From our November, 2011 issue

On 1 July 2011, the ATO released its compliance program for the 2011-12 income year.

Each year, the Commissioner sets out in the compliance program the ATO’s views on the most significant tax compliance risk areas for individuals, small to medium enterprises, high net worth individuals, large businesses and the not-for-profit sector.

An overview of the areas that are likely to affect you is set out below for your information.

Notably, these are the ATO’s areas of focus only. Falling into one of these areas does not mean you have done anything wrong, or will be required to pay additional taxes.

However, at the ATO’s discretion, one or more of the items on your tax return may be queried and you may be required to substantiate one or more claims on your income tax return.

If you receive any documentation from the ATO in relation to a risk review or audit, you should contact your tax adviser to discuss.

This year, the ATO will be focusing on a range of areas in relation to individuals, including the following:

Employees v contractors

The ATO will be checking to make sure employees and contractors have been correctly classified as such, from an employer as well as service provider/employee perspective. The ATO is of the view that persons inappropriately classified as contractors may be under-reporting income, but may also be missing out on entitlements such as superannuation, leave and workers compensation.

Specific industries being watched by the ATO include:

•  Building and construction
•  Call centres
•  Cleaning
•  Security
•  Logistics
•  Retail
•  Tourism and hospitality
•  Education
•  Aged care
•  Health
•  Telecommunications.

The ATO is also concentrating on the following industries to make sure employers are fulfilling their superannuation guarantee surcharge obligations:

•  Cafes and restaurants
•  Real estate
•  Carpentry
•  Computers system design
•  Accommodation
•  Accounting.

If you are concerned about your classification or suspect that relevant factors may not have been taken into account when determining your classification with your “employer”, you should contact your tax adviser to discuss.

Personal services income

Income earned primarily through the provision of personal services or exertion is taxed in the hands of that person regardless of the entity that derives the income, pursuant to specific personal services income rules.

The ATO is watching for taxpayers who ignore these rules and report such income in the hands of a company, trust or another person where the personal services rules would apply to tax the income in the hands of the primary service provider.

Work-related expenses

The ATO continues to focus on claims for work-related expenses (which continue to climb) and will be especially focusing on workers in the following industries in the coming year:

• Real estate employees
• Carpenters and joiners
• Earthmoving plant operators
• Flight attendants.

Overseas income

The ATO continues to use data-mining techniques to make sure taxpayers are reporting all of their overseas income.

Remember – Australian tax residents are taxed on their worldwide income, ie income derived from all sources. Where tax has been paid in a foreign jurisdiction, you will likely get a rebate or offset so that you may not be required to pay top-up tax in relation to your overseas income, but you still need to report it!

Pre-filling

It is essential that you double check information that is pre-filled into your tax return. Australians are increasingly reliant on pre-filled information to complete their income tax returns, but the ATO is reminding taxpayers that this information may not be absolutely correct in all instances and should be checked against primary sources prior to lodgment.

Split loans

Split loans (for example, where one loan is used for two or more purposes, especially where at least one purpose is business-related, and at least one is personal) are again under the microscope. If you have such a loan, make sure costs in relation to the loan are apportioned correctly. If you are unsure, speak to your tax adviser.

Refund fraud

The ATO has gone to a lot of effort to build fraud detection tools into their data-checking systems, but it is still important to be wary of potentially fraudulent transactions in relation to your tax file number.

If you receive any correspondence from the ATO that relates, for example, to a return that you haven’t lodged, make sure you contact your tax adviser or the ATO as soon as possible.

Executives, directors and other highly paid individuals

… will have their tax affairs watched more closely by the ATO, with a specific focus on:

• Large deductions
• Incorrect calculations of net capital gains or losses
• Deductions for contributions to SMSFs
• Large revenue loss claims
• Appropriate disclosure of partnership or trust income
• Personal services income
• Loans with related entities
• Employee share schemes.

TIP
Although the ATO is targeting the areas mentioned above, businesses should not think that this means that the ATO will not be looking at other areas too. They will!

From our November, 2011 issue

The carbon tax has passed the House of Representatives and looks set to pass the Senate later this year. This means that, unless and until the legislation is repealed down the track, the carbon tax is here to stay and will come into effect from 1 July 2012.

For individual taxpayers, the part of this package that will be of most interest will be the accompanying “compensation measures”.

