argued that the only reason he did not sell much of his portfolio during the period was due to the global financial crisis.
↓Taxpayer Loses Excess Super Contributions Tax AppealA taxpayer has been unsuccessful before the Federal Court in appealing against a decision of the Administrative Appeals Tribunal. The Tribunal had affirmed a superannuation excess non-concessional contributions tax assessment of $86,867 against her for breaching the $1 million non-concessional contributions cap during the transitional period to 30 June 2007 (which existed at the time). The taxpayer had argued that a $355,000 payment from her personal superannuation fund in June 2007 was received by her in a capacity as trustee before being on-paid to her new superannuation fund and therefore should be treated as a roll-over superannuation benefit. However, the Court broadly agreed with the findings made by the Tribunal. As part of the 2011–2012 Budget, the Government proposed that eligible individuals be given a once-only option to have excess concessional contributions up to $10,000 refunded and assessed at their marginal tax rate for the financial year in which the contribution was made. The refund option is proposed to only apply for the first year in which the concessional contributions cap is breached, commencing from 2011–2012. If you have any questions please contact our office.
↓SMSFs Warned on Improper Lending of MoneyThe ATO says it is concerned that some self-managed superannuation fund (SMSF) trustees are lending money on favourable terms from their SMSFs to people who provide advice or assist in the running in the fund. It warns that this arrangement may lead to the loss of the complying status of the fund and concessional tax rates. The ATO says trustees should ensure that loan terms comply with the law and fit their investment strategy. Decisions to lend money from an SMSF should be backed by the appropriate documentation such as an appropriate loan agreement. If you have any questions please contact our office.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 17 view edition↓Carbon Tax to Commence on 1 July 2012The Prime Minister has announced details of the Government’s plans to put a price on carbon. The plan, to commence on 1 July 2012, proposes to set a price of $23 for each tonne of carbon pollution released into the atmosphere by Australia’s biggest polluters. It is proposed that around 500 businesses will be required to pay for their pollution under the carbon pricing mechanism. The Prime Minister also announced tax cuts to assist households and support measures for businesses to assist them in adapting to the new carbon tax. Although the carbon tax scheme will not commence until next year, businesses should consider how they may be affected both directly and indirectly by the scheme and whether they are able to access some of the compensation and support measures announced as part of the scheme. Please contact our office for any assistance.
↓Government Set on Countering Phoenix ActivitiesThe Government has proposed tax law changes to counter fraudulent phoenix activities by company directors. Such activities involve the deliberate liquidation of a company to avoid paying tax liabilities and employee superannuation. The business then “rises” again and continues operations controlled by the same person, but under another corporate entity and free of debts. The proposed tax law changes include making directors personally liable for unpaid employee superannuation, and allowing the Australian Taxation Office (ATO) to pursue directors where certain tax debts remain unpaid and unreported three months after the due day. The changes would place additional pressure on directors to ensure that their company’s tax risk management policies and systems are up-to-date. It should also be noted that the ATO, as part of its Compliance Program for this year, intends to detect potential phoenix activities sooner through a targeted program of reviews and audits of directors.
↓New Restrictions on SMSF Investment in ArtworksNew regulations have been made to prevent self-managed superannuation fund (SMSF) trustees from gaining current day benefits from an investment in collectables and other personal use assets, for example artwork, jewellery, antiques, coins and stamps, wine or spirits and motor vehicles. The regulations are designed to ensure such investments are made for genuine retirement income purposes only. The new regulations commenced on 1 July 2011, however, there is a five-year transitional period for assets that were held by an SMSF as at 30 June 2011. Please contact our office if you have any questions.
↓Income Test for Private Health Insurance RebateThe Government is again attempting to pass legislation to give effect to the 2009–2010 Federal Budget announcement to income test the 30% private health insurance rebate by introducing three new “Private Health Insurance Incentive Tiers”. The changes propose to reduce the amount of private health insurance rebate an eligible person with a complying private health insurance policy is entitled to when that person has income for surcharge purposes above the relevant Medicare levy surcharge threshold. If enacted, the changes are proposed to apply from 1 January 2012. The income thresholds which would trigger application of the proposed changes need to be carefully noted. Please contact our office for any assistance.
↓Tax Discount on Interest IncomeThe Government has released details on how it will implement its 2010–2011 Federal Budget proposal to provide individuals with a 50% tax discount on interest income from 1 July 2012. Under the proposal, the discount will apply on up to $500 of interest earned on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products. The Government proposes to increase the $500 amount to $1,000 from 1 July 2013 onwards. Some of the technical details of the Government’s proposed tax discount on interest income are complex. Please contact our office if you have any questions.
↓ATO Targets FBT Avoidance Using Employee Share TrustsThe ATO has warned taxpayers of an arrangement whereby effective after-tax benefits are provided to employees without a corresponding fringe benefits tax (FBT) liability to the employer. Under the arrangement, employees acquire share units in an employee share trust, which is funded by a loan from the trustee, which is in turn repaid by the employer from amounts salary sacrificed by the employee; however, the employer does not include the taxable value of the benefits provided as part of its FBT liability. The ATO says failure to include the benefit may trigger specific “anti-avoidance” rules under the FBT law.
↓No GST on Damages Paid for Lost ScaffoldingA taxpayer has been successful before the Federal Court in obtaining orders that there is no GST payable on damages it recovered when it lost its scaffolding to other parties. The taxpayer was in the business of hiring out its scaffolding in the building and construction industry. However, after various events, the scaffolding became intermingled with scaffolding belonging to another company. The taxpayer sued and won damages for the loss of its scaffolding. However, the Commissioner claimed GST was payable as a result of the ownership of the scaffolding vesting in the defendant. The Federal Court though disagreed and held the taxpayer in the circumstances did not make a “taxable supply” under the GST law. (Note the Commissioner has appealed against the decision to the Full Federal Court.)
↓Division 7A Benchmark Interest RateThe ATO has advised that, for the income year that commenced on 1 July 2011, the benchmark interest rate to be used in calculating the interest component on the repayment of a private company loan received by a shareholder (or the associate of the shareholder) is 7.8%.
↓Car Depreciation Limit and Luxury Car Tax ThresholdThe ATO has released the following limits and thresholds for the 2011–2012 income year:
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 16 view edition↓Tax Office Announces Compliance Focus AreasThe Commissioner of Taxation has released the Australian Taxation Office’s compliance program for the 2011–12 financial year. Under the program, the Australian Taxation Office (ATO) plans to enhance its tax fraud detection and management strategies, concentrate on sham contracting arrangements and continue its extensive data matching and risk profiling activities. The ATO said it also aims to reduce phoenix arrangements through audits of directors, focus on those who fail to report some or all cash transactions and check employers’ super guarantee payments. Note: The ATO’s compliance program is wide-reaching covering individuals to large businesses. Please contact our office for further information.
↓Trust Streaming: Extension to Record Beneficiaries’ EntitlementsFollowing a High Court decision last year – known as the Bamford decision – legislation has been formally enacted to provide certainty to trusts in relation to the streaming of capital gains and franked distributions (including any attached franking credits) to specific beneficiaries as an interim measure. However, as the legislation was finalised so close to the end of the income year, the ATO has decided to extend the time allowed for trustees to record a beneficiary’s entitlement to a franked distribution for the purpose of the new legislation for the 2010–11 income year only. The extension ends on 31 August 2011. Note: The trust streaming changes are technical. Please contact our office for any assistance.
