Autumn 2002 Newsletter

ATO: BE CAREFUL WHEN CLAIMING LOSSES ON SHARES

The ATO recognizes that the global economic downturn has decreased the value of many people’s investments over the past year, and that some taxpayers may be ‘confused’ about the difference between capital losses (share holding) and revenue losses (share trading).

They remind taxpayers that the taxation of their investments in prior years is relevant when working out the treatment of a loss in the current year, so if there has been minimal change in the nature of their investment activity, it is likely that the same tax treatment applies in the current year.

For example, if a taxpayer has previously sold shares and claimed the 50% CGT discount, and has then realised a loss in the current year, they would be expected to claim this as a capital loss.

Taxpayers who seek to reclassify their activities may be asked to provide evidence that demonstrates a change in the nature of their activities or that they have declared their income incorrectly in the past.

CASH ECONOMY & PERSONAL LIVING EXPENSE GUIDE

The ATO has developed a new guide to explain the importance they place on examining taxpayers’ household expenditure when identifying omitted cash income in the course of reviews or audits.

Editor: Basically, what the ATO will do is work out the taxpayer’s family’s living expenses, and compare this to their declared income – if the income is less than the expenses, something may be wrong….

Personal living expense worksheets

During an audit, the ATO often asks taxpayers to complete a questionnaire detailing the living expenses for their household.

The worksheets detail the type of information they look at when examining taxpayers’ personal living expenses, including such items as tobacco and alcohol, heating, power, water and sewerage, phone, gardening and security, eating out,

takeaways, lunches and coffees, lottery tickets, clothing and footwear, and “grooming” expenses.

Of course, many of these can be checked with third parties (banks, utilities, etc.), although other expenses have to be estimated. This new guide is integral to those estimations.

If, in the course of an audit, the ATO re-assesses the taxpayer’s income to a higher figure, the taxpayer would then have to take the ATO to court to prove that the ATO’s assessment is excessive.

The taxpayer may also have to pay penalties and interest.

ATO’S 2009/10 COMPLIANCE TARGETS

The Tax Office has issued its 2009/10 Compliance Program setting out where it intends to concentrate its audit activity.

Some of the things the Compliance Program will concentrate on include:

Early identification of businesses that need help (particularly small businesses) and may fall behind in payments. Early indicators are late lodgments, or payment hiccups;
Continuing development of industry benchmarks, which will be used in audits;

Ensuring employers comply with their PAYG and superannuation obligations;

Serial bankruptcies; and

Highly paid individuals.

Superannuation and SMSFs

The ATO is also about to increase its pressure on trustees of SMSFs and their approved auditors.

In the last 12 months they made 60 - 70 funds non-complying, and more cases are coming through. One fund, whose trustees extracted funds for their own use, had to pay penalty tax of 45% on the value of the assets of the SMSF – a costly decision.

CAR DEPRECIATION LIMIT FOR 2009/10

The Tax Office has advised that the car depreciation limit for the 2009/10 financial year is $57,180 (unchanged from the 2008/09 year).

ATO HELP FOR SMALL BUSINESS

The ATO has announced new measures to help small businesses that are struggling to manage their tax debts in the current economic climate.

12 month GIC-free payment arrangements

Businesses with an annual turnover of less than $2 million with an activity statement debt can apply to the ATO for a GIC-free payment arrangement from now until 30 June 2010.

Editor: ‘GIC’ is the ‘General Interest Charge’, or interest payable on the debt, currently 10.13%

They will have the GIC remitted for a maximum period of 12 months, provided the payment arrangement is maintained.

Deferred activity statement payment due dates

Small businesses can also request a deferral of payment on their next activity statement.

Businesses with short term cash flow problems that pay quarterly and annually may be granted a deferral of up to two months, with those that pay monthly eligible for up to one month.

Activity statements still have to be lodged on time, but no interest will apply for the period of the deferral.

Editor: Please contact us if you would like us to approach the ATO on your behalf.

TAX RATES AND THRESHOLDS FROM

1 JULY 2009

The following is a snapshot of the new Individual Resident tax rates and thresholds applying from 1 July 2009, with the changes from last financial year highlighted in bold.

Taxable Income ($)	Tax Payable
0 – 6,000	Nil
6,001 – 35,000	15% of excess over $6,000
35,001 – 80,000	$4,350 + 30% of excess over $35,000
80,001 – 180,000	$17,850 + 38% of excess over $80,000
180,001+	$55,850+ 45% of excess over $180,000

SMSF’S AND RELATED PARTY

TRANSACTIONS

The ATO is warning SMSF trustees to be careful about people offering to set up an agreement between their SMSF and a related party to purchase assets, particularly properties.

These arrangements may breach the in-house asset rules that the SMSF must follow to be considered a complying super fund.

Editor: The in-house asset rules are one of the many investment restrictions that apply to SMSF’s.

Basically, only 5% of an SMSF’s assets can be “in-house assets”, which are investments in related parties or lease arrangements with related parties (subject to some exceptions).

The arrangements the ATO is concerned about use a third party to set up an agreement (sometimes referred to as ‘a joint venture agreement’) between the fund and a related trust to purchase an asset that provides income for the trust and the fund.

The ATO believes that these arrangements are an attempt to circumvent the in-house asset rules, as the related party transaction is really an investment in the related trust by the SMSF.

SALARY PACKAGING ARRANGEMENTS FROM 1 JULY 2009

Traditionally, salary sacrificed contributions have not been assessed as ‘income’ for means-testing certain tax-related superannuation concessions (as well as certain other tax-related concessions and obligations).

Therefore, for example, many employees over the years have been able to reduce their means-tested ‘income’ by salary packaging into superannuation in order to access/maximize the following tax-related superannuation concessions:

Deductions for personal superannuation contributions;

The spouse superannuation contributions tax offset; and

The government’s superannuation co-contribution concession.

However, from 1 July 2009, ‘salary sacrificed contributions’ will be effectively assessed as ‘income’ for means-testing the above concessions.

TAX BREAK AVAILABLE TO

31 DECEMBER 2009

Small businesses can still take advantage of the Tax Break (the bonus 50% deduction) in relation to most depreciating assets acquired by 31 December 2009 which cost at least $1,000.

To claim the Tax Break, the relevant asset must basically have been acquired for the principal purpose of carrying on a business.

The following advice from the ATO about laptops will be relevant to any small business (basically being a business with a turnover of less than $2 million) looking to acquire a laptop before 31 December 2009, or any business which did in fact acquire a laptop between 13 December 2008 and 30 June 2009.

The ATO will accept that a laptop computer will be used for the principal purpose of carrying on a business if, when the taxpayer first acquires and then uses the laptop computer, it is reasonable to conclude that they will use it for more than 50% of the time for the purpose of carrying on a business.

If you are considering purchasing other assets including motor vehicles please contact our office to discuss the matter prior to purchase.

HALL JACKSON SERVICES

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

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

“The government’s view of the economy could be summed up in a few phrases:

If it moves tax it. If it keeps moving, regulate it. And, if it stops moving subsidize it.”

Ronald Reagan (1911-2004)