The most significant of these changes is the increase in the tax-free threshold from $6,000 (currently) to $18,200 in 2012-13, with a consequent increase in some marginal tax rates.

The low income tax offset (LITO) will be reduced from $1,500 to $445, with the benefit being reflected in the new tax-free threshold.

This means that, when the threshold is combined with the LITO, each taxpayer will not need to start paying tax until their income exceeds $20,542.

In the 2015-16 year, the government has announced that the tax-free threshold will again be increased to $19,400, with a further increase in one marginal tax rate. The LITO will be reduced to $300. The effective tax-free threshold applying to individuals will rise to $20,979.

The table below shows the current and proposed marginal tax rates and thresholds as part of the carbon tax package:

* Includes the effect of the tax-free threshold and the LITO.

Separately, the Treasurer also announced following the Tax Forum in October 2011 that the government will, when the Budget is in a sufficiently strong position, “increase the tax-free threshold further, to at least $21,000, and remove the low income tax offset entirely”.

There is no detail yet on the timing of any such change. However, we will bring you further news as soon as such detail is available.

In addition to the above, the government will also be increasing family payments, pensions, benefits and allowances.

If you are unsure of how the carbon tax compensation package will affect your circumstances, you should seek advice from your tax advisor.

TO DO
You should speak to your tax adviser about what preparation you may need to undertake before the carbon tax and related tax changes are implemented on 1 July 2012.

From our November, 2011 issue

For most of us, tax time is a difficult and frustrating experience of collecting receipts, answering reams of questions from our tax agent, and poring over the details of the tax return once prepared – all while we look after all of our other responsibilities.

From the year beginning 1 July 2012, that experience may get a little easier with the government’s release of exposure draft legislation to introduce a standard deduction for work expenses of $500 in the 2012-13 income year, which will increase to $1,000 in the 2013-14 income year.

This standard deduction will be available to all individual taxpayers in lieu of deductions for work-related expenses (such as uniforms, business and mobile telephone costs, and subscriptions) and the cost of managing your tax affairs.

Of course, you will still be able to claim a higher deduction if you can substantiate the higher amount. For many taxpayers who are not sure of how much they are entitled to deduct, this will mean needing to tally up the deductions to which you are entitled to determine if the standard deduction is worthwhile.

However, some taxpayers whose deductions are below the threshold will benefit significantly from a reduction in the administrative burden of filing their income tax return.

NOTE
The standard deduction will be available to all individual taxpayers from the 2012-13 year onwards. You should consult your tax adviser to determine if the standard deduction will be a worthwhile option for you.

Update:

The government will defer several previously announced tax reforms by another year. Most notably, the start date of the standard deduction for work-related expenses will be set back until 1 July 2013 and the start date of the 50% tax discount for the first $500 of interest income will also be deferred until 1 July 2013.

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From our November, 2011 issue

As part of the suite of tax reforms announced after the report of the Henry Review was released, the government announced it would provide a discount of 50% on the net interest income earned by individuals (including via a trust or partnership).

This reform has moved one step closer with Treasury’s release of a discussion paper to progress the reform and iron out implementation issues.

The discount will apply to the first $500 of net interest income earned in the 2012-13 income year, and then go up to the first $1,000 of interest income earned in each year thereafter.

These amendments were intended to level the playing field between different investment choices for individuals and to make savings a more attractive investment choice than is currently the case (from a tax perspective).

While the amounts may not be large, they may influence how much you leave in the bank as of 1 July 2012, so you should talk to your tax or financial adviser to consider your options.

The discount will apply to interest received from deposits held with any bank, building society or credit union, as well as interest on bonds, debentures and annuity products.

NOTE
If you have or intend to maintain savings and derive interest income, from 1 July 2012 you will be able to apply a 50% discount to the first $500 of interest income earned that year. This amount will go up to $1,000 in the following year.

This may affect your investment decisions, so you should consult your tax or financial adviser to plan appropriately for these changes.

Update:

The government will defer several previously announced tax reforms by another year. Most notably, the start date of the standard deduction for work-related expenses will be set back until 1 July 2013 and the start date of the 50% tax discount for the first $500 of interest income will also be deferred until 1 July 2013.

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From our November, 2011 issue

Recently, the government announced its intention to create (as part of broader superannuation reforms) a new simple, low-cost default superannuation product called “MySuper”.

Further proposed detail of these reforms has now been released, including proposed changes to superannuation guarantee requirements, the application process for MySuper, the MySuper authorisation process, the characteristics of a MySuper product, and the permitted fees and charging rules associated within a MySuper product.

