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Explanatory Memo (Client Alert in more detail)
May 2009
Tax Planning
Put
simply, tax planning is the arrangement of a taxpayer’s affairs
so as to comply with the tax law at the lowest possible cost. A
common mistake is to believe that tax planning is optimised when
every opportunity to reduce tax is taken. This is because some
opportunities to reduce tax rely on strained interpretations of the
law. Therefore, tax planning involves much more than taking the
option that at first appears to result in lower tax costs. It
involves objectively assessing and actively managing tax risk.
Common
tax planning techniques include deferring the derivation of
assessable income and bringing forward deductions. It is equally
important that consideration be given to any pending changes to tax
legislation, especially when a proposed amendment will be backdated.
Part
IVA and tax planning
Due
to the broad scope of Pt IVA of ITAA 1936 and the consequences of its
application, it should form an integral aspect of tax planning rather
than exercised as an afterthought.
Before
the Commissioner exercises his discretion under s 177F of ITAA 1936
to cancel a tax benefit, the requirements of Pt IVA must be
satisfied. These requirements are:
a
tax benefit was or would have been obtained;
the
tax benefit was or would have been obtained in connection with a
scheme; and
the
scheme is one to which Pt IVA applies.
The
term ‘scheme’ is defined in s 177A(1) of ITAA 1936 and
includes any agreement, understanding, promise or undertaking,
whether express or implied, and whether legally enforceable or not.
Further, a scheme includes a scheme, plan, proposal or course of
action, even if unilateral.
Whether
or not a tax benefit has been obtained in connection with a scheme,
it requires the consideration of the eight factors listed in s
177D(b). These factors are:
the
manner in which the scheme was entered into or carried out;
the
form and substance of the scheme;
the
time in which the scheme was entered into and the length of the
period during which the scheme was carried out;
the
taxation outcomes, including the tax benefit and any other tax
consequences arising from the scheme;
any
change in the financial position of the taxpayer that results, will
result, or may reasonably be expected to result from the scheme;
any
change in the financial position of any person who has, or has had,
connection (whether of a business, family or other nature) with the
taxpayer that results, will result, or may reasonably be expected to
result from the scheme;
any
other consequences for the taxpayer, or any other person connected
with the taxpayer arsing from the scheme having been entered into or
carried out; and
the
nature of any connection (whether of a business, family or other
nature) between the taxpayer and the connected person.
Exempt
income and tax planning
Although
exempt income is not assessable income, it cannot be ignored for tax
planning purposes. For example, the amount of a dependent rebate may
be reduced by the separate net income of the dependent, which
includes exempt ordinary income. The derivation of exempt income may
also reduce or limit deductions.
Exempt
income may also affect the rate of tax applicable to taxable income.
For example, foreign employment income that is exempt under ss 23AF
or 23AG of ITAA 1936 is taken into account in determining the rate
applicable to other assessable income.
Non-assessable
non-exempt income
Non-assessable
non-exempt income is not counted in working out taxable income. That
is, non-assessable non-exempt income has no effect on the income tax
system. The categories of non-assessable non-exempt are listed in s
11-55 of ITAA 1997. They include:
demerger
dividends;
fringe
benefits;
income
arising from CGT event in respect of an asset continuously owned for
15 years by a company or trust;
a
tax-free amount of an early retirement scheme payment, an employment
termination payment, a foreign termination payment, a genuine
redundancy payment, and an unused long service leave payment
(pre-16/8/78 period); and
various
superannuation benefits, including rollover superannuation benefits,
lump sum benefits paid to a person with a terminal medical condition
and pensions (paid from a taxed source) to a person aged 60 and
over.
TIP:
Income Recovery Subsidiary arising
from the Victorian bushfires of January and February 2009 are
non-assessable non exempt income provided the payment is claimed
after 28 January 2009 and before 13 May 2009.
TIP:
Income Recovery Subsidiary arising from the North Queensland floods
of January and February 2009 are non-assessable non exempt income
provided the payment is claimed after 30 January 2009 and before 13
May 2009.
STOP:
Capital gains or losses arising from a CGT asset used to produce
certain categories of non-assessable non-exempt income may be
taxable: see s 118-12(2) of ITAA 1997.
Deferring
Assessable Income
The
timing of when income is included in the assessable income of a
taxpayer will depend on whether it is statutory income or ordinary
income. Statutory income is included in assessable income at the time
specified in the relevant provisions dealing with that income.
Ordinary income is included in assessable income when it is derived
unless a specific provision includes the amount in assessable income
at some other time.
Consideration
must be given to the nature of an income, ie revenue or capital,
because of the difference in their tax treatment, which ultimately
will have an impact on a taxpayer’s tax position.
Business
income
When
ordinary income of a business is derived and to be included in
assessable income will depend on whether the business returns income
on a cash basis or on an accruals basis.
Where
a business uses the cash basis, ordinary income is, generally,
derived in the year in which the business receives the income.
Conversely, if the business is reporting income on an accrual basis,
ordinary income is derived when a recoverable debt is created such
that the taxpayer is not obliged to take any further steps before
becoming entitled to payment.
Payment received in advance
Income
received in advance of services being provided is generally not
assessable until the services are provided (the Arthur Murray
principle). This principle applies regardless of whether a taxpayer
is reporting its income on an accrual basis or on a cash basis.
Work in progress
In
relation to manufacturers, partly manufactured goods that are not
‘finished’ goods are treated as trading stock and it is
necessary to determine the difference between the opening and closing
value of the trading stock for the income year. (See Trading
Stock.)
Income
from property
Income
from property is essentially all income that is not personal exertion
income and includes interest, rent, dividends, royalties and trust
distributions. The time of when such income is derived for
non-business taxpayers is as follows:
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Category
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Income is
derived when
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Interest
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In the year
of receipt
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Rental
income
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In the year
of receipt
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Dividends
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In the year
of receipt
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Royalties
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In the year
of receipt
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Trust
distributions
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In the year
the distribution is declared
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STOP:
Where the income has been applied
or dealt with on behalf of a taxpayer, the taxpayer is taken to have
received the income as soon as it is so applied or dealt with
(principle of constructive receipt, albeit the taxpayer has not
physically received the income): see 6-5(4) of ITAA 1997.
Sale
of depreciating assets
A
taxpayer is required to calculate the balancing adjustment amount
resulting from the disposal of a depreciating asset. The balancing
adjustment amount is calculated by comparing the termination value
against the adjustable value. If the termination value is greater
than the adjustable value, the difference is included as assessable
income of the taxpayer. If the termination value is less than the
adjustable value, the difference is a deduction available to the
taxpayer.
If
the disposal of an asset will result in assessable income, a taxpayer
may want to consider postponing the disposal to the following income
year. However, if it is not possible to delay the disposal,
consideration may be given to whether a balancing adjusting rollover
relief is available. If the disposal of an asset will result in a
deduction, it may be beneficial to bring the disposal forward to the
current year.
Balancing adjustment rollover
relief
Balancing
adjustment rollover relief effectively defers a balancing adjustment
until the next balancing adjustment event occurs. Broadly, the
rollover relief will apply automatically if the conditions listed in
s 40-430(1) of ITAA 1997 are satisfied. If the automatic rollover
relief applies, the transferor must give a notice containing
sufficient information about the transferor’s holding of the
asset for the transferee to work out how Div 40 applies to the
transferee’s holding of the depreciating asset.
An
optional rollover relief is available in a partnership scenario if
the composition of the partnership changes or when assets are brought
into or taken out of the partnership. To defer any balancing
adjustments, the existing partners and the new partner can jointly
elect for the rollover relief to apply.
Pending
legislation
The
Government introduced Tax Laws Amendment (2009 Measures No 2) Bill
2009 into the House of Representatives on 19 March 2009. The Bill
will amend ITAA 1997 to provide an exemption from tax for the
Clean-up and Restoration Grants paid to small business and primary
producers affected by the Victorian bushfires.
At
the time of publication, this Bill has not received Royal Assent.
Maximising
Deductions
Deductions
are divided into general deductions and specific deductions. General
deductions are allowable under s 8-1 of ITAA 1997 whereas specific
deductions are those provided for by sections of ITAA 1936 and ITAA
1997. Where an item of expenditure would be a deduction under more
than one section, it is deductible under the provision that is most
appropriate.
Meaning
of incurred
In
Taxation Ruling TR 97/7, the Commissioner states his view on the
meaning of ‘incurred’ for the purposes of s 8-1 of ITAA
1997. He states that an outgoing has been incurred when:
there
is a presently existing liability to pay a pecuniary sum. The
taxpayer need not actually have paid any money to have incurred an
outgoing, provided the taxpayer is definitively committed in the
year of income;
a
taxpayer may have a presently existing liability notwithstanding
that the liability may be defeasible by others;
a
taxpayer may have a presently existing liability although the amount
of the liability cannot be precisely ascertained, provided it is
capable of reasonable estimation;
whether
there is a presently existing liability is a legal question in each
case, having regard to the circumstances under which the liability
is claimed to arise; and
if a presently existing
liability is absent, an outgoing is incurred when the money is paid.
The
phrase ‘presently existing liability’ means that a
taxpayer is definitively committed (or completely subjected) to the
outgoing, ie the liability is more than impending, threatened or
expected.
An
outgoing is still incurred even if the amount cannot be quantified
precisely, provided it is capable of approximate calculation based on
probabilities.