↓Car Fringe Benefits Taxation ChangesLegislative changes to simplify the method for determining the taxable value of car fringe benefits has been formally implemented. Broadly, the changes introduce a flat 20% rate to replace the previous method which, according to the Government, encouraged people to drive their vehicles further than they needed to in order to obtain a larger tax concession.
↓Dependent Spouse Offset Finishes for Under 40sFrom 1 July 2011, taxpayers will no longer be entitled to the dependent spouse tax offset in respect of a dependent spouse born on or after 1 July 1971, following the enactment of tax law changes. However, the changes include some exceptions – for example, dependent spouses who are carers, invalid or permanently unable to work.
↓Low Income Taxpayer Offset Ends For Most MinorsFrom 1 July 2011, the ability of minors (children under 18 years of age) to access the low income tax offset to reduce tax payable on their unearned income (dividends, interest and rent) has been removed. The Government said the tax law amendments are designed to discourage income splitting between adults and children.
↓Building Contractors Face Reporting ProposalThe Government is seeking to introduce a reporting regime for payments made to contractors in the building and construction industry. The proposal will require businesses in the building and construction industry to report annually to the ATO payments they have made to contractors in the industry. The regime is proposed to commence on 1 July 2012. According to the Government, the proposal will support greater compliance in areas such as GST, record-keeping requirements, and the personal services income rules. Note: The proposal indicates a closer scrutiny of the industry by the authorities. The Government also indicated that its proposal could later be applied to other industries.
↓Unpaid Directors’ Fee Schemes and Private Companies on ATO RadarThe ATO has warned taxpayers of an arrangement where a private company claims a deduction for unpaid directors’ fees. Under the arrangement, a private company makes a resolution before 30 June in relation to amounts payable to directors that reflect that the company is irrevocably committed to the payment. The company claims a deduction for the payment, but the actual payment is never made. The Commissioner of Taxation said he was concerned that some companies may be using the arrangement to claim amounts that were never intended to be fully paid out.
↓ATO Reminds Employers of Superannuation ObligationsThe ATO has recently revealed some common superannuation mistakes made by employers. They include paying insufficient superannuation contributions for employees, missing the quarterly payment cut-off dates (ie 28 October, 28 January, 28 April, 28 July), and not understanding that in some circumstances superannuation should be paid for contractors, even if the contractor provides an Australian Business Number. Note: The ATO has been selecting various industries on which to focus its compliance activities. This year, in its compliance program, the ATO intends to target the following industries in relation to superannuation guarantee obligations: cafes and restaurants; real estate services; carpentry services; computer system design and related services; and accommodation.
↓Tribunal Denies Deduction for Interest on Loans Made to TrustIn a recent case, the Administrative Appeals Tribunal confirmed that husband and wife taxpayers were not entitled to a deduction for interest on loans made to a discretionary trust which ran their building business, or a deduction for interest on their investment properties which they made available to the trust to provide accommodation for building contractors. The taxpayers argued they had certain agreements in place with the trust which made them entitled to distributions of trust income, so accordingly, the deductions were permissible. However, the Tribunal disagreed and found there was an insufficient connection between the interest expenditure and claimed trust income.
↓Personal Services Income Rules Applies to TaxpayerThe Administrative Appeals Tribunal has confirmed that the personal services income (PSI) rules under the taxation law applied to a taxpayer who provided his services as a draftsperson through his private company. Accordingly, over $67,000 was included as personal income in the years in question. The Tribunal also held the taxpayer did not meet either the “unrelated clients” test or the “business premises” test to relieve him of his personal liability. Note: Many consultants and contractors operate as a sole trader, or through a company, partnership or trust. In many cases, the income received for the work they do may be classified as PSI if certain tests are not passed. It should be noted that the PSI rules limit the deductions that an individual may claim against PSI. Please contact our office for any assistance.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 15 view edition↓Trust Streaming – Certainty Almost HereThe Government has introduced legislation to provide certainty to trusts in relation to the streaming of capital gains and franked distributions (including any attached franking credits) to specific beneficiaries as an interim measure following a High Court decision last year – known as the Bamford decision – which had cast doubt in this area. TIP: The changes are technical and are proposed to apply to the current year (i.e. the year from 1 July 2010 to 30 June 2011). This does not give a lot of time for trusts affected to respond. Please contact our office for any assistance.
↓Car Fringe Benefit Taxation about to ChangeA Bill has been introduced into Parliament to simplify the method for determining the taxable value of car fringe benefits. Broadly, the change will introduce a flat 20% rate to replace the current method which, according to the Government, encourages people to drive their vehicles further than they need to in order to obtain a larger tax concession. TIP: The changes affect salary-sacrificed or employer-provided vehicles. If you think the changes affect you, please contact our office.
↓Dependent Spouse Offset on the Chopping BoardThe Government will soon put in place changes so that taxpayers will not be entitled to the dependent spouse tax offset in respect of a dependent spouse born on or after 1 July 1971. The change is proposed to take effect from 1 July 2011. This means taxpayers with a dependent spouse aged less than 40 years will no longer be eligible for the offset from 1 July 2011. However, some exceptions will be available – for example, dependent spouses who are carers, invalid or permanently unable to work. TIP: Note that the maximum offset is $2,355 for 2011-2012.
↓SMSF Non-complying Status Affirmed, Despite Tragic CircumstancesIn a recent case, the Administrative Appeals Tribunal affirmed the decision of the Commissioner of Taxation that a self-managed superannuation fund (SMSF) be treated as a non-complying fund, despite acknowledging the tragic circumstances surrounding the case. The fund was created in April 2002 and its members included a husband, wife and their adult son. The Tribunal noted the son had a "drug addiction and took almost all of the money from the fund and spent it or gave it away". Although noting the circumstances of the family, the Tribunal was unable to exercise a discretion to treat the fund as a complying fund under the superannuation law.
↓Goods Taken from Stock for Private UseThe Tax Office has updated the amounts the Commissioner will accept for 2010-2011 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries. For example, for a takeaway food shop, the Commissioner will accept $2,970 (excluding GST) for each adult (or child over 16 years of age). Note that the Tax Office intends to adjust the values annually.
↓Travel and Study Scams on Tax Office RadarThe Tax Office has issued a warning to taxpayers to steer clear of dodgy arrangements which involve claiming holiday travel expenses as work-related or self-education expenses. The Commissioner said he was concerned that some people are getting involved in arrangements to deliberately claim inflated deductions which they are not entitled to, particularly in relation to overseas travel. If the claim is legitimate, the Tax Office says taxpayers need to correctly apportion their expenses to the extent they are connected to their income-earning activities and are not private or domestic in nature.
↓Low-income Taxpayer Offset to End for Most MinorsA Bill has been introduced which contains changes to implement the Government's 2011-2012 Budget announcement to restrict access by minors (children under 18 years of age) to the low income tax offset. Under the changes, the ability of minors to access the offset to reduce tax payable on their unearned income (dividends, interest and rent) will be removed from 1 July 2011. The Government said the changes are designed to discourage income splitting between adults and children. TIP: Income earned by minors from work will still be eligible for the full benefit of the offset. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors, will not be affected by this measure
↓Commissioner's Claim to Recover GST Refunded Not Out of TimeA taxpayer has been unsuccessful before the Administrative Appeals Tribunal in arguing that the Commissioner's claim to recover an amount of GST refunded was ineffective. The taxpayer had argued that the claim was made outside of the four-year time limit under the tax law. However, the Tribunal found the time limit did not apply in the circumstances of the case.