If you think such a product may benefit you, you should speak to your financial adviser about the potential benefits and implications.

NOTE

The government is soon to create a new, low-cost default super product called “My super”. If you think this may assist you, you should consult your financial advisor.

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From our June, 2011 issue

As the end of the financial year approaches, it’s time to take stock again of what the next year is likely to bring, tax-wise. Taking a proactive approach to planning is essential to ensure that you are well prepared for the year ahead.

Planning requires consideration of a number of factors, including:

• your personal circumstances; and
• your current year and projected salary/business and investment income.

All of these factors will affect your end of income year tax strategies, as well as your tax planning for the next income year.

Your personal circumstances

Superannuation:

Depending on your age, it may suit you to consider salary sacrificing greater amounts into superannuation before the end of the income year, so long as you do not exceed the concessional superannuation cap limits.

By way of reminder, there are caps on how much super you can contribute each year before being required to pay excess contributions tax at the rate of 46.5% of the excess. The superannuation contribution caps apply per financial year. There are two types:

1. Concessional (before tax) contribution caps.
Concessional contributions include:

 • all employer contributions (including salary sacrifice); and
• personal contributions for which you claim an income tax deduction (eg selfemployed people).

The concessional contribution cap is $25,000 per income year generally, and $50,000 per income year for taxpayers aged 50 years old and over for the 2011 and 2012 income years. As noted below,
this is set to change in respect of the 2013 income year onwards.
2. Non-concessional (after tax) contribution caps.
Non-concessional contributions include:

 • personal member contributions (no tax deduction claimed);
• spouse contributions; and
• any excessive concessional contributions.

The non-concessional contributions cap is $150,000.

You should consider making additional contributions before the end of the income year to take full advantage of these caps. But make sure you do not exceed the contributions caps under any circumstances – just a few extra dollars can result in a substantial tax liability for excess super contributions tax.

In addition to the above, the government announced during the 2011-12 Budget that:

• From 1 July 2012, persons who have been subject to excess contributions tax for the first time (due to making excess concessional contributions of less than $10,000) will be provided the option of
having excess concessional contributions taken out of their superannuation fund and June 2011  assessed as income at their marginal rate of tax, rather than incurring excess contributions tax at the rate of 46.5% on excess contributions.

• From 1 July 2012, individuals aged over 50  years of age with total superannuation balances of less than $500,000 will have their superannuation contributions cap set to $25,000 above the general concessional cap in order to assist such individuals in contributing greater amounts into superannuation to fund their retirement

Investment

Minors in receipt of unearned income 

The Low Income Tax Offset is a tax rebate for individuals on lower incomes. It provides individuals with a total tax liability under the threshold with an offset equal to the tax liability. As such, the offset effectively increases the tax free threshold for low income earners. The maximum amount of the offset is $1,500.

Under current tax laws, people under 18 years of age (‘minors’) face the following tax scale in relation to their “unearned” i.e. passive income.

• $0 to $416 = NIL
• $417 to $1445 = NIL + 66c for every $1 over $416
• $1446 and over = 47% flat rate on the entire amount

On the basis of this schedule, it is currently possible to distribute $3,333 of passive income to a minor tax-free (depending on that minor’s other income sources). This is because a minor earning $3,333 would otherwise face a tax bill of $1,500 (i.e. 47% of $3,333), and the minor is entitled to an offset in respect of that entire tax liability reducing the total tax payable to nil.

The government announced in the 2011-12 Budget that the low income tax offset will not be able to be used to offset tax payable by minors in respect of their unearned income from 1 July 2011  onwards.  This means that this is the last income year in which minors will be able to receive $3,333 of unearned income, effectively tax-free. From the 2012 income year onwards, this number will fall to $416, after which amount penalty tax rates will apply (as set out above).

This change will affect you if:

• you currently have a family trust and distribute routinely to minors; and/or
• there are minors in your family who receive passive income as a result of direct ownership of assets such as shares, units in managed funds, property etc.

In either scenario, you will need to consider whether it would be better for you and your family to rearrange affairs in order to ensure that these penalty rates of taxation are not payable by minors
in receipt of unearned income over the threshold in the 2012 income year onwards.

If you have family members that you provide for, it may be worth considering whether tax-effective products such as education funds or insurance bonds may be suitable for you instead.