If
a taxpayer could have claimed a deduction for an outgoing that was
incurred but not paid in the particular income year but failed to do
so, the taxpayer cannot claim a deduction in the year in which the
liability is discharged, as the outgoing has not occurred in that
year. The taxpayer is required to seek an amendment of the assessment
for the previous year, within the statutory limits.
TIP:
An outgoing may be incurred in one
income year even if the liability is not discharged until a later
year. Therefore, a taxpayer can claim a deduction for the outgoing.
STOP:
Small business entities which were simplified tax system (STS)
taxpayers who are still using the mandatory cash accounting rules
under the former STS can only deduct an outgoing under ss 8-1
(general deductions), 25-5 (tax-related expenses) and 25-10
(repairs) of ITAA 1997 when the outgoing is paid.
Managed
investment schemes
The
deductibility of expenses incurred for a managed investment scheme
(MIS) was the subject of a Full Federal Court case.
In
a test case decision, the Full Federal Court has found that two
taxpayers’ investments in an almond MIS constituted the
carrying on of a business and the outgoings incurred on the schemes
were allowable deductions pursuant to s 8-1 of ITAA 1997: Hance &
Anor v FCT [2008] FCAFC.
The
Court also found that there would be no relevant trust interest
acquired by the taxpayers in exchange for payment of the relevant
deductions and therefore the income to be derived by the taxpayers
should not be taxed as trust income.
The
Commissioner has indicated that the Tax Office will not appeal
against the decision of the Full Court. He said that investments in
MIS arrangements which are broadly similar to the test case are
deductible. He said the arrangements did not involve features like
non-recourse or round-robin funding in mass-marketed schemes that
were disallowed by the courts in cases such as Howland-Rose &
Ors v FCT (2002) 49 ATR 206 and Vincent v FCT (2002) 51
ATR 18.
In
light of the Court’s decision, the Tax Office has withdrawn its
Taxation Ruling TR 2007/8 and Draft GST Ruling GSTR 2008/D1 on
managed investment schemes.
Bad
debts
A
debt that is written off as a ‘bad’ in an income year is
an allowable deduction under s 25-35 of ITAA 1997, provided:
the
amount owned was either previously brought to account as assessable
income in the current or a former income year or lent in the
ordinary course of a money-lending business of the taxpayer;
there
must be a debt in existence at the time of writing off;
the
debt must be bad; and
the
debt must be written off as bad during the income year in which the
deduction is claimed.
Taxpayers
should review their debtors prior to year-end and assess which debts
may be written off as ‘bad’.
In
Taxation Ruling TR 92/18, the Tax Office sets out the list of
circumstances in which a debt may be considered to have become bad.
These circumstances include:
a
debtor has died leaving no, or insufficient, assets out of which the
debt may be satisfied;
a
debtor is untraceable and the creditor has been able to ascertain
the existence of, or whereabouts of, any assets against which action
could be taken;
a
debt has become statute-barred and a debtor is relying on this
defence for non-payment;
where
a debtor is a company, it is in liquidation or receivership and
there are insufficient funds to pay the whole debt, or the part
claimed as a bad debt;
where
on an objective view of all the facts or on the balance of
probabilities existing at the time the debt (or part of the debt) is
alleged to have become bad, there is little or no likelihood of the
debt (or part of the debt), being recovered.
Before
a debt can be written off as ‘bad’, a taxpayer must have
taken the appropriate steps in an attempt to recover the debt. The
Tax Office, in TR 92/18, lists the steps to be taken to establish
that a debt is bad, which include:
issuing
reminder notices to a debtor and attempting to contact a debtor by
telephone/mail;
lapsing
of a reasonable period of time since the original due date for
payment of a debt;
serving
a formal demand notice for a debt;
issuing
and servicing a summon;
proceedings
to enforce judgment for a debt has been executed;
calculating
and charging of interest on a debt has ceased and a debtor’s
account is closed;
valuing
any security held against a debt; and
selling
of any sized or repossessed assets.
It
is important to note that while the above factors are indicative of
the circumstances in which a debt is considered bad, ultimately the
question of whether the debt is bad is one of fact and will depend on
all of the facts and circumstances surrounding the debt.
TIP:
Notwithstanding that a bad debt is
not deductible under s 25-35, it may be deductible under s 8-1.
TIP:
A bad debt does not need to be written off in the account books of a
taxpayer. In the case of a company, the requirements of s 25-35 will
still be satisfied in the following circumstances:
a
Board meeting authorises the writing off of a debt and there is a
physical record of the written particulars of the debt and the
Board’s decision before year-end, but the writing off of the
debt in the taxpayer's books of account occurs subsequent to
year-end; and
a
written recommendation by the financial controller to write off a
debt which is agreed to in writing by the Managing Director prior
to year-end followed by a physical writing off in the books of
accounts subsequent to year-end.
TIP:
A bad debt deduction is also
available for a partial write off of a debt, provided the
requirements of s 25-35 are satisfied. One debt may, over a period,
be subject to several partial write offs.
Additional requirements for
companies
A
company must pass either the continuity of ownership test (the
primary test to be applied) or the same business test in addition to
satisfying the requirements of s 25-35.
Companies
that have undergone a change in underlying ownership due to a sale of
the business during the year will need to pass the ‘same
business test’ to claim a deduction for bad debts.
In
Lilyvale Hotel Pty Ltd v FCT [2009] FCAFC 21, the Full Federal
Court said that the management of a taxpayer’s business at
different times in different ways had no bearing upon the
characterisation of its business. Therefore, the Court found that the
business carried on by the taxpayer was that of ‘owning and
operating a hotel to derive revenue from its guests and profits from
its operation’ at all relevant times. Accordingly, the Court
held that the taxpayer satisfied the same business test.
STOP:
A company cannot claim a deduction for a debt incurred and written
off as bad on the last day of an income year.
STOP:
Consideration must be given to the specific anti-avoidance
provisions contained in Subdiv 175-C.
STOP:
A deduction is denied where a company was purchased through an asset
sale because the requirements of s 25-35 have not been meet, albeit
the same business test has been satisfied: see Easons
Ltd v C of T (NSW) (1932) 2 ATD
211.
Additional requirements for
trusts
Special
rules apply to deny trusts a deduction for bad debts unless certain
strict tests are passed. The applicable tests will depend on the
nature of the trust. (See Trust losses.)
Carried
forward losses
The
deductibility of tax losses carried forward from previous income
years will depend on the type of entity claiming the losses.
Corporate tax entities
The
entitlement of corporate tax entities to deductions in respect of
prior year losses is subject to certain restrictions. An entity needs
to satisfy the continuity of ownership test before deducting the
prior year losses. If the continuity of ownership test is failed, the
entity may still deduct the loss if it satisfies the same business
test.
Other taxpayers
The
method for deducting earlier tax losses incurred by other taxpayers
is governed by s 36-15 of
ITAA 1997. If a taxpayer derives net
exempt income for an income year, the carried forward loss will need
to be firstly offset against net exempt income before being available
for deduction against assessable income.
TIP:
Carried forward losses do not need to be offset against
non-assessable non-exempt income derived by a taxpayer. It is net
exempt income that is offset against any carried forward tax losses
and not exempt income. Net exempt income is defined in s 36-20 of
ITAA 1997 and exempt income is defined in s 6-20 of ITAA 1997.
TIP:
Try to avoid deriving exempt income in an income year if there are
carried forward losses.
Depreciation
(Capital allowances)
A
deduction may be available on the disposal of a depreciating asset if
a taxpayer stops using and expects never to use it again. Therefore,
asset registers may need to be reviewed for any assets that fits this
category.
The
effective life of an asset can be recalculated at any time after the
end of the first income year for which depreciation is claimed by a
taxpayer, if it is no longer accurate because of changed
circumstances relating to the nature of use of the asset. Therefore,
consideration may be given to the use of an asset to determine
whether its effective life can be recalculated, which may result in
an increased or decreased rate of depreciation.
Immediate deduction
Non-business
taxpayers
Non-business
taxpayers are entitled to an immediate deduction for assets costing
$300 or less, provided:
the
asset is used predominantly to produce assessable income that is not
income from carrying on a business;
the
asset is not part of a set of assets that the taxpayer started to
hold in the income year if the total cost of the set of assets
exceeds $300; and
the
total cost of the asset and any other identical, or substantially
identical, asset that the taxpayer starts to hold in that income
year does not exceed $300.
TIP:
If two or more taxpayers jointly
own a depreciating asset, a taxpayer is still eligible to claim an
outright deduction, provided his or her interest does not exceed
$300 (even if the asset costs more than $300).
Small
business entities
A
small business entity (see Small business entities) that
chooses to apply the capital allowance rules contained in Div 328 of
ITAA 1997 is eligible for an outright deduction for the taxable
purpose proportion of the adjustable value of a depreciating asset in
the income year it first starts to use the asset or installs it for a
taxable purpose if:
it
starts to hold the asset when it is a small business entity, and
the
asset is a ‘low cost asset’, ie its cost is less than
$1,000.
The
entity is also entitled to an immediate deduction for any addition to
a low cost asset, provided the cost of the addition is less than
$1,000. Where an asset costs more than $1,000, the entity is required
to pool the asset into either a general pool or a long-life pool
depending on the effective life of the asset.
Business
taxpayers
For
business taxpayers that are not small business entities, all capital
items must be written off over their effective life under Div 40 of
ITAA 1997, regardless of the cost (including low-value items).
However, the Tax Office has adopted an administrative practice
allowing an outright deduction for low-cost capital assets in certain
cases.
