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October 2012 News Letter

 New Changes Affecting SMSF's

 The Government has recently amended the SIS Regulations to impose further requirements on self managed superannuation funds (SMSF's) from the 2012/13 income year.

 The new regulation require that:

  • trustees of SMSF's must consider insurance for their members as part of the fund's investment strategy;
  • money and other assets of an SMSF is to be kept separate from those held by a trustee personally (and by some employers); and
  • SMSF assets are to be valued at market value for reporting purposes.

 ATO Tackles 'employee or contractor' Question

 The Tax Commissioner has announced the release of the ATO's new 'Employee or Contarctor' homepage, which has been developed to help address areas of confusion and "highlight common reasons businesses get the employee or contractor decision wrong."

 The Commissioner stated that the "Employee or Contractor " homepage has all the information businesses need in one place to help them determine if their workers are employees or contractors, including:

  •  the basics - things every business needs to know;
  • common reasons businesses get the decision wrong;
  • industry specific information;
  • an Employee/Contractor decision tool which will guide businesses in making their decisions; and
  • a summary of the obligations businesses need to meet for their employee or contractor.

 Editor: Clients may wish to visit the ATO's website and if you have any queries please contact our office. http://www.ato.gov.au/businesses/content.aspx?menuid=0&doc=/content/4540.htm&page=2&H2

 Tax Office "ups the ante" on Tax File Number Reporting

 The ATO has recently stated that it will review 2011 Trust Tax Return 'distribution statements' to identify where a beneficary has received a distribution and not quoted a TFN.

 Editor: It would seem that the ATO is set to embark on a robust audit campaign targeting trusts and strictly applying the TFN withholding rules.

 By way of background, a trustee of a trust is generally required to withhold 46.5% in tax from distributions where beneficiaries fail to provide their TFN. If the trustee does not withhold tax, it can face fines or penalties.

The simple message is that all trustees should ensure they have beneficaries ' TFNs before making distributions.

 Compliance Action

 Trustees will be selected by the ATO based on considerations such as:

  •  size of distribution;
  • whether the beneficiary appears to have returned the distribution as income.

 The letter forwarded to trustees will:

  • explain the measures;
  • provide the ATO's understanding of the facts;
  • ask the trustee to confirm whether the ATO's understanding is correct; and
  • explain to the trustee how they can rectify the situation going forward, noting there may be penalites/remission.

 Excess Contributions Case - Special Circumstances Win For Taxpayer

 Editor: The case below involves a taxpayer attempting to argue that an excess contribution tax assessment should be set aside for 'special circumstances'. Somewhat against the flow, the taxpayer was unexpectedly successful.

 Facts of The Case

During the 2010 financials year, the taxpayer's employer made total superannuation contributions of $71,551 - $21,551 over the limit of $50,000.

The employer's super contributions were made to two different superannuation funds - $25,367 to AMP and $46,184 to Tasplan.

 During the 2009 income year, the taxpayer had asked their employer to stop makingany super contributions to AMP from 1 July 2009 because they were unhappy with the 4.5% commission levied by AMP, and they asked that all contributions be forwarded to Tasplan.

 Unbeknown to the taxpayer, their employer had made super contributions of $25,551, resulting in excess contribution tax ("ECT") of $ 6,788.70.

 The taxpayer then sought relief from the ECT, on the basis that 'special circumstances' existed and that the contributions should be disregarded or reallocated.

AAT Decision

 The AAT said that the taxpayer was understandably not aware of the super contributions made to AMP in July 2009, because all super contributions should have been paid to Tasplan.

 According to the AAT, these facts amount to 'special circumstances'. As such, the AAT ordered that the $25,367 contributions paid to AMP in July 2009 (being the 2010 income year) be reallocated to the 2009 income year, resulting in no ECT being payable.

 When Is A Business A Business?

 Editor: We have recently seen a surge in the number of AAT cases involving the issue of whether a taxpayer is carrying on a business. In this case, the taxpayer was unable to demonstrate that he carried on a primary production business.

 Facts of The Case

The taxpayer owned a 500 acre property located in Queensland. Between 2004 and 2009, he claimed deductions in relation to improvements to the property and other expenses on the basis he was carrying on a primary production business.

He had undertaken 14 different primary production based activities over the years in question, including free range pigs, timber growing, storing and breeding cattle, and growing an orchard.

 Unfortunately, non of the activities actually generated any income and nor had they involved much more than planning for the commencement of the business.

It was not in dispute that the tax payer had a genuine intent and belief that he was carrying on a business.; evidenced by research associated with the various businesses and the preparation of various business plans.

 In this case, the ATO argued that the activities of the taxpayer had not reached the point to be accurately characterised as a business and that the taxpayer was still in the process of preparing to carry on a business.

AAT Decision

The AAT confirmed the ATO's conclusion that the activities of the taxpayer did not amount to carrying on a business and concluded that although the taxpayer had a genuine intent and desire to carry on a business, at best it could be said that he was in the gestation stages og carrying on a business.

 Claim The Tax free Threshold with More Than One Employer!

 The ATO has updated its documents titled 'When you have income from two payers' reminding taxpayers who receive income from two employers that they are entitled to claim the tax-free threshold for more than one payer at the same time.

This update by the ATO reflects the increase in the tax-free threshold from $6,000 to $18,200 from July 1 2012. However, the ATO has made it clear that taxpayers considering this strategy must be certain that their taxable income for the year in question will be no more than $18,200.


Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.






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