TIP!

You should seek advice from your tax adviser and financial planner in relation to whether alternative investment structures may be better suited to your circumstances in light of announced Budget
changes.

Capital gains and losses – timing

Due to falling rates of personal taxation in recent years, many taxpayers have ‘pre-poned’ the incurrence of capital losses. A capital loss is broadly the negative difference between what you paid for an investment and what you received when you sold that investment. Historically, by preponing a capital loss you could utilise it to reduce your capital gains in the earlier income year, effectively lowering the tax rate that would otherwise apply to that capital gain.

However, in the 2012 income year, effective tax rates will actually increase for a segment of the taxpayer population due to the requirement to pay the flood levy.

As such, you may be better off ‘crystallising’ capital losses and offsetting them against capital gains in the 2012 income year. What that means is you may be able to reduce the total taxable capital gains
that fall in the 2012 income year, and therefore the effective tax rate that will be applied to those gains. But remember – if you cannot offset your capital losses against capital gains in any income year, the losses will be quarantined and carried forward until you derive capital gains. What that means is if you incur a capital loss in the 2012 income year that you cannot utilise, you won’t be able to use it to reduce your salary or business income.

Current and Projected Income

If you anticipate that your salary or business income is likely to increase in the next income year, it may be worth considering ways in which you can defer incurring any deductions available to you until the next financial year. Alternatively you could prepone any income (such as bonuses) to this income year.

For example, Betty works for Simple Pty Ltd. According to Betty’s employment contract, she is entitled to receive a bonus based on performance once every calendar year. Betty can choose when she would like her bonus to be calculated and paid during the year. If Betty is liable to pay the flood levy in the 2012 income year, she may be better off asking for her bonus to be calculated and paid
before 30 June 2011.

Remember, it is crucial that these options are legitimately available to you and are exercised for commercial reasons other than tax. Also, the 2012 income year will likely be the last income year in
which you will be required to substantiate deductions less than $500 – as re-announced during the 2011-12 Budget, the government is seeking to introduce a standard deduction of $500 for the 2013 income year. The government intends to increase the standard deduction amount to $1,000 for the 2014 income year. Speak to your tax adviser before considering the standard deduction as you may be entitled to a higher deduction.

Use of private company assets

If you hold shares or are the associate of someone who holds shares in a private company, you should bear in mind that the laws were changed last year so that any assets owned by a private company
(such as for example a holiday house) that are used by either the shareholders or associates of the shareholders will result in a ‘deemed dividend’ that must be included in the assessable income of
the shareholder. The value of the deemed dividend is the market value of the use of or right to use the assets in question. Speak with your tax adviser for further clarification on this.

From our June, 2011 issue

The government announced during Budget 2011- 12 that the availability of deductions in respect of  income that is Youth Allowance or other government benefits will be legislated away for the 2012 income year onwards. However, eligible taxpayers will still be entitled to claim deductions for the current and past income years.

In recognition of the fact that many taxpayers will not have retained their receipts in relation to such deductions for past income years, the ATO announced earlier this year that students in receipt of Youth Allowance would be entitled to automatic $550 deductions for the 2007, 2008, 2009 and 2010 income years. Students who have an entitlement to a deduction of a greater amount and are able to substantiate the higher entitlements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In late May 2011, the ATO announced that this treatment would be extended to recipients of Austudy and Abstudy. As with Youth Allowance recipients, taxpayers who have an entitlement to a deduction of a greater amount and are able to substantiate the higher requirements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In addition, the ATO has acknowledged that recipients of Jobstart and Newstart allowance may also be entitled to claim certain deductions. However such taxpayers will not be entitled to the automatic $550 deduction. Ordinary substantiation requirements will typically apply.

TIP!

If you have been in receipt of Youth Allowance, Austudy, Abstudy, or Jobstart or Newstart allowance, you may be entitled to certain deductions against this income for the 2007 to 2011 income years.

You should consult with your tax adviser to obtain further details.

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From our June, 2011 issue

The ATO recently issued a taxpayer alert in relation  to the claiming of holiday travel as work related or  self-education expenses.

Broadly, the ATO is  looking at arrangements where taxpayers have undertaken domestic or overseas travel to a holiday destination and, have also undertaken educational or work related activities whilst on the trip.

In such circumstances, the ATO has noted that the cost of the travel will typically only be deductible to the extent that the expenses relate to the education
or work related activity.

