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October 2013 News Letter

What does tax look like under a Coaltion government?

Now that the Abbott government is settling in, it is worthwhile to look at their promises and the commitments that they made in the run-up to the election.

Here's a runndown on some of the more important comitments, although many don't have effective dates:

  • Self Education expenses: There will be no $2,000 cap on self-education expense deductibility.
  • FBT and cars: The statutory formula method for car fringe benefits will not be abolished.
  • Company tax rate to be cut to 28.5% from 1 July 2015.
  • No changes to GST rate before the next election - although a proposed Tax Reform White Paper may cover possible GST reforms.
  • Abolish the carbon tax.
  • Abolish the mining resource rent tax (MRRT).
  • Discontinue the tax loss carry-back measure (linked to the MRRT).
  • Discontinue the small business instant asset write-off (currently $6,500).
  • Remove accelerated depreciation for motor vehicles for small business (currently $5,000).
  • Introduce a 1.5% levy on companies with taxable incomes above $5m to fund a Paid Parental Leave (PPL) Scheme - from 1 July 2015 - and give mothers six month's leave based on their wage (capped to an annual $150,000 salary) or the national minimum wage (whichever is the greater), plus super.
  • The superannuation guarantee will increase from 9% to 12%, but will be delayed by 2 years, so that the 12% target is achieved in 2012 rather than 2019.

What the ATO is up to with its FBT Audits

Editor: The ATO says that it is using auditors from other compliance areas to check on employers providing benefits that may be liable to FBT. 

Employers outside the FBT system

- the ATO has advised that where compliance work (an audit) is being undertaken primarily on other taxes, ATO staff have been told to look at FBT issues where information held by the ATO indicates an FBT risk.

For example, an employer may have motor vehicles registered in the business name, but no FBT return has been lodged or any employee contributions disclosed. The ATO says that additional FBT training is being provided to compliance staff in these areas.

GIC and SIC rates for 2013 December quarter

The ATO has released the 2013 December quarter rates for the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) as follows:

GIC annual rate 9.6%

GIC daily rate  0.02630137%

SIC annual rate  5.6%

SIC daily rate  0.01534246%

 

Tax not always fair? What a surprise!

Editor: The following three cases are good examples of why you should always get tax advice up-front before entering into financial transactions.

Case 1 is the sad tale of a taxpayer who sold a property, didn't receive the full proceeds of the sale but still had to pay the taxman the GST, as if they had received the full amount.

In this case, when the purchaser couldn't come up with the full amount at settlement, the taxpayer entered into a vendor's finance agreement. Under that agreement, the vendor effectively 'loaned' the balance of the purchase price to the purchaser.

As a result, the taxpayer had tp apy GST on the full amount. In the end, the purchaser couldn't pay the full amount they owed to the vendor. Nonetheless, GST was still payable on the full contract price.

Case 2 involved a taxpayer who deposited $430,000 into his super fund. When the GFC hit, he panicked and withdrew half. Six months later he reconsidered, and redeposited another $100,000.

Now, you're only allowed to deposit $450,000 in your own contributions in a three year period (if you're under 65). But he thought that on a net contribution basis, he was okay given that he had withdrawn about $200,000. Unfortunately the rules are simple. Don't contribute more than $450,000.

He did and was slugged excess contributions tax on the extra $80,000 that went into the fund.

Case 3 involved a council worker who claimed that he was also a share trader, not merely a share investor - probably to be able to claim losses on sales of shares.

Even thouigh the taxpayer had turnovers of $934,575 and $385,938 in the years concerned, the AAT member presiding over the case said that while it was more than a hobby, it was not a business.

The taxpayer even maintained an office specifically for the purpose of conducting his share trades and for accounting and tax calculations.

Editor: Quite clearly, this was a 'line-ball' decision that unfortunately went against the taxpayer. Good advice would have cautioned him to prepare business plans and conduct himself in a more 'business like' way.

Cases 1 and 2 could equally have gone the taxpayers way with the right advice.

 

 

 

 

 

 

 

 

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