Super contributions caps – more tinkering of rules

Due 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.

TIP: 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 deferred

The 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 claims

The 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.

TIP: 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” securities

The 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 concessions

A 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.

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 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 premises

The 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.

TIP: 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 review

The 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.

Small business benchmarks under microscope

The 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 2012

The 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 system

In 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 Court

An 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 event

In 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 Tribunal

The 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 introduced

The 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.