Broadly,
an expenditure of $100 or less (inclusive of GST) incurred by a
taxpayer to acquire a capital asset in the ordinary course of
carrying on a business will be assumed to be revenue in nature and
therefore deductible in the year of the expenditure. It is important
to note that because the threshold includes GST, for a business
registered for GST, the threshold is effectively $90.91.
This
administrative practice does not apply to expenditure incurred by a
taxpayer on:
establishing
a business or business venture;
building
up a significant store or stockpile of assets;
assets
held under a lease, hire purchase or similar arrangement;
assets
acquired for lease or hired to, or that will otherwise be used by
another entity;
assets
included in an asset register maintained in a manner consistent with
reporting requirements under generally accepted Australian
accounting standards;
any
asset that forms part of a collection of assets that is dealt with
commercially as a collection;
trading
stock or spare parts; and
items
that are part of another composite asset, ie items that are not
functional on their own.
Pooling
Certain
depreciating assets can be pooled, with the result that the decline
in value is calculated for the pool instead of the individual assets.
For
a small business entity, two pools are available: a general pool for
assets with an effective life of less than 25 years, and a long-life
pool for assets with an effective life of more than 25 years. If the
cost of the asset is less than $1,000, the small business entity is
entitled to an outright deduction.
For
other taxpayers, there is the option of pooling ‘low-cost’
and ‘low-value’ assets to a low-value pool. A ‘low-cost’
asset is a depreciating asset that costs less than $1,000. A
‘low-value’ asset is a depreciating asset that has been
depreciated using the diminishing value method, has an opening
adjusted value of less than $1,000 in an income year, and is not a
‘low-cost’ asset. If a taxpayer sets up a low-value pool,
all low-cost assets have to be allocated to the pool. However,
low-value assets do not need to be allocated to the pool.
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Category
of taxpayer
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Assets
allocated to pool during year are depreciated at
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Assets
allocated to pool in a previous income year are depreciated at
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Small
business entity — General pool
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15%
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30%
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Small
business entity — Long-life pool
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2.5%
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5%
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Other
taxpayers — Low-value pool
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18.75%
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37.5%
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TIP:
If two or more taxpayers jointly own a depreciating asset, a
taxpayer can set up a low-value pool to take advantage of the
accelerated rate of depreciating, provided his or her interest is
less than $1,000, even though the asset costs more than $1,000.
Donations
A
taxpayer may make a written election to spread the deduction for a
donation made over a period of five years if:
the
donation was a gift of money of $2 or more;
the
donation was property valued by the Tax Office at more than $5,000;
the
donation was made under the Cultural Gifts Program; or
the
donation was a heritage gift.
If
a taxpayer is anticipated to have an increase in assessable income in
the coming income years, consideration may be given to spread the
deductibility of the donation over five years.
TIP:
As a general proposition, try to
avoid making donations in a year of losses. This is because a
deduction for a donation cannot add to or create a tax loss for a
taxpayer.
TIP:
Charitable donations of $2 or more
are deductible, as long as receipts are retained.
Donations to the Victorian
bushfires
Tax
Laws Amendment (2008 Measures No 6) Act 2009 amended ITAA 1997 to
specifically list the 2009 Victorian Bushfire Appeal Trust Account as
a deductible gift recipient in Div 30 of ITAA 1997. A donation
to the Trust Account will be a deduction if the donation is made
after 7 February 2009 and before 6 February 2014.
On
27 March 2009, the Treasurer and Assistant Treasurer
declared the recent Victorian bushfires a disaster for the purposes
of establishing the Australian disaster relief funds, effective from
29 January 2009. The declaration is made pursuant to
amendments to the ITAA 1997 by the Tax Laws Amendment (2008
Measures No 6) Act 2009. The Treasurer and Assistant Treasurer
say the declaration ensures that qualifying existing and new funds
established for the relief of people in communities affected by the
bushfires can receive tax deductible donations. Donations to
Australian disaster relief funds established to provide relief in the
aftermath of the bushfires will be tax deductible for a period of 2
years from 29 January 2009.
At
the time of publication, the Government has not released further
details about the declaration.
Tax Office media release
In
Media Release 2009/10, the Tax Office stated that individuals who
donated to the Victorian bushfires and Northern Queensland floods
through ‘bucket donations’ can claim a tax deduction
equal to their contribution of up to $10 in their 2008/09 tax return
without the usual need to keep a receipt. It also stated that where
individuals have made a donation over $10 using the Internet, the
telephone or through third parties (eg banks and retail outlets), the
internet receipt or the credit card statements will suffice in lieu
of a receipt.
Legal
expenses
It
is impossible to formulate an all-encompassing ‘rule’ as
to the deductibility of legal expenses because each expense must
be considered on its own merits.
In
FCT v Day (2008) 70 ATR 14, the High Court held that
legal expenses incurred by a public servant in relation to charges
under the Public Service Act 1922 (Cth) of having failed
to fulfil his duty as an officer were deductible under s 8-1 . The
Court said that the consequences to the taxpayer of internal
disciplinary proceedings, in relation the continuation or termination
of his employment, formed part of what was productive of his
assessable income as a public servant. Accordingly, the ‘occasion’
of the legal expenses was to be found in his position as a
public servant and therefore the expenses were deductible.
Non-commercial
losses
An
individual taxpayer should consider whether a loss from his or her
business activity (whether carried on alone or in partnership) will
be deferred under the non-commercial loss rules, which are contained
in Div 35 of ITAA 1997. This is because the individual’s
overall tax position will be impacted when the loss is deferred.
In
essence, an individual may only offset a loss arising from a business
activity against other income derived in the same income year if the
business activity satisfies at least one of the four commerciality
tests – the assessable income, profits, real property, and
other assets tests. If the individual does not satisfy at least one
of the tests, the loss is carried forward and applied in a future
income year against assessable income from the particular activity.
The
Commissioner has the discretion to override the provisions of Div 35.
Further, an exemption is available for individuals who carry on a
primary production or professional arts business and whose assessable
income for the year from other sources (eg salary and wages) does not
exceed $40,000.
Prepayments
One
of the simplest methods to accelerate deductions is the prepayment of
deductible expenses.
Excluded expenditure
The
prepayment rules do not apply to ‘excluded expenditure’,
ie a taxpayer is able to claim an outright deduction. Excluded
expenditure is defined as:
expenditure
that is less than $1,000;
expenditure
that is required to be made under a court order or by law (for
example, car registration fees and audit fees); and
expenditure
that is for salary or wages.
TIP:
If a taxpayer is entitled to an
input tax credit in respect of an expenditure, the $1,000 is the
GST-exclusive amount. If the taxpayer is not entitled to an input
tax credit, the $1,000 is the GST-inclusive amount.
Small business entities and
non-business individuals
Small
business entities and non-business individuals are able to access the
12-month prepayment rule. If the prepaid expenditure is not excluded
expenditure, it is deductible outright in the income year it is
incurred, subject to two provisos: the eligible service period does
not exceed 12 months, and ends in the expenditure year or the income
year immediately following. If the prepayment has an eligible service
period of greater than 12 months, the expenditure will be apportioned
over the relevant period (on a daily basis) up to a maximum of ten
years.
The
eligible service period is the period over which the relevant
services are to be provided.
Other taxpayers
If
the eligible service period covers only one income year, the
expenditure will be deductible in that particular year. If the
eligible service period covers more than one income year, the
expenditure is apportioned (on a daily basis) over those years up to
a maximum of 10 years in accordance with the formula:
|
Expenditure
|
X
|
No of days of
eligible service period in the year of income
|
|
Total number
of days of eligible service period
|
Speculators
and losses from shares
Generally,
speculators are denied a revenue deduction for any losses arising for
the disposal of shares unless a speculator is carrying on a business
in relation to the shares. By way of example, in AATA Case 6297
(1990) 21 ATR 3747, the Tribunal concluded that a taxpayer’s
share activities did not amount to carrying on a business and that,
as a result, the taxpayer was not entitled to a deduction for losses
arising from the disposal of his shares.
Furthermore,
in ATO ID 2002/951 the Commissioner ruled that a speculator was not
entitled to a revenue deduction for losses under s 25-40 of ITAA
1997 on the sales of post-CGT shares. Interestingly, the Commissioner
did not discuss the deductibility of the losses under s 8-1 of
ITAA 1997, nor whether the losses were capital in nature.
Trading
stock
The
tax treatment of trading stock, which is contained in Div 70 of ITAA
1997, impacts on year-end tax planning. This is because a taxpayer is
required to either include in or deduct from its assessable income
for an income year the difference between the opening and closing
value of the trading stock.
Valuation of trading stock
A
taxpayer can elect to use the cost, market selling value or
replacement value to value each item of trading stock-on-hand.
However, this does not apply to obsolete stock or certain taxpayers.
There
is no requirement to adopt permanently any one of the three methods
of value.
Small business entities
If
a small business entity elects to apply the trading stock concession
under Div 328, it is permitted to ignore the difference between the
opening and closing value of trading stock if the difference between
the opening value of stock on hand and a reasonable estimate of stock
on hand at the end of that year does not exceed $5,000. The effect of
electing this concession is that the value of the entity’s
stock on hand at the beginning of the income year is the same as the
value taken into account at the end of the previous income year.
However,
a taxpayer could choose to account for changes in the value of
trading stock even if the reasonably estimated difference between
opening and closing values was less than $5,000.