Where an expense has a dual purpose, the cost needs to be apportioned on a reasonable basis as between the deductible and non-deductible components.

See your tax adviser to ascertain how much of the cost is deductible for tax purposes.

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From our February 2012 issue

A number of changes in relation to the taxation of superannuation have recently been announced:

• Individuals earning up to $37,000 will effectively pay no tax on their superannuation guarantee contributions from 1 July 2012. Under the low income superannuation contribution, the 15% contributions tax will effectively be refunded into the superannuation account of the relevant taxpayer in 2013-14.

• Reporting obligations will also be simplified and streamlined so that individuals who do not otherwise need to lodge an income tax return will not need to do so in order to claim the benefit of these reforms. Instead, the ATO will verify an individual’s income using available data to identify those taxpayers who qualify for assistance to boost their superannuation savings. These reforms will be especially helpful as approximately a million additional low-income earners will no longer have any income tax reporting obligations once the
tax-free threshold increases from $6,000 to $18,200 as of 1 July 2012.

• The government will pause the indexation of the superannuation general concessional contributions cap for one year in 2013-14, so it remains at $25,000. Indexation of the cap will be deferred until 2014-15, when the cap is expected to rise to $30,000. The pause in indexation of the general concessional contributions cap 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.

• From 1 July 2012, the government will reduce the super co-contribution (whereby the government matches the individual’s contribution dollar for dollar) by 50% to 50c per $1 contribution. This reduces the maximum benefit from $1,000 to $500. The measure also means that those earning more than $46,920 will no longer get a partial benefit compared with the current upper income threshold of $61,920.

These changes are unlikely to require a revision of your business practices in relation to superannuation contributions for your employees. However, it is important to be aware of these changes when making decisions in relation to your contributions in 2012. It is also important to bear these changes in mind when negotiating employment contracts with your employees.

To do!

The laws governing the taxation of superannuation are set to change. Seek advice from your tax adviser so that you can find out how these changes affect you.

From our February 2012 issue

Due to the current budgetary restraints faced by the government, the implementation of a number of previously announced tax law measures will be deferred until a later date. In addition, a number of additional measures have also been announced.

Further details are as follows:

The government will restrict the dependent spouse tax offset to those with spouses born before 1 July 1952, effective from 1 July 2012. This reform will not affect people whose spouse is an invalid or a carer, or who receive the zone, overseas forces or overseas civilian tax offsets.

 The dependent spouse tax offset is a measure to reduce the amount of tax you’re expected to pay. To claim the offset, the dependent spouse cannot have earned more than $9,426 for the year, must be an Australian resident for tax purposes, and must have been otherwise dependent on the breadwinner. The main earner’s income has to be less than $150,000.

The government will defer the following previously announced tax reforms by one year:

The start date of the standard deduction for work-related expenses will be deferred until 1 July 2013. Once available, the standard deduction will start at $500 and then increase to $1,000 in the subsequent year. We will provide further detail on how the standard deduction will operate closer to its time of introduction.

The start date of the 50% tax discount for the first $500 of interest income will be deferred until 1 July 2013. This amount will increase to $1,000 in the subsequent year. We will provide further detail on how the discount will operate closer to its time of introduction.

The start date of the new tax system for managed investment trusts will be deferred until 1 July 2013.

The start date of the phase down in interest withholding tax for financial institutions will be deferred until 2014-15.

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From our February 2012 issue

The government recently announced that, due to some perceived rorting of the existing tax treatment of the living-away-from-home allowance (LAFHA), changes will be made to:

 • Remove the taxation of LAFHA from the FBT sphere into the income tax sphere. This means that the employee (rather than the employer) is liable to be taxed on any LAFHA received that is not exempt,

• Limit access to the tax exemption for temporary residents to those who maintain a residence for their own use in Australia, from which they are living away from for work purposes.

• Require individuals to substantiate their actual expenditure on food and accommodation beyond a statutory amount.

These changes are due to apply from 1 July 2012, with consultation currently ongoing in relation to a range of implementation issues, including whether transitional measures are appropriate.

According to the Treasurer’s media release, no permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.

Regardless, these changes will require re-examination of any LAFHA you pay to your employees, both in relation to the increased compliance burden that will result and also to determine the substantive issue of whether your employees will continue to benefit from the tax exemption.