↓GST and Tax Invoice RequirementsThe Tax Office has issued a draft GST ruling which replaces an earlier ruling in relation to the minimum information requirements for a tax invoice and the circumstances of when a document can be deemed a tax invoice even when it does not meet all of the requirements. The draft ruling also sets out the application of the low value threshold for transactions for which a tax invoice is not required. Note the draft ruling maintains the same outcomes as the earlier ruling.
↓Deductibility for Private Pilot's Licence Cost Denied for a SolicitorA solicitor has been unsuccessful before the Administrative Appeals Tribunal in claiming a deduction for expenses he incurred in converting his New Zealand private pilot's licence to an Australian one. The solicitor had hoped to take on aviation matters for local clients. However, the Tribunal was of the view that there was not a sufficient connection between the expenses claimed and the income earned as a solicitor. TIP: Tax time 2011 is just around the corner. As usual, the Tax Office will be paying close attention to large deductions claimed by individuals in their 2011 tax returns.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 14 view edition↓Trust Law Changes On The WayThe Government has announced that it intends to review and rewrite the highly complex area of trust tax law to deal with ongoing uncertainties regarding its proper application. Two proposed measures have been flagged by the Government for implementation sooner rather than later including:
These changes are proposed to apply for the 2010–11 and later income years. TIP: The proposed changes are highly complex and new developments are likely to occur quickly. Please contact our office if you have any questions.
↓Personal Services Entities: ATO Takes a Closer LookThe Australian Tax Office (ATO) has announced that it will request and collect information on amounts paid to personal services entities by 39 labour hire firms, placement agencies and computer consultancies. Under the project – known as the Personal Services Income (PSI) data-matching project – data requested will include name and address details of the individual who is the main service provider to the entity. The ATO said it anticipates that records relating to approximately 100,000 individuals and entities who have received contract payments from the 39 entities will be matched. TIP: If you are concerned this data-matching program will affect you, please contact our office.
↓Flood Levy Now LawThe legislation to implement the Government's proposed temporary flood levy has been enacted. The legislation imposes a one-year levy on taxpayers to help raise the revenue needed to assist the reconstruction work following the destruction by the floods and Cyclone Yasi in Queensland earlier this year. The 0.5% to 1% levy will apply to individuals with taxable incomes above $50,000, and will apply for the 2011–12 income year only. However, there are specific classes of taxpayers who are exempt from the levy. TIP: Employers will need to identify their employees who earn more than $50,000, and withhold the levy from their salary or wages. Employees who are exempt from the levy may lodge a flood levy exemption declaration form with their employer.
↓GST and Goods Sold With Discounted ComponentsThe ATO has released its official view of the Full Federal Court's decision in a case which concerned the correct calculation of GST on goods sold that are partly taxable and partly GST-free. The case involved a taxpayer that offered its customers spectacle frames at a discount provided they purchase the lenses at full price. The lenses are GST-free, whereas the frames are a taxable supply – together the spectacles are referred to as a "mixed supply". The Full Federal Court agreed with the taxpayer that the discount should only be applied to the frames, and not apportioned between the lenses and the frames. The ATO said the Commissioner accepts that it was open to the Court to make its conclusions regarding the correction apportionment and it will not appeal to the High Court. As a result, the ATO said some optical suppliers may be able to seek a refund for overpaid GST (if certain requirements are met).
↓Land Sale Case Sheds Light On "Going Concern" GST-free ConcessionIn a recent decision, the Federal Court held that a supply (sale) of land by a taxpayer was not a supply of a going concern, and therefore was not GST-free. Although the Court acknowledged the taxpayer was in the business of property development, it found that business ended when the taxpayer decided to sell the land. Ultimately, the Court found the sale of the land was not a "supply of a going concern" as the sale did not supply "all of the things necessary for the continued operation of an enterprise". TIP: For a supply to be considered a supply of a going concern (and therefore GST-free), various conditions must be satisfied. These conditions include the supplier supplying to the recipient all the things necessary for the continued operation of the enterprise, and the supplier carries on the enterprise until the day of supply.
↓Employees Not Contractors, Says CourtIn a recent decision, the Federal Court held interpreters engaged by a business to provide interpreting and translating services were "employees" for superannuation guarantee purposes and were not independent contractors. TIP: The correct classification of an individual as an employee or as an independent contract is critical. This is because employers are liable to provide the minimum level of superannuation guarantee for their employees. A failure to do so will result in employers being liable to a non-deductible superannuation guarantee charge.
↓Self-managed Super Funds and CollectablesThe Government has introduced legislation into Parliament to change the superannuation law to implement strict rules on trustees of self-managed superannuation funds (SMSFs) who make, hold or realise investments that are considered to be "collectables or personal use assets" – for example, artwork, jewellery, antiques, wines, cars and recreational boats. Once enacted, the new rules will apply to investment made before, on or after 1 July 2011. The Government had earlier indicated that it would implement a 5-year transitional period to allow trustees to dispose of existing assets that do not satisfy the new rules.
↓FBT Rates and Thresholds for 2011–12The ATO has announced important FBT rates and thresholds for the 2011–12 FBT year that commenced on 1 April 2011. Some of the key rates and thresholds include:
↓Car Expenses – Rates per Kilometre for 2010–11The Government has announced the "cents per kilometre" rates for calculating tax deductions for car expenses for the 2010–11 income year – note they are unchanged from 2009–10 and are:
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 13 view edition↓Personal Tax Rates – No Change, But Remember the Flood LevyThe Government did not make any changes to the currently legislated tax rates which apply for the 2010–11 and following years. However, taxpayers should not forget that, from 1 July 2011 for one year, those rates will include the flood levy, where applicable.
↓Minors No Longer Entitled to Low Income Tax Offset on Unearned IncomeThe Government will remove the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their unearned income, such as dividends, interest, rent, royalties and other income from property, with effect from 1 July 2011. According to the Government, this is to discourage income splitting between adults and children. However, income earned by minors from work will still be eligible for the full benefit of the LITO.
↓Low Income Tax Offset: a Little Extra in the Pay PacketFrom 1 July 2011, the Government will increase the proportion of the low income tax offset (LITO) that is delivered through workers’ week-to-week pay packets from 50% to 70%. This change means that instead of being compensated after they put in their tax return at the end of the year, lower income earners are taxed less during the year. According to the Government, someone with an annual income of $30,000 will get an extra $300 during the year in their regular pay.
↓Dependent Spouse Rebate for Spouses Under SpotlightThe Government announced it will phase out the tax offset for dependent spouses aged less than 40 (ie born on or after 1 July 1971) “to help encourage more Australians into paid employment”. This change will mean taxpayers with a dependent spouse aged less than 40 years will no longer be eligible for the dependent spouse tax offset (DSTO) from 1 July 2011. However, the change will not affect certain dependent spouses – for example, spouses who are permanently unable to work or who are carers.
↓No More Deductions for Youth Allowance RecipientsThe Government will amend the tax law to prevent deductions being claimed against all government assistance payments, with effect from 1 July 2011. The announcement is in response to a 2010 High Court decision which had held that a Youth Allowance recipient could claim a deduction for certain expenses incurred in gaining the payment. The Government says the change is designed to maintain the integrity of the deductions system.