Other business taxpayers
It
is a requirement to value each item of trading stock at the end of an
income year at its cost, market value or replacement value. There is
no requirement to permanently adopt any one of the three methods of
valuation. Further, there is no compulsion for a taxpayer to use the
same method across all items of trading stock.
Obsolete stock
A
deduction may be available for obsolete stock. Therefore, a taxpayer
should review its closing stock to identify whether any obsolete
stock exists. In Taxation Ruling TR 93/23 the Tax Office states that
obsolete stock is either:
going
out of use, going out of date, becoming unfashionable or becoming
outmoded (ie becoming obsolete); or
out
of use, out of date, unfashionable or outmoded (obsolete stock).
When
valuing obsolete stock, a taxpayer does not need to use any of the
prescribed methods (ie cost, market value or replacement value).
Rather, provided adequate documentation is maintained, the Tax Office
will accept any fair and reasonable value which is calculated taking
into account the appropriate factors: see s 70-50 of ITAA 1997.
Repairs
and maintenance
A
deduction is available for repairs to premises, part of premises or a
depreciating asset (including plant) held or used by a taxpayer
solely for the purpose of producing assessable income: see s 25-10(1)
of
ITAA 1997. If the relevant premises or assets are held or used
only partly for income-producing purposes, expenditure on repairs is
only deductible to the extent that it is reasonable in the
circumstances: see
s 25-10(2).
A
common issue that arises is the distinction between restoration of an
item to its former condition (deductible) and improvement of the item
(capital and therefore not deductible). It is important to realise
the mere fact that different materials from those replaced are used
will not of itself cause the work to be classified as an improvement,
particularly in circumstances where the previous materials are no
longer in current use. If the change is merely incidental to the
operation of the repair, the deduction, generally, will be allowed.
Initial
repairs, the replacement of the entire item, and improvements are not
deductible, but may qualify for a periodic write-off under the
capital allowance provisions. In addition, the expenditure may form
part of the cost base of an asset for capital gains tax purposes.
TIP:
The Tax Office has stated that if a
taxpayer replaces something identifiable as a separate item of
capital equipment, the taxpayer has not carried out a repair.
Therefore, the taxpayer is required to depreciate the item over its
effective life.
TIP:
Taxpayers should seek an itemised
invoice to separate the costs of work where the work includes both
repairs and improvements.
Superannuation
contributions
Deductions for employer
contributions
Employers
are entitled to a tax deduction for contributions made to a complying
superannuation fund or a retirement savings account (RSA) for the
purpose of providing superannuation benefits for an employee. Any
contributions made are only deductible for the year in which the
contributions are made: see s 290-60(3) of ITAA 1997. To maximise the
deductions available, employers should ensure that the contributions
are paid to their employees’ superannuation funds or RSAs
before 30 June.
TIP:
A mere accrual of a superannuation liability or a book entry is not
sufficient to qualify for a deduction.
TIP:
For employees turning 75, the contribution must be made by an
employer within 28 days after the end of the month in which an
employee turns 75 to obtain a deduction.
Superannuation
guarantee charge
The
superannuation guarantee charge (SGC) is imposed if an employer does
not make sufficient quarterly superannuation contributions for each
employee by the relevant quarter due date. The SGC is also imposed
where the employer pays the contributions after the due date, albeit
there is no shortfall for the quarter.
Employers
who have made a contribution for an employee after the due date for a
quarter and have an outstanding SGC for the employee for that quarter
may elect (using the approved form) to use the late payment offset to
reduce part of their SGC liability.
Since
24 June 2008, employers can elect to use the late payment offset to
reduce their SGC liability for a year (rather than a quarter) which
becomes payable after that date. The offset provisions were amended
by Tax Laws Amendment (2008 Measures No 6) Act 2009.
From
26 March 2009, an employer will be eligible to use the offset to
reduce its SGC liability where:
the
employer has made a contribution for a quarter into an employee’s
fund after the due date for the quarter;
the
contribution in respect of the employee is made before the
employer’s original assessment for the SGC for the quarter
(original SG assessment date);
the
employer has given election (in the approved form) to the
Commissioner to use the offset in respect of the employee to reduce
their SGC liability for the quarter; and
the
election is made within four years after the original SG assessment
date for the quarter.
TIP:
The SGC and late payment offset are not deductible to an employer.
Therefore, the employer still has a strong incentive to continue
making its superannuation guarantee quarterly payments on time.
TIP:
The SGC is the only tax that the Commissioner wants employers to
avoid paying.
Personal superannuation
deductions
The
self-employed and other eligible persons are entitled to a deduction
for personal superannuation contributions is available if less than
10% of a taxpayer’s total assessable income and reportable
fringe benefits for an income year is attributable to activities that
result in the taxpayer being treated as an employee for
superannuation guarantee purposes.
The
contribution is only deductible for the year in which it is made.
Further, the contribution is deductible in full, subject to the
restriction that the maximum amount that is deductible is the amount
stated in the notice of intention to claim a deduction, which is
given to the trustee of a superannuation fund. However, excess
contributions tax may apply for contributions above the contributions
cap (see Tax Rates and Figures).
TIP:
A deduction for personal
superannuation should only be made towards the end of the income
year when it is certain a taxpayer will satisfy the 10% rule (and
other eligibility conditions) and not breach the taxpayer’s
concessional contributions limit of $50,000 (or $100,000 for those
aged between 50 and 74).
TIP:
A taxpayer who realised a significant capital gain during the year
should evaluate his or her eligible to claim a deduction for
personal superannuation contributions. If the taxpayer is eligible,
he or she should consider contributing an amount of the capital gain
to superannuation which may reduce the tax payable on the capital
gain derived.
Pending
developments
Small business and general
business tax break
On
19 March 2009, the Government introduced the Tax Laws
Amendment (Small Business and General Business Tax Break) Bill 2009
into the House of Representatives, which seeks to provide a once-off
bonus deduction for new investment in tangible depreciating assets
undertaken between 13 December 2008 and 31 December 2009
(inclusive). Key details of the bonus deduction follow.
The
deduction is limited to new tangible, depreciating assets for which
a deduction is available under Subdiv 40-B of ITAA 1997 and new
investment in existing assets. An asset is new if it has never been
used or installed ready for use by anyone, anywhere.
Second-hand
assets are not eligible for the deduction.
New
investment in relation to an asset (usually the asset’s
GST-exclusive cost) needs to exceed a certain threshold before it
can qualify for the deduction. The new investment threshold is
$1,000 for small business entities and $10,000 for all other
taxpayers.
The
asset must be used principally in Australia for the principal
purpose of carrying on a business.
Generally,
the new investment threshold needs to be met for each individual
asset. However, multiple investments — or recognised new
investment amounts — in an individual asset may be
amalgamated in meeting the new investment threshold.
The
deduction is worked out using a rate of either 30% or 10%, depending
on when the taxpayer committed to investing in the asset. The
deduction can be claimed in the income year that the asset is first
used or installed ready-for-use.
The
deduction will not be apportioned for any non-taxable use of the
asset.
A
taxpayer must make a decision to invest either in a new asset or an
existing asset between 13 December 2008 and
31 December 2009.
Assets
that a taxpayer held or entered into a contract to hold on or before
12 December 2008 will not qualify. However, additional
investment in such assets undertaken from 13 December 2008 may be
eligible for the deduction.
To
qualify for the 30% deduction, a taxpayer must:
commit
to investing in the asset between 13 December 2008 and
30 June 2009; and
first
start to use the asset or have it installed ready for use, or (in
the case of new investment in an existing asset) bring the asset to
its modified or improved state on or before 30 June 2010.
To
qualify for the 10% deduction, a taxpayer must:
commit
to investing in the asset by 31 December 2009; and
first
start to use the asset or have it installed ready for use, or bring
the asset to its modified or improved state on or before
31 December 2010.
There
are a number of important changes from the Exposure Draft Bill that
was released on 25 February 2009. These changes include:
Option
to acquire a new asset — Where a taxpayer enters into
a contract prior to 13 December 2008 which includes an
option to acquire an eligible asset at a later point in time and the
option is exercised on or prior to 31 December 2009, the
taxpayer may still be eligible to claim the tax deduction.
The investment commitment time is deemed to have occurred when an
option is exercised rather than on the date of an original contract.
Jointly
held assets — If an asset is jointly held, a taxpayer
will be able to recognise all other business interests in the asset
for the purpose of meeting the threshold that applies to it
individually but will only be claim the tax deduction on its
interest in the asset.
Self-constructed
assets — A taxpayer who self-constructs an eligible
asset may still qualify for the tax deduction. In
determining whether the taxpayer qualifies for the deduction, the
taxpayer must demonstrate a clear intention or commitment to proceed
with the construction, which is analogous to a case where a taxpayer
enters into a binding contract.
Investment
threshold for batches and sets assets — A taxpayer is
permitted to aggregate its investment in assets that are identical,
or substantially identical, and in assets that form a set for the
purposes of meeting the investment threshold. The taxpayer still
needs to consider each asset individually. The assets forming a
batch or a set will need to satisfy the basic requirements to
qualify for the tax deduction. A batch or set of assets does not
need to be acquired in the same transaction or in the same income
year.
Carried
over for threshold purposes — Notwithstanding that a
taxpayer has claimed an amount relating to the tax deduction for a
new qualifying asset or new expenditure on a qualifying asset, the
amount can still be used towards meeting the investment threshold
for subsequent years. That is, the amount can be carried over for
the purposes of meeting the investment threshold but it cannot be
claimed again.
