Autumn 2002 Newsletter

2009/10 FBT YEAR

The end of the 2009/10 fringe benefits tax (FBT) year, 31 March, has arrived and that means, after this date, FBT returns will soon be due for lodgment.

Where we usually prepare the FBT return for your business, we ask that you collect all relevant FBT records relating to any benefits provided, such as:

Ø motor vehicles;

Ø car parking;

Ø entertainment;

Ø expenses payments; and

Ø living away from home allowances;

together with travel diaries, employee declarations, etc.

Editor: Please call if you need to make an appointment or discuss the records needed. The following is some general information about FBT as it may apply to you and your business.

FBT rate

The FBT rate of tax for the year ended 31 March 2010 is 46.5%.

Minor benefits exemption

Fringe benefits with a taxable value of less than $300 may be exempt from FBT if they are provided on an irregular and infrequent basis.

For a benefit to qualify for this exemption, the benefit must have a GST-inclusive taxable value of less than $300.

Entertainment – what is it and when are you

caught for FBT?

Editor: Entertainment is always a problem for FBT purposes because it relates to the provision of food and drink which sometimes is not liable to FBT – travel – and sometimes is – staff parties.

The following are some examples of what is entertainment;

restaurants where family and clients are entertained;

food and drinks provided at a staff social function;

entertainment and drinks provided to employees on Friday nights;

the cost of taking staff and their partners out to lunch; and

cost of taxis and limousines to and from entertainment venues.

An employer who has provided meal entertainment fringe benefits may work out the taxable value of their meal entertainment under one of these three methods:

50/50 split method;

12 week register method; or

actual expenditure incurred on meal entertainment method.

Editor: If you think that you may have provided ‘entertainment benefits’, the method we can help you choose to determine the FBT taxable value can substantially reduce the FBT payable.

RENTAL PROPERTIES AND

TRAVEL EXPENSES

What travel expenses can taxpayers with a rental property claim?

Taxpayers can claim:

preparing the property for new tenants (except for the first tenants);

inspecting the property during or at the conclusion of tenancy;

undertaking repairs, where those repairs are a consequence of the damage or wear and tear incurred while being rented out;

maintenance of the property, such as cleaning and gardening, while it is rented or available for rent;

collecting the rent; and

visiting their agent to discuss their rental property.

Domestic travel requiring an overnight stay

A rental property may be located so far from where a taxpayer lives that it would be unreasonable to expect them not to stay near the property overnight when making an inspection.

If this is the sole reason for the trip, they are entitled to claim a deduction for travel expenses incurred in travelling to the rental property.

Where an overnight stay is involved, they would be entitled to claim for meals and accommodation.

NO TAX DEDUCTION FOR

MISAPPROPRIATED FUNDS

Editor: This is more of a story about being careful of whom you hand your money over to, to invest, than it is about this taxpayer getting no deduction for funds that were stolen.

This taxpayer was silly, but his poor decision ended up costing him much more than the $3.3 million that he handed over to a con man.

The Full Federal Court has held that the taxpayer was not entitled to a deduction of $3,287,749 in respect of monies from the sale of shares which had been subsequently misappropriated even though the taxpayer was assessed on the profit on sale of the shares.

The Facts

In his 2002 return, the taxpayer included a net capital gain of $2.3 million from the sale of Microsoft shares.

In July and August 2001, he had instructed a US stockbroker to sell those shares and transfer the proceeds to a Hong Kong bank nominated by a Mr Heffernan – a supposedly reputable and highly successful securities trader and fund manager.

The funds were misappropriated and in his 2002 return, he claimed deductions totaling $4,972,671 which included the sum of $3,287,749 in respect of

the misappropriation of monies received from the sale of shares.

The Law

Under tax law, to be able to claim a deduction, the money that was misappropriated must be the same

money that was included in the taxpayer’s assessable income.

In this case, the monies (the proceeds from the sale) were transferred from the stockbroker to another person as a totally separate investment. The link was broken when the funds left the stockbroker’s hands, and the Court had no option but to disallow the deduction.

ATO & LOANS TO “BUCKET” COMPANIES

Editor: By way of background, for many years now the Tax Office has accepted that trusts could make distributions to private companies but not actually have to pay the amount. These were called unpaid present entitlements.

These amounts were taxed in the hands of the company and the trustee was able to continue to use the funds for the benefit of all beneficiaries.

The Tax Office has now reversed that longstanding view and issued a draft ruling that many see, at the very least as contentious.

New draft ruling

The new draft ruling means that, generally speaking, where a trust does not physically pay out a distribution to a private company, the Tax Office will deem that a loan has been provided by the private company to the trust.

Where that occurs, the amount owing under the ‘newly created loan’ may be treated as a dividend to the shareholders of the company.

“Carve-out” for existing unpaid distributions

However, distributions made before 16 December 2009 are not affected by the ATO’s new interpretation, and will therefore not generally be treated as loans (or dividends).

Editor: We have not gone into the technical side of this issue which is quite complicated to the uninitiated.

However, we recommend that any clients who may be concerned with how this draft ruling could affect them should contact our office.

For what it’s worth, this is a draft ruling and it is possible, but not likely, that the ATO will change its view. In addition, the Tax Office’s position has yet to be tested in Court.

GOODS TAKEN FROM STOCK

FOR PRIVATE USE

The Tax Office has issued a new tax determination which estimates of the value of goods taken from trading stock for private use by taxpayers in certain industries for the 2009/10 income year.

Editor: Clients who may be able to justify a lower value for goods taken from stock than that shown in the schedule should speak to us.

The Schedule for the 2009/10 income year is:

Type of

Business

Adult/child

over 16

Child 4-16

years

Bakery

1,130

565

Butcher

760

380

Restaurant/café

(licensed)

3,860

1,540

Restaurant/café

(unlicensed)

3,080

1,540

Caterer

3,330

1,665

Delicatessen

3,080

1,540

Fruiterer/

Greengrocer

810

405

Takeaway food

shop

2,920

1,460

Mixed business

(includes milk bar, general store & convenience

store)

3,680

1,840

BEWARE OF ‘PHISHING’ SCAM

The Assistant Treasurer has warned Australians of a new email phishing* scam using the lure of a tax refund to try to steal private information.

Note(*) Phishing: To request confidential information over the Internet under false pretences

to fraudulently obtain credit card numbers, passwords, or other personal data.

“This particular scam is quite sophisticated and uses convincing fakes of what could be easily mistaken for Australian Tax Office web pages,” he said.

“The email claims to be from the ATO and shows a fake Tax Office email address as the sender.”

The email uses the Tax Office logo and includes the words ‘Tax refund’ in the subject heading.

The email asks people to enter their email, name and date of birth to search for any refund owing, which then directs them to a bogus Tax Office website and asks for personal and credit card details.

“Anyone who has already entered their credit card information into the bogus site should immediately report it to their credit card provider.”

HALL JACKSON SERVICES

We would like to remind our clients that we offer the following services through referral to our valued contacts.

Financial planning, investment and retirement advice;

Business succession, estate planning and risk insurance; and

Residential and commercial lending (including short-term financial), asset purchase and refinancing.

Please contact our office if you would like to discuss any of the above services. A full list of services can be found on our website at www.halljackson.com.au

QUOTE FOR THE SEASON

“There is always somebody who is paid too much and taxed too little – and it’s always somebody else.”

- Cullen Hightower -