↓Medicare Levy Thresholds Increased for 2010–11From the 2010–11 income year, the Medicare levy low-income thresholds will be increased for singles to $18,839 (up from $18,488 for 2009–10) and to $31,789 for those who are members of a family (up from $31,196 for 2009–10). The additional amount of threshold for each dependent child or student will also be increased to $2,919 (up from $2,865). The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2010 to $30,439 (up from $27,697). This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy while they do not have an income tax liability.
↓Excess Contributions Tax – New Limited RefundThe Government will provide eligible individuals who breach the concessional contributions cap by up to $10,000 with a one-off option to request that these excess contributions be refunded to them. This new refund option will only apply to first time breaches from 1 July 2011. The Government expects that this reform will help to reduce the number of occasions where the concessional contributions are exceeded resulting in an excess contributions tax (ECT) assessment
↓Minimum Pension Drawdowns for 2011–12The minimum annual payment amounts for pensions and annuities will be reduced by 25% for 2011–12 and will return to normal in 2012–13. In this respect, the Government will begin to phase out the 50% pension drawdown relief that has been provided for 2008–09, 2009–10 and 2010–11 financial years. Reducing the minimum payment amounts by 25% for account-based, allocated and market linked (term allocated) pensions from 1 July 2011 seeks to provide some assistance to holders of these products to recoup capital losses incurred as a result of the global financial crisis
↓Concessional Contributions: Higher Cap for Those Aged 50 and overThe Government will set the proposed higher concessional contributions cap at $25,000 above the general concessional cap, for eligible individuals aged 50 and over with total superannuation balances of less than $500,000. The Government has confirmed that the higher cap will enable eligible persons over 50 to be able to contribute $25,000 more per year than other workers subject to the general concessional contributions cap of $25,000. As a result, when the general concessional contributions cap increases with indexation from $25,000 to $30,000, the higher cap will increase by the same dollar amount. This measure will apply from 1 July 2012.
↓Small Business Motor Vehicle Instant Tax Write-offThe Government will provide Australian small businesses with an instant tax write-off of the first $5,000 of any motor vehicle purchased from 2012–13. The Treasurer said that, for example, a tradesman on a 30% marginal tax rate, buying a new $33,960 ute would receive an extra tax benefit of $1,275 in the year he purchased the vehicle. The remainder of the purchase value can be transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years. These reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies. The new small business instant write-off for the first $5,000 of any motor vehicle will effectively replace the Entrepreneurs Tax Offset (ETO), which will be abolished with effect from the 2012–13 income year.
↓FBT and Cars – Flat 20% Valuation Rate to ApplyThe Government announced what would amount to implementation of a Henry Tax Review recommendation that the current statutory rates for valuing car fringe benefits be replaced with a single statutory rate of 20%, regardless of the number of kilometres travelled. The changes will apply to new vehicle contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over four years. People who use their vehicle for a significant amount of work-related travel will still be able to use the “operating cost” (or “log book”) method to ensure their car fringe benefit excludes any business use of the vehicle.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 12 view edition↓Tax PlanningSimply put, tax planning is the arrangement of a taxpayer’s affairs so as to comply with the tax law at the lowest possible cost, and involves objectively assessing and actively managing tax risk. Common tax planning techniques are deferring the derivation of assessable income and applying techniques to bring forward deductions.
↓Deferring Income
↓Maximising DeductionsBusiness taxpayers
Non-business taxpayers
Capital Gains Tax
Consider the availability of the small business CGT concessions which can disregard, reduce or defer a capital gain arising from the disposal of an asset which has been used by an entity in the course of carrying on its business.
↓Trusts
↓Superannuation
↓Natural DisastersNatural disasters such as the Queensland floods in early 2011 resulted in the tragic loss of lives and wreaked havoc and devastation. Many businesses and livelihoods suffered severe damage or loss. However, amongst the chaos, it is still important that business owners be aware of the tax implications that may arise from the destruction of their business assets and trading stock (including livestock).
↓Paid Parental Leave SchemeThe Federal Government’s Paid Parental Leave scheme commenced on 1 January 2011. Under the scheme, eligible employees with a child born or adopted on or after 1 January 2011 can take 18 weeks of paid parental leave at the national minimum wage (currently $570 per week). The new scheme has a number of tax implications, which employers and recipients need to know.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 11 view edition↓Cash Economy Letters Encouraging Compliance, Says Tax OfficeAccording to the Tax Office, its cash economy letter program is encouraging positive compliance behaviour among small business taxpayers. This financial year, the Tax Office aims to send over 100,000 letters to taxpayers who it believes may be participating in the cash economy. The Tax Office said it will mostly send letters to business operators reporting outside the small business benchmarks for their industry, or to those who, in the Tax Office's view, have reported insufficient business income to meet their expected living expenses. TIP: The Tax Office has developed small business benchmarks which it uses to compare the performance of a business against other similar businesses that are operating in the same industry. The benchmarks are published on the Tax Office website. The benchmarks can be used by businesses to help assess if they are likely to be selected for an audit or review. If your business is operating outside the relevant benchmark, it may be prudent to review record-keeping practices or to review how your business operates. Please contact our office for any assistance.
↓Director's Penalty Notice Given When Delivered, Not PostedIn a recent case, the NSW Court of Appeal held that a previous decision of the Court was "clearly wrong" when it held that the 14-day period within which a director is required to take specific action in response to a director's penalty notice ran from the date of its posting. Rather, the Court of Appeal said the period ran from the date of the delivery of the notice.
↓GIC and SIC RatesThe Tax Office has advised the general interest charge (GIC) and shortfall interest charge (SIC) rates for the fourth quarter of the 2010–11 income year (ie 1 April 2011 to 30 June 2011):
↓Labour Hire Firms and Splitting Income WarningThe Tax Office has recently highlighted its concerns regarding an arrangement where a labour hire firm utilises a discretionary trust for the purpose of splitting the incomes of workers with their spouses (or other related people). Workers may be entering into these arrangements in an attempt to reduce their tax bills; however, they may not be aware that the arrangement, or parts of it, may be ineffective under the tax law. Tax Commissioner Michael D'Ascenzo said he was concerned that firms involved in such arrangements may not be withholding the required amount of tax or providing the correct amount of superannuation to their workers. TIP: The Commissioner has given anyone who has participated in such arrangements until 30 April 2011 to contact the Tax Office for guidance. Mr D'Ascenzo said taxpayers will be entitled to a reduction in any penalties that might apply if an arrangement is proved to be ineffective.
↓Calculating Distributable Surplus when Tax Bill AmendedThe Tax Office has indicated that it will administer the law in accordance with the findings of a recent Full Federal Court decision. The case concerned whether income tax and general interest charge (GIC) assessed by an amended assessment are taken into account when calculating a company's net assets and distributable surplus. This calculation is important because the amount of deemed dividend for a loan, payment or debt forgiveness by a company to its shareholder (or associate of the shareholder) is restricted to the company's distributable surplus for an income year. The crux of the Court's decision is: if a company receives an amended assessment with tax and GIC payable for a previous year, the company's distributable surplus for that income year needs to be recalculated by reducing the surplus by the amount of the tax and GIC payable on the amended assessment – this may result in lower individual tax bills for individuals who receive the deemed dividend.