The
amendments will apply to assessments for the 2008/09, 2009/10,
2010/11 and 2011/12 income years.
TIP:
If a taxpayer is in a tax loss
position, the bonus deduction will form part of that loss and
carry-forward to the following income year.
TIP:
Where an eligible asset is used for private and business purposes, a
taxpayer does not need to apportion the cost of the asset between
the different usages, provided the asset was required principally
for a business use. Further, the bonus depreciation will not be
clawed back in future years even if its usage changes.
STOP:
Where an eligible asset is held by
a partnership, it is the partnership rather than the partners that
is eligible to claim the bonus deduction.
STOP:
At the time of publication, the
Bill has not received Royal Assent.
Common
deductions
The
table below lists the common deductions. Note that the table is not
exhaustive.
|
Item
|
Item
|
|
Bad debts
|
Tax losses
|
|
Balancing
adjustment – depreciating asset
|
Payroll tax
|
|
Business
related expenses (‘blackhole’ expenses)
|
Protective
clothing
|
|
Borrowing
expenses
|
Professional
library
|
|
Building –
write-off
|
Tools of
trade
|
|
Capital
allowances
|
Work-related
travel
|
|
Capital
work
|
Membership
fees
|
|
Car
expenses
|
Union dues
|
|
Compulsory
uniform – cleaning and repairs
|
Repairs and
maintenance
|
|
Computer
hardware and software
|
Self-education
expenses
|
|
Conferences
and seminars
|
Gifts and
donations
|
|
Donations
|
Home office
|
|
Fringe
benefits tax
|
Interest
|
|
General
interest charge
|
|
Capital Gains Tax
A
taxpayer may consider crystallising any unrealised capital gains and
losses in order to improve his or her overall tax position for an
income year. For example, if the taxpayer is anticipating a
significant capital gain in an income year, consideration may be
given to reducing the gain by crystallising a capital loss in the
same income year. However, consideration must be given to the
Commissioner’s view on wash sales contained in Taxation Ruling
TR 2008/1, particularly if a taxpayer reacquires the assets being
disposed or identical assets, or somehow retains dominion or control
over the original assets.
Small
business CGT concessions
Broadly,
the small business CGT provisions contained in Div 152 of ITAA 1997
provide a range of concessions for a capital gain made on a CGT asset
that has been used in a business if certain conditions are met. These
concessions are:
the
15-year asset exemption: a capital gain may be disregarded if the
relevant CGT asset has been continuously owned by the taxpayer for
at least 15 years. If the taxpayer is an individual, he or she must
be at least 55 years of age and the CGT event must happen in
connection with the taxpayer’s retirement, or he or she is
permanently incapacitated at that time. If the taxpayer is a company
or trust, a person who was a significant individual just before the
CGT event must satisfy the requirements;
the
50% reduction: a capital gain resulting from a CGT event happening
to an ‘active asset’ of a small business may be reduced
by 50%;
the
retirement exemption: a taxpayer can choose to disregard all or part
of a capital gain up to a lifetime maximum of $500,000; and
the
asset roll-over: a taxpayer can disregard all or part of a capital
gain if a replacement asset, which is an active asset, is acquired.
TIP:
The concessions do not apply to
deny capital losses that a taxpayer has for an income year. That is,
the taxpayer is still able to utilise any capital losses against any
other capital gains for the income year.
TIP:
A taxpayer can choose not to claim the 50% reduction on a gain. If
the taxpayer is a company or trust which cannot pass on the full
benefits of the 50% reduction to shareholders or unit holders, by
not choosing this option, the taxpayer will be able to pass on the
full benefits of the retirement exemption.
TIP:
Partial use of an asset in the
course of carrying on a business will suffice for the active asset
test.
TIP:
A small business entity wanting to
access the small business CGT concessions is exempted from the
maximum net asset value test.
STOP:
Unless specifically excluded, all
assets, including depreciating assets, are taken into account in the
maximum net asset value test.
STOP:
Consideration should be given to the integrity measures contained in
the CGT regime: see ss 115-40 and 115-45, Div 149 and CGT event K6.
STOP:
The Government has introduced a Bill to amend the small business CGT
concessions (see below). Generally, the amendments are proposed to
commence from the 2007/08 income year.
Pending changes to the small
business CGT concessions
The
Government has introduced Tax Laws Amendment (2009 Measures No 2)
Bill 2009 in which it will amend ITAA 1997 the law to increase access
to the small business CGT concessions. These amendments include:
|
Proposed
amendment
|
Date of
effect
|
|
Allowing a
taxpayer who owns a CGT asset that is used in a business by an
affiliate, or entity connected with the taxpayer, to access the
small business concessions via the $2 million turnover test,
subject to certain conditions
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Allowing
partners who own a CGT asset that is used in a partnership
business to access the small business CGT concessions via the $2
million turnover test where CGT asset is not an ‘asset of
the partnership’, provided the asset is made available for
use in the partnership and satisfying certain conditions
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Allowing a
CGT asset owned by a taxpayer to also be treated as an active
asset where the taxpayer’s spouse owns an entity that uses
the CGT asset in its business. Specifically, the amendments will
treat an individual’s spouse or child (under 18 years of
age) as an affiliate of the individual for the purposes of
determining whether the individual, or an entity in which the
individual has an interest, is eligible for the small business
concessions where one entity owns a CGT asset and (a) that asset
is used, or held ready for use, in the course of carrying on a
business by another entity; or (b) is inherently connected with a
business carried on by another entity
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Inserting
rules for calculating aggregated turnover for passively held
assets that apply in addition to the standard aggregated turnover
rules in Subdiv 328-C of ITAA 1997. For these purposes, a special
rule treats an entity (the deemed entity) that is an affiliate
of, or is connected with, the owner of a passively held CGT asset
as an affiliate of, or connected with, the entity that uses the
passively held asset in its business (the test entity) if the
deemed entity is not already an affiliate of, or connected with,
the test entity
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Inserting
another special rule to deal with situations where a taxpayer
makes their CGT asset available for use in the business of more
than one partnership of which they are a partner. The new rule
for taxpayers in these circumstances treats each partnership that
is not already connected with the test entity as being connected
with the test entity
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Catering
for the situation where an entity is an affiliate of the test
entity and connected with the test entity at different times, a
new rule in s 152-48(2) will mean that the same entity can
only be an affiliate of the test entity and be connected with the
test entity at different times during the income year
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Providing
comparable access to the small business concessions for owners of
passively held assets by inserting a new rule that permits the
CGT event to occur in an income year after a business has ceased
operating but while it is being wound up. The new rule applies to
an entity that previously carried on a business which is being
wound up in the CGT event year but only if the asset had been
used, held ready for use, or was inherently connected with the
business in the income year it ceased to operate
|
These
amendments will apply to CGT events happening in the 2007/08
income year and later income years
|
|
Amending
s 152-20(2)(a) to provide that liabilities relating to
disregarded interests in entities connected with the taxpayer or
the taxpayer's affiliates are taken into account in calculating
the net asset value
|
This
amendment will apply to CGT events that happen on or after the
day on which the amending legislation receives Royal Assent
|
|
Amending
the active asset test in s 152-40 of ITAA 1997 to ensure
that all the uses of an asset (apart from personal use of an
asset by the taxpayer or an individual who is the taxpayer's
affiliate) are considered in determining whether it is an active
asset for the purpose of the small business CGT concessions
|
This
amendment will apply to CGT events that happen on or after the
day on which the amending legislation receives Royal Assent
|
|
Extending
the access to the small business CGT concessions under s 152-80
of ITAA 1997 to capital gains relating to assets acquired on the
death of a joint tenant and to assets that devolve to the trustee
of a trust that is established by the will of an individual where
the deceased would have been able to access the concessions
|
The
amendments apply to CGT events that happen in the 2006/07 income
year and later income years
|
|
Removing
the duplicate provision for receipt of capital proceeds in
instalments by companies and trusts in s 152-310(3) of ITAA 1997
|
The
amendment to reinsert the rule for capital proceeds received by
individuals in instalments applies for capital proceeds received
in instalments in the 2007/08 and later income years
|
|
Ensuring
gains made under CGT events J5 and J6 (failure to
acquire, or incur adequate expenditure on, replacement asset
under the small business rollover) can also qualify for the
retirement exemption. In particular, the amendments will make it
unnecessary for gains arising under these CGT events to satisfy
the basic conditions for the small business retirement exemption
|
The
amendment applies to CGT events that happen in the 2006/07 income
year and later income years
|
|
Allowing a
company or trust to make a retirement exemption payment
indirectly through one or more interposed entities to a CGT
concession stakeholder for the purpose of satisfying the
requirements of the retirement exemption.
|
This
amendment will apply to payments that are made on or after the
day on which the amending Bill receives Royal Assent.
|
|
Amending
the meaning of small business entity contained in s 328-110
of ITAA 1997 to provide that a partner in a partnership cannot be
a small business entity in their capacity as a partner. (Note:
this amendment applies for the small business concessions
generally and not just for the small business CGT concessions.)
|
The
amendment applies to assessments for the 2007/08 income year and
later income years.
|
At
the time of publication, the Bill has not received Royal Assent.
