Spring 2008 Newsletter

Welcome to our Spring 2008 Newsletter. We hope you find the articles featured useful and informative. If you need further information on any of the topics covered please contact our office.

ATO COMPLIANCE PROGRAM: 2008/09

The Tax Commissioner, Michael D’Ascenzo, has realised the ATO’s Compliance program for 2008/09, which lets the community know where they will focus their attention and the action they will take in the coming year, “so people know which areas of risk they should avoid”.

The ATO will focus on (among other things):

• income tax;

• tax havens;

• dodgy tax schemes;

• wealthy individuals; and

• the cash economy.

Their priorities for individual taxpayers include:

• a focus on capital gains from the sale of property, shares and other assets;

• expanding their review of the activities of senior executives and directors; and

• monitoring work-related expense claims, particularly out-of-pattern claims for self-education, car and travel expenses.

More industry benchmarks, data matching, and cash economy audits

The Commissioner also advised that the ATO will:

• work with more industries to develop benchmarks (these benchmarks allow taxpayers to compare their performance to the rest of their industry and check that their tax records reflect their business practices);

• increase their data matching to more effectively identify and target people who may have under-reported income or over-claimed expenses; and

• undertake more than 5,000 cash economy audits or reviews.

EDUCATION TAX OFFSET

NOW AVAILABLE

Parents are being advised to ‘keep their receipts’ for education expenses in light of the commencement of the Education Tax Offset from 1 July 2008.

How much can be claimed?

Eligible families (generally parents entitled to Family Tax Benefit (FTB) Part A) will be able to claim a 50% tax offset every year (in their tax return) for key education expenses up to:

• $750 for each child undertaking primary studies (i.e., maximum refund of $375 per child, per year); and

• $1,500 for each child undertaking secondary studies (i.e., maximum refund of $750 per child, per year).

What items are covered?

Eligible expenses include:

• laptops, home computers and associated costs;
• printers;

• home internet connections;

• education software;
• trade tools for use at school;

• school text books; and

• stationery.

FBT & MINOR BENEFITS EXEMPTION

Editor: The provision of a ‘minor benefit’ (which must be less than $300) to an employee or their associate can be exempt from fringe benefits tax (FBT) if it meets the relevant criteria. One of those

criteria requires a consideration of the infrequency and irregularity of the provision of associated, identical or similar benefits.

The ATO recently confirmed that the provision of a Christmas party to employees and their associates every year would still be considered ‘infrequent and irregular’, and may, therefore, be exempt from FBT.

It has now confirmed that the same rationale can apply to the provision of other benefits.

That is, the fact that a benefit is provided only once each year, but in more than one year, does not mean that the benefit cannot be considered as a minor benefit.

For example, an employer may not need to pay any FBT when it provides each of its employees with a reimbursement of $295 p.a. towards a local gym membership.

However, this would not be the case if the gym membership was included in an employee’s salary package under a salary sacrifice arrangement.

BUSINESS SUCCESSION PLANNING

A popular saying in management circles is that if you fail to plan, you plan to fail. However, it seems that many family-run businesses are struggling to embrace this concept.

A recent survey of small businesses found an “alarming” 83 per cent did not know how they were going to appoint their next Chief Executive. This was despite the survey finding 34 per cent of Chief Executives were planning to step down within the next 5 years.

Reasons given in the survey for the lack of planning in this area included:

ü no likely successor had been identified;

ü it was too early to plan for a successor;

ü it was too difficult to plan for a successor.

A business succession plan is not something that can be completed overnight and in many instances may take years. It is important that the issue is identified and addressed as early as possible so that the business and owners have a clear plan going forward.

If you would like assistance in formulating your business succession plan please contact our office.

SELF MANAGED SUPER FUNDS (SMSFS):

INVESTMENT RULES

The ATO has recently released two rulings, which consider some of the important investment rules that set out how the ATO expects SMSF trustees will use superannuation money.

Editor: Because the superannuation laws allow for very concessional tax treatment of money invested in a superannuation environment, there are very strict rules about what trustees can and can’t do.

Two of these investment rules are:

v The ‘sole purpose test’ (i.e., basically, the SMSF must be run solely to provide benefits on members retirement or death); and

v The prohibition on SMSFs using fund resources to provide financial assistance to a member, or a relative of a member.

The rulings provide a number of examples

regarding these two investment rules, three

of which are reproduced below.

Example 1 – Separately negotiated benefit:

more than an incidental benefit

An SMSF trustee invests in a non-related company that owns a block of holiday apartments at a popular tourist destination.

The members of the SMSF holiday in this area every year and prior to making the investment owned a separate holiday house nearby.

The trustee, when undertaking the investment, negotiated for members of the SMSF to be able to stay at the apartments for free. This is not a standard feature of the investment.

In return, the SMSF was required to accept a reduction in dividends payable by the company. The members of the SMSF sell their holiday house immediately after the SMSF makes the holiday apartment investment.

The separate negotiation of the benefit, which materially affects the return on the SMSF’s investment, demonstrates that the benefit is purposeful and not incidental.

The facts reveal that the SMSF is being maintained for a purpose of providing benefits other than those specified by the superannuation law and, therefore, indicate a contravention of the sole purpose test.

Example 2 – Selling an asset for less than

market value

Robert is a trustee and member of an SMSF. The SMSF’s portfolio of assets includes a block of land located in an inner city suburb where land values have risen significantly in recent years.

Robert sells the asset to his son for $210,000. Two months prior to the sale, the block of land was independently valued at $300,000.

The sale of the land by Robert to his son for less than market value contravenes the prohibition on SMSFs providing financial assistance to a relative of a member (Editor: And probably the sole purpose test, as well).

Example 3 – Purchase of an asset by an SMSF for greater than market value

Andrew is a member and trustee of an SMSF. Andrew needs to raise $100,000 for personal reasons.

He owns a block of land that qualifies as business real property and has been independently appraised as having a market value of $80,000.

As trustee of the SMSF, Andrew agrees for the SMSF to purchase the land for $100,000.

The purchase of the land by Andrew as trustee of the SMSF for greater than its market value is the giving of financial assistance to himself (a member) and therefore contravenes the superannuation law.

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

“Spring is nature’s way of saying, “Lets Party!”

- Robin Williams -