↓Watch Out for Scammers, Says Tax OfficeThe Commissioner has reminded people to be aware of scam behaviour and to report anything suspicious. The focus of scams in most instances is to steal personal information. The Tax Office says scammers use phone calls, letters, text messages, emails, bogus websites and even job advertisements to try to obtain financial or other personal details. Once scammers have this information they can steal an individual's identity and commit fraud. Suspicious behaviour can be reported to the Tax Office confidentially by phoning 1800 060 062.
↓Eye Glasses Discount Deal Throws New Light on GST CalculationA retailer of spectacles has won a court case regarding the correct calculation of GST in relation to spectacles it sold to customers under a special promotion. Broadly, the taxpayer offered its customers spectacle frames at a discount provided they purchase the lenses at full price. The lenses are GST-free, whereas the frames are a taxable supply – together the spectacles are referred to as a "mixed supply". The Full Federal Court agreed with the taxpayer that the discount should only be applied to the frames, and not apportioned between the lenses and the frames as contended by the Commissioner. TIP: The Court's method may result in a lower amount of GST payable than the method contended by the Commissioner in the case.
↓Tax Office's Approach To Self-Managed Super Funds Affected By FloodsThe Commissioner has given an indication of how the Tax Office will deal with self-managed superannuation funds (SMSFs) that own flood or cyclone-damaged buildings purchased under the strict borrowing rules contained in the superannuation law. Mr D'Ascenzo noted that SMSFs in these situations may be prevented from making improvements without breaching the rules. However, while the Commissioner does not have the discretion to treat an improvement as a repair, he said the Tax Office will not be seeking to make fine distinctions when having regard to what is available to repair what has been damaged.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 10 view edition↓Temporary Flood Levy ProposedThe Prime Minister, Julia Gillard, has proposed a temporary flood levy for individual taxpayers to help raise revenue to fund the reconstruction cost for areas of Queensland and elsewhere which were affected by severe flood damage earlier this year. The flood levy is proposed to apply for one financial year from 1 July 2011. Under the proposal, individuals with a taxable income of $50,000 or less will be exempt. However, a levy of 0.5% will be applied for individuals on taxable incomes between $50,001 and $100,000. A levy of 1% will be applied on taxable incomes above $100,000. For example, under the levy, someone who has a taxable income of $80,000 will pay $2.88 extra per week. Ms Gillard said those who receive the Australian Government Disaster Recovery Payment for a flood event in the 2010–2011 financial year will be exempt from paying the levy.
↓Tax Help for Flood VictimsThe wake of the recent severe flooding in Queensland and elsewhere has brought about a bevy of announcements from authorities offering tax help to assist those in need. The Government has announced that clean-up and recovery grants of up to $25,000 (paid to primary producers and small businesses directly affected by the flooding that has occurred since 29 November 2010) will be exempt from tax. The Government has also confirmed that the Disaster Income Recovery Subsidy to assist small business persons, farmers, and employees, who have lost their income as a direct consequence of the flooding, will be tax-exempt. Has your business been severely affected by the flooding? You may be eligible for tax help offered by the authorities. Please call our office for further information. In response to the floods, the Commissioner has also announced that the Tax Office will allow deductions for "bucket donations" of up to $10 in individuals' 2010-11 tax returns without needing to keep a receipt.
↓Café Owners' Tax Bill Reduced after Cash Wages Taken into AccountIn a recent case, the Administrative Appeals Tribunal found that amended tax assessments issued to husband and wife shareholders of a company that operated two cafés were excessive as they had failed to take into account deductions for cash wages paid to staff in determining the deemed dividend from the company, on which the assessments issued to the husband and wife were based. The Tribunal also found that the deemed dividend was to be further reduced to take into account the company's liability for general interests charge imposed on its unpaid tax liability and a loan the husband had made to the company. As a result of these adjustments, the amount of the deemed dividend of the company on which the husband and wife's assessments were based was reduced from around $2.1 million to some $630,000.
↓Same Trust, so Capital Gain Can Be Offset by Earlier LossesThe Commissioner has been unsuccessful before the Full Federal Court in seeking orders to overturn an earlier decision, which had held that a trust could apply earlier capital losses to offset the capital gain made from a property sale. The Commissioner had argued that there was a lack of continuity of the trust following a series of events and that, essentially, the trust estate which made the losses was not the same trust which made the capital gains, which meant the trust could not apply the losses to offset the gains. However, the majority of the Full Federal Court did not accept the Commissioner's arguments.
↓Superannuation Excess Contributions Tax Bill for Breach of CapThe Administrative Appeals Tribunal has confirmed a superannuation excess non-concessional contributions tax assessment of $86,867 against a taxpayer for breaching the $1 million non-concessional contributions cap during the transitional period to 30June 2007 (which existed at the time). The taxpayer had argued that a $355,000 payment from her personal superannuation fund in June 2007 was received by her in a capacity as trustee before being on-paid to her new superannuation fund and, therefore, should be treated as a roll-over superannuation benefit. However, the Tribunal found the amount was received by the taxpayer and treated by her an as eligible termination payment before being on-paid to the new fund as a non-concessional contribution. Different annual contribution caps apply depending on your age and whether your contributions are classified as "concessional" or "non-concessional". Contributions above the annual contributions caps are subject to excess contributions tax levied on the individual.
↓Penalty for Late Superannuation Deduction Notice "Harsh"In a recent case, the Administrative Appeals Tribunal determined that a 25% administrative penalty was properly imposed by the Commissioner on a taxpayer who failed to provide a notice of intent on time to claim a deduction for a personal superannuation contribution. However, the Tribunal decided to remit in full the administrative penalty as it found it would be "harsh" for the taxpayer to pay a penalty of $10,000 on top of the $40,000 increase in his tax bill due to a shortcoming in paperwork. To be eligible for a deduction for a personal superannuation contribution, the individual must:
The notice must be given by the time the person lodges his or her income tax return for the year in which the contribution is made or, if no return has been lodged by the end of the following income year, by the end of that following year.
↓Superannuation Benefit and Payment by ChequeThe Tax Office has issued a determination which states that a superannuation benefit payable with a cheque or promissory note is "cashed" at the time the cheque or note is "received" by the member or beneficiary, provided the trustee's objective intention is to immediately transfer funds from the SMSF to the member or beneficiary. The Tax Office said this will only be the case where the money is payable immediately and available for payment when the instrument is received.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 9 view edition↓Whether a Property Constitutes Residential Accommodation for GST PurposesUnder the GST Act, a sale of real property is “input taxed” (ie no GST is payable on the sale), if the property is “residential premises to be used predominately for residential accommodation”, and other requirements are met. Although the phrase from the GST Act appears straightforward, it has been subject to lengthy arguments before the courts.
↓Tribunal Can't Review Private Ruling Decision as Ruling Given for Wrong YearsA taxpayer has been unsuccessful before the Administrative Appeals Tribunal in seeking a review of the Commissioner’s decision to disallow its objection against a private ruling. Broadly, the Commissioner had made an adverse private ruling regarding the deductibility of certain capital appreciation payments covering the 2003 to 2009 income years. However, the taxpayer had originally only sought a ruling covering the 2004 to 2008 income years.