If the tax outcome under the proposed laws differs from the outcome under the current laws, and the allowances paid to the affected employee are governed or affected by an existing arrangement (such as an employment agreement or a rental agreement), you will need to consider how the changes will affect those contracts and whether renegotiation is necessary.

To do! 

If you currently pay LAFHA to any of your employees, the rules are set to change from 1 July 2012. You should seek advice from your tax adviser in relation to how these changes will affect you.

From our February 2012 issue

After months of uncertainty for taxpayers and the ATO, the government announced its plan to tackle the issue of the tax treatment of rights to future income in the context of consolidation late last year.

This issue relates to the manner in which rights to future income (such as the right to receive payments under a contract) were treated on consolidation following legislative amendments in 2010 to equate such tax treatment with the treatment allowable outside the tax consolidation context.

Broadly, the amendments allowed the cost base in these rights to future income to be deducted over a set period. Notably, these amendments applied retrospectively to the start of the consolidation regime (ie 1 July 2002), as the amendments were considered at the time to be a mere clarification to restore a tax treatment that was always intended to result.

Uncertainty arose after the 2010 amendments in relation to the type of assets that could constitute a “right to future income” for these purposes. The government was of the view that some taxpayers were interpreting the provisions too broadly so as to allow a more generous tax treatment than was allowable outside the consolidation regime.

The government directed the Board of Taxation to investigate and report on the issue and has now announced that the Board’s recommendations (set out below) will be implemented retrospectively (ie from 1 July 2002).

The Board made the following recommendations for changes to the future operation of the consolidation rules:

• The consolidation tax cost setting rules should apply only to assets already recognised for taxation purposes.
• The residual tax cost setting rule should be modified so that, for the purpose of applying the rule to an asset, the consolidated group is taken to acquire the asset as part of a business acquisition.
• The rights to future income rules should be limited to rights to unbilled income (or work in progress amounts) so that they align with deduction provisions in the general tax law.
• The tax cost setting rules should treat majority-owned revenue assets as retained cost base assets, to prevent the double
  claiming of deductions by a single economic group in relation to the same revenue asset.

While the changes are retrospective, the specific impact will depend on the time when the relevant acquisition took place.

Corporate acquisitions that took place before 12 May 2010 will be affected by the changes, subject to the application of normal amendment periods. These changes are necessary to ensure that deductions are claimed only when it was intended.

Changes for the period between 12 May 2010 and 30 March 2011 will largely protect taxpayers who made business decisions on the basis of the current law before the Board’s review was announced.

For acquisitions after 30 March 2011, changes will be made to limit the circumstances in which deductions may be claimed and to ensure that a business acquisition approach is applied in specific circumstances.

Private rulings sought and received by taxpayers from the ATO, including written advice under advance compliance agreements, will be honoured.

To do!

If you were involved in a business acquisition between 1 July 2002 and the present day, and the acquiring entity was part of a consolidated group, you should seek advice from your tax adviser in relation to how these changes affect you. Beware, these laws are very complex.

]]> http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/changes-to-tax-law-consolidated-groups/feed/ 0 http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/trust-reform/ http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/trust-reform/#comments Sat, 17 Mar 2012 00:49:59 +0000 Christie http://www.lewistaxation.com.au/?p=6668

From our February 2012 issue

As noted in earlier editions of Taxwise, the government is currently undertaking a broad reform project in relation to the taxation of trusts.

Following the case of Bamford (in which the High Court confirmed that “trust income” for the purposes of Div 6 is determined by the trust deed), a number of previously established and accepted practices in relation to the taxation of trusts were potentially no longer legally viable.

These practices included:

- Streaming particular types of income to specific beneficiaries.

 - Allowing primary production trusts to average income.

- Allowing trustees and beneficiaries to enter into agreements to allocate the tax liability with respect to the capital gains of the trust.

The streaming amendments introduced just before 30 June 2011 were an interim measure to allow the streaming of franked dividends and capital gains.

As previously announced by the government, a broader review of the taxation of trusts is now underway in order to tackle the other problems set out above and to bring a degree of functional simplicity to the trust tax laws.

Consultation in relation to these models is ongoing, and legislation to implement the chosen option is due to come into effect on 1 July 2013.

To do!

 If you have a trust that you currently use as an estate and/or tax planning vehicle, you should consult with your tax adviser in relation to the effect that this rewrite may have on your affairs.

