Tax Newsletters
April Taxation Newsletter
April 13, 2011 | 
Author Cash Economy Letters Encouraging Compliance, Says Tax Office
According 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 Posted
In 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 Rates
The 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):
|
Rate
|
Annual (%)
|
Daily (%)
|
|
GIC
|
11.92
|
0.03265753
|
|
SIC
|
7.92
|
0.02169863
|
Labour Hire Firms and Splitting Income Warning
The 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 Amended
The 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 Office
Tax Office
The 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 Calculation
A 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 Floods
Self-Managed Super Funds
Affected by Floods
The 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.
Posted in 
March Taxation Newsletter
Temporary Flood Levy Proposed
The 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 Victims
The 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.
TIP: 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 Account
In 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 Losses
The 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 Cap
The 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.
TIP: 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.
TIP: To be eligible for a deduction for a personal superannuation contribution, the individual must:
(a) give a notice to the fund trustee stating his or her intention to claim a deduction; and
(b) receive an acknowledgment of receipt of the notice.
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 Cheque
The 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.
February Tax News Letter
Whether a Property Constitutes Residential Premises for GST Purposes
Under 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.
Dec/Jan Tax Newsletter
Trust Entitlements and Loans: Tax Office Issues Guidance
The 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. The Commissioner said the practice statement provides practical ways for businesses to work towards a compliant structure with minimal impact on their cash flows or how they operate. He said that where businesses had made mistakes in the past, the practice statement provides several options for private companies to self-correct. TIP: The opportunity to self correct is available for a limited time only. Please contact our office if you think you may be affected. Continue reading “Dec/Jan Tax Newsletter” »