Rollover
relief
Rollover
relief is available to provide taxpayers with the option to defer the
consequences of a CGT event. Apart from disregarding any capital
gains or capital losses that would otherwise arise from a CGT event,
a rollover usually places the transferee under the rearrangement in
the same CGT position as the transferor was before the event
occurred. Some of the rollover reliefs will apply automatically while
some will require taxpayers to elect the use of the reliefs, which is
indicated by the way their tax returns are prepared.
Two
types of rollovers are available: the replacement asset rollover and
the same asset rollover. A replacement asset rollover allows the
deferral of a capital gain or loss until a later CGT event happens to
the replacement asset. A same asset rollover allows the deferral of a
capital gain or loss arising from the disposal of the asset until the
later disposal of the asset by the successor entity.
The
table below sets out the common rollover reliefs that may be
considered for tax planning purposes:
|
Type of
rollover
|
Brief
description
|
Election
required
|
|
Rollover from
individual to company
|
Individual
disposes assets to a resident company
|
Yes
|
|
Rollover from
trust to company
|
Trustee of a
trust disposes assets to a resident company
|
Yes
|
|
Rollover from
partnership to company
|
Partnership
disposes assets to a wholly owned resident company
|
Yes
|
|
Assets
compulsorily acquired, lost or destroyed
|
Disposal of an
asset from being compulsorily acquired, lost or destroyed
|
Yes
|
|
Fixed trust to
company
|
Fixed trust
disposes all of its assets to a resident company
|
Yes
|
|
Marriage
breakdown
|
Taxpayer
disposes assets to his or her spouse pursuant to an order of a
court under the Family Law Act 1975
|
No
|
|
Small business
replacement asset rollover
|
Taxpayer who
is eligible for the small business CGT concessions acquires a
replacement asset or improves an existing asset
|
Yes
|
Quick
reference tables
Availability of CGT discount and
indexation
|
Entity
|
CGT event
after 21/9/1999 and asset acquired after that time
|
CGT event
after 21/9/1999 and asset acquired before that time
|
|
Individual
|
CGT
discount only
No
indexation
|
|
|
Trustee
|
CGT
discount only2
No
indexation
|
|
|
Trustee of
superannuation fund
|
CGT
discount only
No
indexation
|
|
|
Company
|
No CGT
discount
No
indexation
|
|
CGT
discount and indexation method requires asset to be held for at
least 12 months.
CGT
discount not available when the trustee is assessed under either s
98(3) or 99A of ITAA 1936.
CGT discount
|
Entity
|
CGT
discount (%)
|
|
Individual
|
50
|
|
Trustee (if
entitled to the CGT discount)
|
50
|
|
Trustee of
superannuation fund
|
33.3
|
|
Company
|
0
|
Companies
The
tax treatment of companies will depend on their classification, that
is, a private company or a public company. For example, only a
private company is subject to the operation of Div 7A of ITAA 1936.
Companies are subject to a flat rate of tax (currently 30%) on the
entirety of their taxable income. This rate applies whether the
company is public, private, resident or non-resident.
Franking
account
It
is a requirement that every entity that is (or has ever been) a
corporate tax entity has a franking account. The franking account is
recorded on a ‘tax paid’ basis and operates on a rolling
balance basis.
Franking of distributions
All
distributions are frankable unless specifically deemed unfrankable.
Unfrankable distributions include:
deemed
dividends under Div 7A; and
deemed
dividends in relation to excessive payments made by a private
company to its shareholders, directors and associates.
Benchmark rule
The
benchmark rule requires all frankable distributions made by an entity
during its franking period to be franked to the same extent (the
‘benchmark franking percentage’).
It
should be noted that a corporate tax entity would incur an
over-franking tax if the franking percentage for a distribution
exceeds the benchmark percentage, or a franking debit (for
under-franking) if the franking percentage is less than the benchmark
rate. (Certain concessions to this rule may apply to public
companies.)
If
the benchmark percentage varies by more than 20% from the last
frankable distribution in the last franking period, an entity must
notify the Commissioner in writing.
Franking period
The
franking period of a corporate tax entity will depend on whether is
it a public company or a private company. The franking period of a
private company is the same as its income year. Generally, a public
company has a six-month franking period.
Distribution statements
Entities
that make frankable distributions must provide their shareholders
with a distribution statement. (Note that the information that must
be disclosed on the statement is prescribed in s 202-80 of ITAA
1997.) For entities that are private companies, the distribution
statement must be given to their shareholders within four months
after the end of the income year in which the distribution was made,
or such further time as the Commissioner allows. If this statement is
not received, the shareholder will not be able to claim a franking
credit tax offset.
TIP:
As a private company has four
months after the end of an income to provide its shareholders the
distribution statements, in effect, the company can retrospectively
frank a distribution.
TIP:
It is an offence under the Taxation
Administration Act 1953 if a
corporate tax entity fails to give a distribution statement or makes
a misleading statement in connection with a distribution.
Franking account balance
A
company’s franking account should be reviewed to ensure that
the company is not liable for franking deficit tax. If the company is
liable for franking deficit tax, it must be paid within a month of
the end of the franking period. Franking deficit tax is not a penalty
but an early payment of income tax that is offset against future tax
obligations.
Concession
for private companies
A
private company generating profit in its first income year is
prevented from making a franked distribution to its shareholders
because of insufficient franking credits. However, a concession,
which allows the company to make a franked distribution to its
shareholders, exists if the following conditions are satisfied:
it
is liable to pay income tax for the income year that is sufficient
to generate franking credits equal to at least 90% of the deficit in
its franking account at the end of that income year; and
it
is the company's first income year.
Private company and
Div 7A
The
broad thrust of Div 7A of ITAA 1936 is to deem certain loans,
payments and debt forgivenesses by private companies to their
shareholders and associates to be assessable unfranked dividends to
the extent that there are realised or unrealised profits of the
company.
Managing
your Div 7A risk
To
minimise any adverse Div 7A consequences, taxpayers must consider the
following:
repay
private company loans by the earlier of the actual lodgment date or
the due date for lodgment of the company’s return for that
year;
ensure
a loan agreement is in place by the earlier of the actual lodgment
dated or the due date for lodgement of the company’s return
for that year;
ensure
minimum repayments are made on loans from prior years;
a
deemed dividend can only arise to the extent of a company's
distributable surplus, so this issue needs to be considered along
with planning opportunities;
payments
under a guarantee can trigger a deemed dividend and must be
considered carefully;
the
payment of an actual franked dividend by a company to offset a loan
which has been deemed to be a dividend can have adverse implications
and should be carefully considered;
the
exemptions available should be considered and used if possible; and
a
deemed dividend can also apply if property is provided, so companies
should consider requiring shareholders to pay market value.
Trusts
and Div 7A
If
a private company beneficiary of a trust has an unpaid present
entitlement to an amount of the net income of the trust, and the
trustee subsequently makes a loan, payment or debt forgiveness to a
(non-corporate) shareholder or associate of the private company, it
is important to consider the application of Div 7A.
Had
the actual transaction (a loan, payment or forgiveness) been done by
the private company and the shareholder or associate, a deemed
dividend would arise here. Whether the company’s unpaid present
entitlement arises before or after the transaction is immaterial.
The
amount of the deemed dividend is the lesser of:
the
amount involved in the actual transaction; and
the
unpaid present entitlement less any amounts previously treated as
deemed dividends.
Primary Producers
Although
primary producers are subject to the general rules relating to
assessable income and allowable deductions, they receive special
concessions under ITAA 1997. These concessions include:
income
averaging — Div 392 allows primary producers to
average their income from primary production and certain other
limited amounts of income over a period not exceeding five years.
This results in an averaging adjustment of either a tax offset or
extra income tax, depending on whether the taxable income for an
income year is above or below the average income.
double
wool clips — Subdiv 385-G allows a taxpayer who
carries on a primary production business in Australia to defer the
profit on a second wool clip in an income year if the taxpayer
satisfies the conditions prescribed in that Subdiv.
insurance
recoveries — Subdiv 385-F applies to insurance
recoveries for a loss of livestock or a loss by fire of trees owned
by a taxpayer carrying on a primary production business in
Australia. A taxpayer may elect to include 20% of the insurance
recovery in assessable income for the first income year and 20% of
the insurance recovery in assessable income for each of the next
four income years: see s 385-130.
Livestock
accounting
The
value of all livestock on-hand at the beginning of an income year and
at the end of the year is taken into account in ascertaining whether
or not a taxpayer has a taxable income. Therefore, a deduction is
obtained for all losses by death, etc, in the income year.
Conversely, the taxpayer’s assessable income is increased by
the value of all natural increases on hand at the end of that year.
A
taxpayer can choose to value livestock at the end of an income year
using the livestocks’ cost, market selling value or replacement
value. (Note that there are additional options for valuing horse
breeding stock.)
If
livestock acquired by natural increase is valued at cost, a taxpayer
may choose either the actual cost of the animal or the cost
prescribed by the regulations for each animal in the applicable class
of livestock. The actual cost means the full absorption cost of
bringing the animal into its current state and location. The
prescribed costs are set out as follow:
|
Class of
livestock
|
Prescribed
minimum value ($)
|
|
Cattle
|
20.00
|
|
Deer
|
20.00
|
|
Horses
|
20.00
|
|
Pigs
|
12.00
|
|
Emus
|
8.00
|
|
Goats
|
4.00
|
|
Sheep
|
4.00
|
|
Poultry
|
0.35
|
Disposal of livestock
In
certain situations where a primary producer makes a profit on the
forced disposal or death of livestock (eg the livestock was disposed
because pasture or fodder is destroyed by fire, drought or flood),
Subdiv 385-E allows the primary producer to elect either to spread
the tax profit over five years or, where the profit is mainly used
for replacement stock, to defer including the tax profit in
assessable income.