]]> http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/trust-reform/feed/ 0 http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/tax-treatment-of-losses/ http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-feb12/tax-treatment-of-losses/#comments Sat, 17 Mar 2012 00:38:21 +0000 Christie http://www.lewistaxation.com.au/?p=6665

From our February 2012 issue

The tax treatment of losses is currently being examined.

It is not expected that the reforms will affect losses incurred to date. Instead, the new laws will likely apply in relation to losses incurred after the date of introduction of the measure/s.

An announcement in relation to possible reforms is expected in the middle months of this year, or as part of the 2012-13 Budget papers.

To do!

If your business has been in a loss-making position, or you expect to incur tax losses in the years ahead, you should consult with your tax adviser in relation to the potential impact of these changes on your business.

From our February 2012 issue

Late last year, the High Court of Australia ruled that the Commissioner is not permitted to withhold GST refunds for any period of time in order to investigate the legitimacy of the refund itself.

This is set to change as a result of the GST self-assessment laws due to come into effect from 1 July 2012. The precise detail of this law has not yet been settled but it is likely that the Commissioner will, under the new laws, be able to withhold refunds for the purposes of investigation, with the taxpayer holding only limited rights of review in relation to the Commissioner’s decision to withhold.

In the meantime, the ATO is attempting to clear any back-log of outstanding refunds and is putting in place rapid-response teams to act in situations in which fraudulent claims are suspected.

Note!

If you have a GST refund that has been withheld, it should be refunded in the near future. Any future GST refunds cannot be withheld by the ATO for the purposes of verification. However, your claims may still continue to be subject to post-refund scrutiny by the ATO in certain circumstances.

From our November 2011 issue

The ATO has launched a number of new tools to assist taxpayers in the property sector, including a GST Property Tool and a Margin Scheme Eligibility product.

These tools are intended to assist taxpayers in fulfilling their compliance obligations, educate taxpayers that are uncertain of their obligations and provide a “self-help” mechanism that will allow taxpayers to assess the availability of certain options.

These tools are a great place to start if you want to learn a little more about your obligations. The tools may also assist you in getting together the right information for or asking the right questions of your tax agent in relation to your compliance obligations.

However, you should be careful to use the tools only as a guide and not as a given as the answers produced by the tools are not guaranteed in any way by the ATO.

If you are not sure about any of the answers or detail provided within these tools, you should consult our office on 1300 352235.

]]> http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/ato-business-tools-property/feed/ 0 http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/building-and-construction-industry-contractors/ http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/building-and-construction-industry-contractors/#comments Thu, 15 Mar 2012 05:23:55 +0000 Christie http://www.lewistaxation.com.au/?p=6645

From our November 2011 issue

During the 2011-12 Budget, the government announced that a new reporting regime would be introduced requiring certain businesses in the building and construction industry to report annually to the ATO with details of payments made to contractors.

This new reporting regime will start on 1 July 2012.

The new regime is intended to “level the playing field” between the use of employees and contractors in the industry and ensure that employers correctly apply the distinction and therefore appropriate tax treatment to individuals that fall into either of these categories.

Under this regime, businesses will be required to report to the ATO any amounts paid to contractors along with each contractor’s ABN.

At this stage it is envisaged that payments for a supply made under a contract that is in whole or in part for the supply of building and construction services will need to be reported under this regime.

Only businesses will have these reporting obligations i.e. no individual that hires a contractor will be required to report payments under this regime. It is hoped that these additional reporting requirements will result in information which the ATO will use to target its compliance and education efforts.

TAKE NOTE:

If you engage contractors to provide “building and construction services”, from 1 July 2012 payments that you make to these contractors will need to be reported separately to the ATO.

Much of the information required to be remitted will be available to you anyway, but you may have to reconfigure your reporting systems.

You should talk to your tax adviser about updating your systems to cope with this change.

]]> http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/building-and-construction-industry-contractors/feed/ 0 http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/incorporation-of-professional-practices/ http://www.lewistaxation.com.au/business-tax-newsletter/taxwise-business-nov11/incorporation-of-professional-practices/#comments Thu, 15 Mar 2012 05:13:51 +0000 Christie http://www.lewistaxation.com.au/?p=6641

From our November 2011 issue

This month the ATO released its final tax determination on the capital gains tax, employee share scheme and share buy-back consequences of dealing in shares in companies that are incorporated professional practices.

These determinations will affect any business that is or is going to be carried on in a company structure and provides professional services (for example medical practices, law firms or accounting firms).