↓Retirement Village Scheme Deductions Wrong, but Taxpayers Took "Reasonable Care"In a recent case, the Administrative Appeals Tribunal remitted penalties imposed on a retired couple by the Commissioner for failing to take reasonable care in preparing their tax returns. Broadly, the Commissioner disallowed some deductions claimed by the taxpayers in relation to their retirement village scheme investment. Consequently, the Commissioner issued amended assessments and imposed the penalties.
↓Refunds for Overpayments of GSTThe Tax Office has released a ruling which sets out the Commissioner’s views on the tax provisions which restrict refunds that can arise from the overpayment of GST. The ruling also sets out the guiding principles the Commissioner will follow in exercising his discretion to pay a refund in appropriate circumstances. A circumstance where the Commissioner may consider exercising his discretion is where the overpayment of GST occurred as a result of an arithmetic error made by a supplier.
↓Automated Tax Deduction for Youth Allowance RecipientsThe Tax Office has released its long-anticipated response to a recent High Court decision which held that a student taxpayer was entitled to a deduction for education expenses incurred in receiving Youth Allowance income.
↓ “Loan” from Private Company an “Honest Mistake”?Under the tax law, certain payments and loans made by a private company to its shareholders or associates, and debts owed by its shareholders or associates that are forgiven by the private company, are taken to be unfranked dividends paid by the private company. However, there are specific exceptions to this rule.
↓ “Stronger Super” Reforms on the HorizonThe Government has announced its support for most of the wide-ranging Cooper Super System Review recommendations by releasing a package of reforms known as “Stronger Super”. The proposed reforms feature a new low-cost and simple default superannuation product called “MySuper” which is marked to commence from 1 July 2013.
Edition 8 view edition↓Whether a Property Constitutes Residential Accommodation for GST PurposesUnder the GST Act, a sale of real property is “input taxed” (ie no GST is payable on the sale), if the property is “residential premises to be used predominately for residential accommodation”, and other requirements are met. Although the phrase from the GST Act appears straightforward, it has been subject to lengthy arguments before the courts.
↓Tribunal Can't Review Private Ruling Decision as Ruling Given for Wrong YearsA taxpayer has been unsuccessful before the Administrative Appeals Tribunal in seeking a review of the Commissioner’s decision to disallow its objection against a private ruling. Broadly, the Commissioner had made an adverse private ruling regarding the deductibility of certain capital appreciation payments covering the 2003 to 2009 income years. However, the taxpayer had originally only sought a ruling covering the 2004 to 2008 income years.
↓Retirement Village Scheme Deductions Wrong, but Taxpayers Took "Reasonable Care"In a recent case, the Administrative Appeals Tribunal remitted penalties imposed on a retired couple by the Commissioner for failing to take reasonable care in preparing their tax returns. Broadly, the Commissioner disallowed some deductions claimed by the taxpayers in relation to their retirement village scheme investment. Consequently, the Commissioner issued amended assessments and imposed the penalties.
↓Refunds for Overpayments of GSTThe Tax Office has released a ruling which sets out the Commissioner’s views on the tax provisions which restrict refunds that can arise from the overpayment of GST. The ruling also sets out the guiding principles the Commissioner will follow in exercising his discretion to pay a refund in appropriate circumstances. A circumstance where the Commissioner may consider exercising his discretion is where the overpayment of GST occurred as a result of an arithmetic error made by a supplier.
↓Automated Tax Deduction for Youth Allowance RecipientsThe Tax Office has released its long-anticipated response to a recent High Court decision which held that a student taxpayer was entitled to a deduction for education expenses incurred in receiving Youth Allowance income.
↓ “Loan” from Private Company an “Honest Mistake”?Under the tax law, certain payments and loans made by a private company to its shareholders or associates, and debts owed by its shareholders or associates that are forgiven by the private company, are taken to be unfranked dividends paid by the private company. However, there are specific exceptions to this rule.
↓ “Stronger Super” Reforms on the HorizonThe Government has announced its support for most of the wide-ranging Cooper Super System Review recommendations by releasing a package of reforms known as “Stronger Super”. The proposed reforms feature a new low-cost and simple default superannuation product called “MySuper” which is marked to commence from 1 July 2013.
Edition 7 view edition↓Trust Entitlements and Loans: Tax Office Issues GuidanceThe Tax Office has released its keenly awaited guidance on the tax treatment of trust entitlements and loans. The guidance, known as a practice statement, explains how the Tax Office will apply its ruling on when a private company with an unpaid present entitlement makes a loan to the trust estate which generated the entitlement. The Commissioner of Taxation said he was aware of the importance of this issue to businesses, particularly small businesses, which use a trust structure.
↓Tax Office Highlights Common PAYG Instalment ErrorsThe Tax Office has been calling selected business operators in the $2 million to $100 million annual turnover range to discuss instances where the pay-as-you-go (PAYG) instalment amount received for the quarter under review is significantly different to the PAYG instalment amount received in a previous quarter.
↓SMSFs and Private Companies Investing in Trusts: Tax Office WarningThe Tax Office has warned self-managed super funds (SMSFs) not to invest in trusts with the intention of making funds available for lending to members. The warning comes in a taxpayer alert which describes an arrangement where an SMSF invests money in an unrelated trust that then on-lends the funds to an SMSF member or relative. The Tax Office says such arrangements attempt to circumvent strict rules prohibiting SMSF trustees from lending money or providing financial assistance to a member or a relative using the resources of the fund.
↓Self-education Expenses for Youth Allowance Recipient DeductibleThe High Court unanimously dismissed the Commissioner of Taxation’s appeal and held that a taxpayer was entitled to a deduction for expenses incurred in deriving income from receiving Youth Allowance. The Full Federal Court had previously dismissed the Commissioner’s appeal and held that self-education expenses incurred by the taxpayer in deriving Youth Allowance were allowable deductions.
↓Declaration of Trust over Land Sold, so No Personal Tax LiabilityA taxpayer has been successful in obtaining a declaration from the Supreme Court of Western Australia that a valid trust had been created over a property he had originally bought in 1990 under his own name. The trust had been declared in favour of a family trust at the time of the land’s subdivision five years later. As a result, the Commissioner of Taxation could not argue that the taxpayer was personally liable for capital gains tax on one of the lots sold in 2006. Instead, the profit had been included in the family trust’s tax return in that year and had been offset by the trust’s carried forward losses.
↓Subsidy Paid for Loss-making Contracts Assessable as IncomeIn a recent case, the Administrative Appeals Tribunal ruled that a taxpayer in the waste disposal business was assessable on a “subsidy” paid to it by a competitor in connection with the taxpayer assuming unprofitable waste disposal contracts that it acquired from the competitor under an agreement. Even though the transaction was a one-off, the Tribunal found it was assessable as ordinary income as the agreement was entered into in the ordinary course of the taxpayer’s business with a view to making a profit.
↓Employing your Spouse? Ensure There’s an “Employment Relationship”Two recent cases before the Administrative Appeals Tribunal dealt with the scenario of a husband employing his wife to assist with looking after rental properties. The question before the Tribunals was whether there was a “genuine employment relationship”. As the two cases show, if it is found that there was no employment relationship in the circumstances, the taxpayer would not be entitled to deductions for salary or wages, fringe benefits, and superannuation contributions paid in relation to “employing” the spouse. Rather, the outgoings would be considered to be private or domestic in nature.