Where
livestock disposed of is replaced by stock of the same species (eg
sheep by sheep), in calculating the cost of the replacement animals
for income tax purposes the amount applicable to each replacement
animal is the amount paid or payable for the purchase of that animal
less the reduction amount: see s 385-120(1). The reduction amount is
the amount of the tax profit on disposal or death attributed to
livestock of the species being replaced, divided by the number of
animals of that species that were disposed of or died: see s
385-120(2). Section 385-120(4) limits the reduction amount to the
unused tax profit so that a particular purchase cannot reduce it to
less than nil. The excess amount is carried forward in the unused tax
profit. The right to reduce the cost, and thus absorb the assessable
income derived from the original disposal or death until such time as
the newly acquired animals are disposed of, extends for a period of
five years from the date of the disposal.
Where
livestock disposed of is replaced by stock of a different species (eg
sheep by cattle), s 385-120(3) provides that the reduction amount for
the animal is any reasonable amount at least equal to the amount
calculated under s 385-120(2). Where the replacement stock is
acquired at a price substantially in excess of the replacement cost
of the species disposed of, the proportion of the profit on disposal
required to reduce for taxation purposes the cost of the new animal
is any reasonable amount at least equal to the amount worked out
under s 385-120(2), provided that it does not exceed the cost of the
new animal. Where the cost of the replacement animal is not
substantially in excess of the replacement cost of stock of a similar
species to that disposed of, the reduction amount is the amount
worked out under s 385-120(2) or the cost of the animal.
Where
a primary producer makes an election under s 385-110 and replaces the
stock disposed of by breeding, the primary producer may elect to
include an amount in its assessable income of the income year in
which the livestock are replaced: s 385-115. No formula is provided
for determining the amount to be included and it is any amount chosen
by the taxpayer.
Trusts
The
provisions governing trust, which include in whose hands trust income
is assessed and the amount assessed, can be complex. A good starting
point is always the trust deed. This is because the deed governs the
operation of the trust.
Trust
losses
The
trust-loss recoupment rules restrict the circumstances in which prior
year and current year losses of a trust can be claimed as a deduction
when calculating the net income of the trust. The applicable tests
that must be satisfied will depend on the type of trust. These tests
must also be satisfied when the trust is seeking to claim a bad debt
deduction.
|
Type of
trust
|
Category
|
Ownership/control
tests
|
Income
injection test
|
|
50% stake
test
|
Pattern of
distribution test
|
Continuity
of ownership test
|
|
Fixed
|
Ordinary
fixed trust
|
|
N/A
|
N/A
|
|
|
Non-fixed
|
|
1
|
|
2
|
|
|
Excepted
|
Family trust
|
N/A
|
N/A
|
N/A
|
|
Only
when certain fixed entitlements exist.
Not
relevant for current-year losses.
Trust
distribution minutes
The
drafting of the distribution minutes needs to take into account the
following tax issues:
if
there is a corporate beneficiary, will the distribution to the
corporate beneficiary create an ‘unpaid entitlement’ and
thus potential Div 7A issues?
if
a family trust election has been made, is the income being
distributed to a person outside the family group?
if
the trust does not have any net income for the year, does it need to
nominate a controlling individual to ensure the relevant trust-loss
recoupment rules are satisfied?
if
applicable, does the distribution of dividend income to the
beneficiaries require a family trust election to be made to satisfy
the ‘holding period rule’?
if
applicable, have the relevant trust-loss recoupment rules been taken
into account when drafting the minutes to ensure access to the small
business CGT concessions for the beneficiaries?
TIP:
A minor (ie under age 18 at the end of an income year) can receive
up to $2,667 in non-taxable distributions for the 2008/09 income
year.
TIP:
If possible, all income should be distributed to the beneficiaries.
This is because income retained in the trust will be subject to tax
under s 99 or s 99A of ITAA 1936 at potentially the highest margin
rate.
TIP:
If the trust deed permits, a trustee may want to consider streaming
income to beneficiaries that are able to benefit the most from the
distribution. However, consideration should also be given to the
operation of the general anti-avoidance provision and any specific
anti-avoidance provisions.
STOP:
The trustee’s minutes
distributes ‘trust income’ not ‘taxable income’.
STOP:
If a trustee has distributed income
to a minor up to the minor’s non-taxable limit and the trust’s
net income is subsequently amended, the minor would need to receive
an additional amount in proportion to the original distribution. The
additional amount will normally be taxed at the top marginal rate
(ie 45%).
Trusts
and unpaid entitlements to private companies
A
‘loan’ from a private company to a trust can generally
trigger a Div 7A deemed dividend under s 109D of ITAA 1936 where:
the
company’s shareholders can directly or indirectly benefit from
the trust;
the
company has sufficient distributable surplus; and
the
loan is not repaid, or a loan agreement that complies with s 109N is
not executed before the earlier of the lodgment date or due date for
lodgment of the company's tax return.
An
unpaid present entitlement may result in a s 109D loan where either:
the
trustee and the private company beneficiaries have entered into a
written loan agreement; or
the
parties have entered into a consensual agreement for the provision
of credit or other form of financial accommodation.
Tax Office view
In
a recent address at a Taxation Institute of Australia seminar, the
Deputy Commissioner of Taxation indicated that s 109D and s 100A of
ITAA 1936 may apply to unpaid present entitlements of a private
company beneficiary to trust income. The Deputy Commissioner said his
comments regarding the application of s 109D reflected the approach
being taken by the Tax Office in one of its audit cases.
The
Deputy Commissioner confirmed that a consensual agreement may arise
if a private company's unpaid present entitlements to trust income
are credited to a loan account on the trust's balance sheet, and the
company acquiesces to or adopts the same accounting treatment. The
Deputy Commissioner also confirmed that, if the evidence indicates
that an unpaid present entitlement is not a s 109D loan,
consideration should still be given to the potential application of s
100A.
Section
100A was originally enacted to prevent trust-stripping but has wider
scope due to its broad wording. It generally operates to disregard a
trust distribution that is diverted away from a presently entitled
beneficiary under a reimbursement agreement, and to instead tax the
trustee under s 99A.
STOP:
The term ‘agreement’
for s 100A purposes is broadly defined. The term can include
informal, implied and unenforceable arrangements or understandings.
However, the definition is subject to an exclusion for agreements
entered into in the course of ‘ordinary commercial or family
dealings’.
Capital
gains distribution
There
are two methods that a trustee can use to distribute the income of
the trust: the quantum approach and the proportionate approach. The
preferred method is the proportionate approach, based on the volume
of case law regarding trust distribution, which distributes the
income based on the proportions of the trust income to the
beneficiaries. For example, if a beneficiary is presently entitled to
10% of the trust income, he or she will be taken to be presently
entitled to 10% of the net income for tax purposes.
However,
a strict application of the proportionate approach will result in an
anomaly if capital gains are derived by the trust, and there are
separate and distinct income beneficiaries and capital beneficiaries.
This is because under s 97 of ITAA 1936, a beneficiary who is
entitled to the ‘income’ would be taxed on all of the
‘taxable income’ (including the capital gains, even
though the beneficiary has not received any of the capital
distribution). To overcome this anomaly, in Practice Statement PS LA
2005/1 (GA), the Commissioner has stated that he will permit the use
of the capital beneficiary approach or the trustee approach. However,
for a trust to be able to use either one of these approaches,
documentation as discussed must be entered into within two months of
year-end.
Capital beneficiary approach
The
capital gain may be assessed to a beneficiary (or a trustee on his or
her behalf) if:
the
beneficiary has a vested and indefeasible interest in the trust
capital representing the trust’s capital gain;
the
beneficiary would have had an interest if the trust’s capital
gain had been a ‘deemed’ amount for tax purposes or the
gain had been represented by actual trust capital; or
the
beneficiary has been allocated the trust’s capital gain as a
present entitlement no later than two months after the end of the
income year.
A
capital beneficiary must agree in writing on the approach to be used,
and he or she must prepare his or her tax return in a way that
corresponds to the agreement. The agreement must be made within two
months after the end of the income year, or such further time as the
Deputy Commissioner allows. The trustee resolution allocating the
capital gain must also be made by the time the agreement is made.
Trustee approach
If
there is a capital gain that is not to be included in the share of
the net income of a beneficiary, the trustee will be assessed under
ss 99 or 99A of ITAA 1936.
This
approach can only be used if the beneficiaries and trustee have
agreed in writing to use it. Any agreement must be made within two
months after the end of the relevant income year.
If
a party does not prepare his or her income tax return in accordance
with an agreement, the Tax Office will ignore the agreement in
assessing the capital gain.
Pending
developments
In
a media release dated 31 October 2008, Federal Assistant Treasurer,
Mr Chris Bowen, announced that the Government will remove one of the
CGT exceptions to CGT events E1 and E2. According to the media
release, the Government will abolish the ‘trust cloning’
exception. This exception provides a CGT exemption for capital gains
arising from a change in ownership of an asset that typically occurs
on the creation of a trust over a CGT asset (CGT event E1) and on
transferring a CGT asset to an existing trust (CGT event E2).
However,
the other exception to CGT events E1 and E2, that is, where an
individual is the sole beneficiary of a trust and absolutely entitled
to the assets of the trust, and the trust is not a unit trust, will
be retained.