By way of background, many practices of this nature were previously prevented from operating in an incorporated structure. As a result, many such practices were instead run through a partnership structure.

In order to prevent the crystallisation of capital gains and losses on the introduction or exit of partners in large practices (which would have caused significant compliance and cash flow difficulties), the Commissioner issued IT 2540 in 1989.

Broadly, this IT applied to certain partnerships that permitted the introduction of partners for nil (or nominal) consideration and permitted no capital proceeds to be paid to a retiring partner. In the IT, the ATO sets out the manner in which the Office will seek to tax such transactions.

This treatment is as follows: the ATO will treat the partnership as having no goodwill (for capital gains tax purposes). This means that when partners join or leave the partnership, no CGT gain or loss will typically be crystallised so long as the partnership holds no other assets and the partners are acting at arm’s length.

TD 2011/26 is intended to mirror this outcome for:

 • such partnerships that have since incorporated (as many are now permitted to do); and

• professional practices that have been set up in an incorporated structure.

Broadly, according to the determination, if:

• each shareholder is an individual and an active participant in the professional practice, and holds the shares legally and beneficially;

• the shareholders are dealing with each other at arm’s length in relation to dealings in shares in the company; and

• all such dealings are undertaken for either nil consideration or nominal consideration;

the ATO will accept that the company is a “no goodwill” practice so that the market value of the shares (for capital gains tax purposes) is equal only to the relevant percentage of the market value of any other assets in the company.

This treatment will also apply for the purposes of the employee share scheme provisions and the share buy-back provisions (when these draft TDs are finalised).

If your business provides professional services, and has either incorporated or you are thinking about incorporating the business, you should consult your tax adviser in relation to the applicable tax treatment of dealing in shares in this practice.

From our November 2011 issue

In September 2011, the High Court handed down its judgment in the appeal from Roy Morgan Research Pty Ltd v FCT [2010] FCAFC 52.

While this case was famously reported in the press as affirming the constitutional validity of the Superannuation Guarantee Charge (SGC), it has also raised a separate issue that is much more immediate for businesses –many businesses still remain confused as to the circumstances in which the business is liable to pay SGC (especially in respect of contracts for labour).

As the liability to pay SGC lies with the employer, even where the employer and individual are mutually of the view that the relationship is a contractual agreement as a result of which the individual (and not the employer) is liable to make super contributions, the liability of the employer to pay SGC is not extinguished.

This means that employers may be required to make payments of SGC outside the contractual arrangement with the individual where the nature of the relationship differs (for legal purposes) from that considered to be the case by both parties.

Should such a situation arise, the employer will be liable to pay not just the SGC, but also interest and administration charges. In addition, SGC is not deductible and there is no legislative “cut-off” date for the liability to SGC.

While the ATO has noted in a practice statement that they will typically not seek to impose liability back further than five years, this practice statement does not represent a guarantee of any sort to employers caught in this situation.

Adding further fuel to this fire, legislative amendments in a Bill currently before Parliament seek to extend the Director Penalty Regime to unpaid Superannuation Guarantee Charge, so that directors will be personally liable for this payment.

As such, the potential pitfalls of an incorrect assumption in relation to your liability to make super contributions may be significant.

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From our November 2011 issue

The GST financial supply laws have always been difficult to apply.

In addition, the financial acquisitions threshold has historically been so low so as to deny input tax credits in respect of acquisitions that relate to financial supplies even for businesses for whom financial supplies constitute only a small percentage of their total business.

In recognition of the administrative burden imposed by these rules, the Government will, with effect from 1 July 2012 amend the GST financial supply laws to reduce compliance and administrative costs.

Specifically the law will be amended to:

Increase the financial acquisitions threshold input tax credit test from $50,000 to $150,000.

 This will effectively triple the value of acquisitions (related to the making of financial supplies) that you can make before your input tax credits in respect of the GST on those acquisitions are considered not to be for a creditable purpose.

The measure is intended to simplify the GST treatment of financial supplies for a range of small businesses that do not make significant supplies of this nature.

Allow small businesses that account on a cash basis to access full input tax credits upfront when they enter into hire purchase arrangements.

At the moment these input tax credits are required to be apportioned over the life of the agreement.

Exclude bank deposit accounts from the current special rules for borrowings.

If you are unsure of how these changes will affect your GST compliance systems, you should consult with your tax advisor before the changes come into effect so that you can adequately plan for the changes and update your systems as necessary.

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