↓Increasing Adjustments in BASs as Debts Remain UnpaidIn another case, the Administrative Appeals Tribunal held that three taxpayers were required to reverse earlier claims for input tax credits in their later Business Activity Statements. As the taxpayers accounted for GST on an accruals basis, the credits were attributed to the tax period in which the tax invoices were received. However, those invoices remained unpaid after 12 months. Under the GST legislation, if an invoice remains outstanding after 12 months, a recipient is required to reverse any input tax credits previously claimed. The Tribunal noted there was little evidence of the invoices being paid, and therefore affirmed that the taxpayers had an increasing adjustment.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 6 view edition↓GST and Dodgy Property Arrangements: Tax Office Spells Out ViewsEntities sometimes enter into dodgy arrangements that use their associates in an attempt to secure input tax credits on the construction of residential premises for lease and then defer the corresponding GST liability, in some cases indefinitely. The Tax Office has issued a ruling which sets out the Commissioner of Taxation's views on how the general anti-avoidance rules in the GST law would apply to these arrangements.
↓Excess Superannuation Contributions: Superannuation Law Changes on the WayA Bill is currently before Parliament which proposes to amend the tax law to allow the Commissioner of Taxation to exercise a discretion to disregard or allocate to another financial year all or part of a person's contributions for the purposes of excess contributions tax before an assessment is issued. Currently, investors have to wait until after the excess contributions tax assessment has been issued. TIP: It should be noted, however, that there is no proposed change to the criteria used by the Commissioner to determine whether the determination should be made, that is, the Commissioner must still be satisfied that ‘special circumstances’ exist.
TIP: In a recent case, the Administrative Appeals Tribunal decided it could only review the Commissioner's refusal to exercise his discretion to reallocate superannuation contributions if the discretion could be applied before an excess contributions tax assessment was issued. While the proposed amendments (if enacted) will not reverse the Tribunal's decision, they could potentially ensure the refusal to exercise the discretion would be a reviewable decision in the future.
↓HELP Debt Deferred as Special Circumstances ExistedA taxpayer has been successful before the Administrative Appeals Tribunal in seeking a deferment in repaying his accumulated Higher Education Loan Program (HELP) and financial supplement debts for the 2007 and 2008 years. The Tribunal took into account the taxpayer's medical and psychological conditions and low family income and held that special circumstances existed in the case to allow the deferment.
↓Unit Trust Arrangement Ineffective to Avoid Tax Bill on SharesIn a recent complex case, the Administrative Appeals Tribunal held a trust arrangement entered into by a taxpayer where he transferred the equitable interest in his shares in a company to related unit trusts before the sale of the shares did not remove from him either the legal or beneficial ownership of the shares. As a result, the Tribunal found the taxpayer was liable for capital gains tax on the sale of the shares.
↓Tax Office Highlights Errors in Claiming Deductions for SuperannuationThe Tax Office has recently highlighted common errors made by individuals when claiming tax deductions for their personal superannuation contributions. These include not lodging the notice to claim the deduction with their superannuation fund on time and incorrectly claiming their contributions as business or partnership expenses. The Tax Office reminded individuals that personal superannuation contributions are not work-related expenses.
TIP: The Tax Office said the errors came to light after it had matched superannuation contributions data it received from super funds with individual and partnership returns. As a result, the Tax Office said it will take a closer look at these claims for the 2009-10 year.
↓Bonus Units from Employee Benefits Trust: Tax Office Outlines Tax IssuesThe Tax Office has issued a ruling dealing with the tax issues surrounding the issue of bonus units to employees as part of an employee benefits trust arrangement. The ruling sets out the tax consequences for employers, employees and trustees involved in such arrangements.
↓Compromised TFNs Still a Problem, Says OmbudsmanThe Commonwealth Ombudsman, Allan Asher, has released a report which expressed his concerns about how the Tax Office had handled complaints about compromised tax file numbers (TFNs). The report examined eight cases where taxpayers' TFNs had been compromised or incorrectly linked by the Tax Office to another person's TFN.
Mr Asher made reference to the case of Mrs D. He said her difficulties began when the Tax Office wrongly determined she had two TFNs which led to income being incorrectly attributed to her. This was upsetting for Mrs D and difficult to resolve, Mr Asher said. The Tax Office said it has already taken action to improve its response to TFN compromises. However, Mr Asher said, based on further complaints he had received, the problems ‘are far from solved and the actions taken by the ATO to date, while a start, do not fully address our concerns’.
TIP: If you believe your TFN has been compromised or incorrectly linked to another person's TFN, please contact our office.
↓Tax Office Scans Car and Real Estate Property PurchasesThe Tax Office has advised that it will collect records relating to motor vehicle purchases and real estate property transfers from relevant government authorities building on data previously collected as part of its ongoing data-matching projects. The data will be used as part of the Tax Office's compliance activities to identify cash economy participants, that is, those who are deliberately not declaring income to the Tax Office. The Tax Office will also focus on ensuring taxpayers involved in property transfers are meeting their GST obligations.
Specifically, the Tax Office said it will request data from motor vehicle registries where a motor vehicle was sold, transferred or newly registered between 1 July 2009 and 30 June 2010 and the value of the vehicle was $10,000 or greater. In relation to real estate property transfers, the Tax Office said it will collect identity and transaction details from state revenue authorities relating to property title transfers between 1 July 1999 and 30 June 2010.
TIP: The Tax Office uses its data-matching abilities to identify potential cases for investigation. Not declaring income and not meeting GST obligations are just a couple of areas of non-compliance behaviours the Tax Office is focusing on. Other focus areas include taxpayers not declaring capital gains, and not meeting superannuation guarantee and fringe benefits tax obligations, when required.
TIP: State revenue authorities can share information with the Tax Office where it is permitted under the law. For instance, in relation to property transfers, a state revenue authority may compare information with the Tax Office to identify non-compliance with stamp duty obligations.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 5 view edition↓TAX OFFICE EYES OVERDUE TAX LODGEMENTSThe Tax Office is eyeing companies, trusts, partnerships and individual taxpayers which have overdue income tax returns for any period between 1 July 2005 and 30 June 2009, and overdue activity statements for any period between 1 July 2005 and 31 December 2009.
↓TAX SCAMS ON TAX OFFICE RADARThe Tax Office has recently highlighted the emergence of new tax schemes, warning taxpayers to be vigilant and avoid becoming the victim of identity and tax return fraud. The Tax Office said it never sends emails asking for personal information such as banking and credit card details.
↓DEDUCTION OF SUPER CONTRIBUTIONS - ENSURE PAPERWORK VALIDThe Tax Office has reminded self-managed super fund (SMSF) members that if they intend to claim a tax deduction for their personal superannuation contributions, they must complete the correct form — that is, the ‘Notice of intent to claim or vary a deduction for personal super contributions’ form. In addition, SMSF members must also receive an ‘acknowledgment’ from the fund of the valid notice they have completed.
↓EDUCATION TAX REFUND - YOU CLAIM IT, THEY CHECK ITThe Tax Office will be requesting names and addresses of Family Tax Benefit Part A recipients from Centrelink in efforts to identify recipients who may be incorrectly claiming the Government's 50% education tax refund for primary and secondary school student expenses. The Tax Office expects to match records of around 1.5m individuals registered with Centrelink.
↓DIRECT DEBIT FOR GIC-FREE PAYMENT DEALThe Tax Office has extended the general interest charge (GIC) free payment arrangement for small business taxpayers (i.e. those with an annual turnover of less than $2m) with activity statement debts for another year to 30 June 2011.
↓NO INDEMNITY FOR WOUND-UP CORPORATE TRUSTEE, SAYS COURTIn a recent case, the Federal Court held that the basic principle that a trustee is entitled to be indemnified out of trust property for liabilities incurred in administering the trust does not apply to a corporate trustee in relation to expenses incurred after it has been wound-up and at which time it merely becomes a bare trustee in relation to the assets comprising the trust fund. In this case, the corporate trustee had sought to be indemnified for expenses it had incurred in litigation it pursued against the Commissioner after it had been wound-up.
↓DONATIONS TO NEW ZEALAND CHRISTCHURCH EARTHQUAKEThe Government has announced that all donations by Australians to the recent earthquake in Christchurch, New Zealand's second largest city, will be tax-deductible. The Assistant Treasurer said donations to funds endorsed as ‘developed country relief funds’ are tax-deductible for a period of two years from 4 September 2010.
TIP: Remember to keep evidence documenting your donations (e.g. receipts or bank statements).
↓DEBTS RESULT IN CGT SMALL BUSINESS CONCESSIONS BEING DENIEDThe Administrative Appeals Tribunal has confirmed that debts of $3.8m that a taxpayer was owed by related business and investment entities were ‘CGT assets’ of the taxpayer that had to be taken into account under the maximum net asset value test. As a result, the taxpayer exceeded the then $5m test threshold and therefore could not qualify for the small business CGT concessions in relation to the capital gain made on the sale of land and improvements from which he operated a car radio business.
TIP: If a taxpayer is a small business entity, the taxpayer does not need to satisfy the net asset value test (subject to other requirements being met).
↓COURT CAN'T REVIEW TAX OFFICE DECISION TO DELAY GST REFUNDS PAYABLEIn a recent case, the Federal Court dismissed a taxpayer's application for a review of a Deputy Commissioner's decision to ‘withhold’ GST refunds that were payable under the GST Act. The Court held the taxpayer had no reasonable prospect of obtaining the relief sought.
↓DISCLAIMERThis is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Edition 4 view edition↓Payment Summaries and Reporting of Incorrect Super AmountsThe ATO says some employers have been incorrectly including compulsory super amounts as reportable employer super contributions on their employees’ payment summaries.
↓New SMSF Member Verification Process in the PipelineThe ATO has announced that it expects to implement, later this year, a new self-managed super fund member verification process.
↓ATO Keeps a Close Eye on the Cash EconomyThe ATO has reminded taxpayers that increased data-matching and benchmarking will be used to identify businesses participating in the cash economy.
↓Share Investor, Not a Share TraderThe Administrative Appeals Tribunal has found a taxpayer was not carrying on a share trading business but rather it held he was a share investor.
↓Excess Super Contributions Assessments UpheldThe Administrative Appeals Tribunal has found it did not have the jurisdiction to review a decision of the Commissioner who had refused to disregard (or reallocate) excess super contributions made by two taxpayers.
↓Soldier's Motor Vehicle Travel Expense Claim DeniedThe Administrative Appeals Tribunal has denied a claimed deduction for motor vehicle travel expenses incurred by an Australian Defence Force soldier in transporting a kit from home to barracks.
↓Superannuation Benefits — Timing of Payment by ChequeThe ATO has issued a draft determination which deals with the timing of payment by cheque.
Edition 3 view edition↓Division 7A Applies To ‘Payments by Direction’A Federal Court decision relating to deemed dividends and directions by a company for its debtor to pay amounts to a shareholder.
↓Judgment of $81.4 million Stands Against TrusteeA Queensland Court of Appeal decision relating to a trustee and its liability to pay tax.
↓Personal Superannuation Contributions Deduction DeniedAn Administrative Appeals Tribunal decision relating to disputed deduction for personal superannuation contributions.
↓SMSF Trustees with Enduring Power of AttorneyAn SMSF Ruling on how a person who holds an enduring power of attorney can be a trustee in place of an SMSF member.
↓SMSF Trauma Insurance PoliciesAn SMSF Determination on how SMSF trustees can purchase a trauma insurance policy and still satisfy the sole purpose test.
↓Super System Review: Preliminary Report on SMSFsThe Super System Review panel has released a report containing many recommendations in relation to SMSFs.
↓Cents per Kilometre RatesThe Government has released the cents per kilometre rates for calculating motor vehicle expenses for the 2009/10 income year.
↓Company, Trust or Partnership Tax Return ChecklistClick here to download a copy of the checklist for companies, trusts or partnerships.
↓Superannuation Fund Tax Return ChecklistClick here to download a copy of the checklist for superannuation funds.
↓Individual Tax Return ChecklistClick here to download a copy of the checklist for individual tax payers.
Edition 2 view edition↓50% Savings Discount for Interest IncomeFrom 1 July 2011, the Government will provide individuals with a 50% tax discount on up to $1,000 earned on interest.
↓Standard Deduction for Work-related ExpensesThe Government will provide individual taxpayers with a standard deduction of $500 for work-related expenses and for the cost of managing tax affairs from 1 July 2012.
↓Medical Expenses Rebate Threshold RaisedFrom 1 July 2010, the medical expenses rebate threshold will increase from $1,500 to $2,000.
↓Medicare Levy Thresholds Increased for 2009/10From the 2009/10 income year, the Medicare levy low-income thresholds will be increased.
↓Superannuation Co-contribution Matching Rate Permanently Reduced to 100%The Government has announced that it will seek to permanently set the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions at $1,000.
↓Superannuation Fund Deductions for Terminal Medical Condition BenefitsThe Government has announced that it will seek to extend the range of benefits that are deductible by complying superannuation funds and retirement savings account providers to include terminal medical condition (TMC) benefits.
↓Look-through Treatment for Earnout ArrangementsAll payments under a qualifying ‘earnout’ arrangement will be treated as relating to the underlying business asset.
↓Increased Funding to Counter Cash EconomyThe Government will provide $107.9 million over four years to the Tax Office, to address small business operators who use cash transactions to avoid tax.
↓GST Compliance Program — funding for the Tax OfficeThe Government states that it will provide $337.5 million over four years (from the 2010/11 to the 2013/14 income years) to the Tax Office.
Edition 1 view edition↓Proposed Amendments to the Tax LawsThe Government has introduced a Bill seeking to amend the tax laws, including optional CGT rollover relief for the transfer of assets between ‘fixed’ trusts.
↓Improvements to GST AdministrationThe Government has also introduced a Bill proposing improvements to GST administration, including a four-year limitation period to claim input tax credits and recovery of overpaid GST refunds.
↓GST and Sale of Vacant LandThe Federal Court has held that vacant land does not satisfy the definition of residential premises and, therefore, constitutes a taxable supply.
↓Capital Losses and Continuity of TrustThe Federal Court has also affirmed a trust was entitled to offset its original gapital gains with carried forward capital losses even though the membership of the trust has changed.
↓Deductibility of Disability Superannuation Benefit PremiumsThe Government has announced a transitional arrangement will be introduced to allow superannuation funds to deduct total and permanent disability (TPD) insurance premiums.
↓Trauma Insurance Policies and SMSF'sThe Commissioner has released his preliminary views on the implications of SMSF's purchasing trauma insurance policies for it's members.
↓GIC and SIC Rates ReleasedThe Tax Office has released the interest rates for the third quarter of the 2009/10 income year.
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