The
media release stated that the amendments will resolve uncertainty
surrounding the application of the exception. It also stated that the
amendments will remove the possibility of using the trust cloning
exception to eliminate tax liabilities on accrued capital gains.
At
the time of publication, the Government has not released any draft
legislation or Bill to implement the proposed changes.
Tax Office administrative
treatment
The
Tax Office has said that it would continue to apply the existing law
until enactment of the proposed changes. It also said that, if the
legislation receives Royal Assent prior to 1 July 2009, taxpayers
should ensure the enacted changes are taken into account when
completing their income tax returns for the income year ending 30
June 2009.
Small Business
Entities
The
small business entity regime replaced the Simplified Tax System (STS)
with effect from 1 July 2007. Under the small business entity regime,
a taxpayer does not need to elect to enter into the regime. Instead,
it will be apparent from a small business entity’s tax return
whether it has used the tax concessions. These concessions include:
the
simpler depreciation rules;
the
simpler trading stock rules;
the
entrepreneurs’ tax offset;
the
prepaid expenses rules; and
the
two-year period of review.
In
addition, a small business entity will be able to access other
various concessions (subject to any additional criteria set out in
the particular concessions themselves). These are:
the
CGT 15-year exemption, CGT 50% active asset reduction, CGT
retirement exemption and CGT roll-over;
the
use of the GDP-adjusted notional tax method to work out PAYG
instalments;
the
FBT car parking exemption; and
the
choice to account for GST on a cash basis, apportion GST input tax
credits annually and pay GST by instalments.
Definition
of a small business entity
An
entity will be classified as a small business entity for an income
year if:
it
is carrying on a business in the current year; and
it
had an aggregated turnover for the previous year of less than $2
million or an aggregated turnover for the current year likely to be
less than $2 million.
The
aggregated turnover is the annual turnover of the entity’s
business plus the annual turnover of any businesses that the entity
is connected to or affiliated with. The aggregated rules are similar
to the former STS grouping rules.
An
entity satisfies the aggregated turnover test if:
its
aggregated turnover for the previous income year was less than $2
million;
its
aggregated turnover for the current income year, worked out as at
the first day of the income tax year, is likely to be less than $2
million; or
its
aggregated turnover for the current income year, worked out as at
the end of the current income year, is actually less than $2
million.
Personal Services
Income
Broadly,
the personal services income (PSI) rules attribute income derived by
an interposed entity to the individual providing services to the
entity. This is achieved by ‘forcing’ individuals to
include the income generated by their personal skill or efforts in
their personal tax returns. The deductions of a taxpayer who receives
PSI are generally limited to the amount that he or she would be
entitled to deduct if they had received the income as an employee.
However,
the PSI rules do not apply to individuals or interposed entities if
one of the required personal services business (PSB) tests (results
test, unrelated clients test, employment test and business premises
test) is satisfied. The primary test to be applied is the results
test. If this test is met, there is no further requirement to
self-assess against the other tests and the PSI rules do not apply.
In
addition, the Commissioner has the power to grant a determination,
which has the effect of exempting a PSB from the PSI regime.
Generally, a determination will be granted if unusual circumstances
existed that prevented the business from satisfying the tests or the
business would have had, but for the unusual circumstances, two or
more unrelated clients in the current income year.
General
anti-avoidance and PSB
It
is a common misconception that income earned by a PSB is income from
a business structure. The income derived by a PSB is still
categorised as PSI for income tax purposes if it is income that is
mainly a reward for an individual’s personal efforts or skills.
Therefore, the income (as distinct from income from a business
structure) that is derived by the PSB may be subject to the
application of Pt IVA, if:
the
income is split with an associate; or
the
income is split with another entity associated with the individual;
or
the
income is retained in a company and taxed at the lower company tax
rate.
However,
remuneration paid to an associate (or service trust) for bona fide
services related to the earning of PSI will not attract the
application of Pt IVA if the amount is reasonable.
The
Tax Office has stated that Pt IVA will not apply in the following
situations:
|
The PSB is
conducted through:
|
Situation
|
|
a company
|
There is no
income splitting and no retention of profits in the company.
|
|
If there is
a bona fide attempt to break even, a relatively small amount of
taxable income may be returned by the company provided that income
is distributed to the individual by way of a franked dividend in
the following year.
|
|
a trust
|
If the
trustee is a corporate trustee, the situations are the same as for
a company.
|
|
a
partnership
|
If a
partnership income results from the services of employees or the
use of income-producing assets.
|
Superannuation
Superannuation
should not necessarily be viewed as a year-end planning matter but
rather as a long-term retirement savings approach. However, it is
worth reflecting on the various concessions and deductions available
under the superannuation system which may impact on the tax position
of a taxpayer.
Benefit
withdrawal and re-contribution strategy
A
re-contribution strategy may still produce tax benefits for those
seeking to access superannuation benefits before age 60 or for
estate-planning purposes. In particular, the taxable component of a
superannuation interest remaining after the death of a member is
still subject to 16.5% tax when ultimately paid in a lump sum to a
beneficiary who is not a ‘death-benefits dependant’.
Broadly,
the aim of a re-contribution strategy is to convert part of a
superannuation interest from a taxable component to a tax-free
component. This strategy is relevant where benefits are paid to a
person under age 60 (eg a transition to retirement pension) as the
pension is deemed to comprise a portion of the total value of the
superannuation interest reflecting the tax-free and taxable
components. The underlying components also become relevant again upon
the death of a member if the remaining benefits are paid to a
non-dependant.
Re-contribution
personal superannuation contributions are classified as
non-concessional contributions and are therefore restricted by the
annual non-concessional contributions cap. A person aged 65 to 74
must also satisfy the work test (ie gainful employment for at least
40 hours in a period of not more than 30 consecutive days in the
financial year in which the contribution is made), in order for a
fund to accept the personal contributions. As a result, any
re-contribution strategy needs to be carefully considered in the
light of the taxpayer’s particular situation.
Government
co-contribution
Eligible
low-income earners (including self-employed individuals) may qualify
for a government superannuation co-contribution payment. The amount
of co-contribution is equal to 150% of the sum of eligible personal
superannuation contributions up to a maximum of $1,500 per annum for
a $1,000 personal contribution. The maximum amount is available to
all qualifying persons whose total income for an income year does not
exceed the lower threshold. For qualifying persons whose total income
exceeds the lower threshold but is below the upper threshold, the
co-contribution tapers out at a rate of $0.05 for each whole dollar
of income. (see Tax Rates and Figures.)
For
a self-employed individual, the total income will be reduced by
amounts for which the individual is entitled to a deduction as a
result of carrying on a business.
To
qualify for a government co-contribution, a person must:
have
made one or more eligible personal superannuation contributions
during the income year for which no deduction has been allowed to a
complying superannuation fund or retirement savings account. The
contribution must be make to obtain superannuation benefits for the
person making the contribution or, in the event of the person's
death, her or his dependants;
have
at least 10% of his or her assessable income and reportable fringe
benefits for the income year from carrying on a business (ie
self-employed) or attributable to activities that result in the
person being treated as an ‘employee’ for superannuation
guarantee purposes, or a combination of both;
have
a total income for the year that does not exceed $60,342 for
2008/09. Total income is the sum of assessable income and reportable
fringe benefits;
be
aged under 71 on 30 June of the year in which the contributions are
made. For persons aged 65 to 70, the additional work test rules must
also be satisfied for a complying superannuation fund or retirement
savings account to accept contributions from a person;
lodge
an income tax return for the year; and
not
have held an eligible temporary resident visa during the income
year.
STOP:
From the 2009/10 income year, total income will also include any
‘reportable employer superannuation contributions’: see
Tax Laws Amendment (Budget Measures No 1) Bill 2009, which received
Royal Assent on 26 March 2009.
Superannuation
splitting
A
member of an accumulation fund (or a member whose benefits include an
accumulation interest in a defined benefit fund) is able to split
with her or his spouse superannuation contributions made from 1
January 2006. The spouse contributions-splitting regime has also been
extended to cover employer contributions to untaxed superannuation
schemes and exempt public-sector superannuation schemes.
While
the relevance of spouse contribution-splitting has been reduced
following the abolition of reasonable benefit limits and end benefits
tax for those aged 60 and over, splitting contributions between
spouses can still be a useful strategy to effectively transfer
concessional contributions to the older spouse who will reach age 60
(and tax-free benefit status) first. In addition, contribution
splitting may be relevant to access two low-rate cap thresholds for
superannuation benefits taken before age 60. However, it is not
possible to split ‘untaxed splittable contributions’ (eg
non-concessional contributions made after 5 April 2007).
In
broad terms, the low-rate cap amount operates as a lifetime limit on
the level of concessional tax treatment applicable to the taxable
component of a superannuation lump sum (including an element untaxed
in the fund) received by a person who has reached his or her
preservation age but is under age 60. The cap amount is $145,000 for
the 2008/09 income year.
It
is important to note that a superannuation fund does not need to
offer a contributions-splitting service for its members. However, a
trustee that accepts a valid application must roll over, transfer or
allot the amount of benefits in favour of the receiving spouse within
90 days after receiving the application.
Tax treatment
A
member’s contribution that is split and paid to another fund is
considered a ‘contributions-splitting superannuation benefit’
and treated as a roll-over superannuation benefit for the receiving
spouse. Therefore, the contributions-splitting amount rolled over or
transferred for the benefit of the member’s spouse is not
subject to the 15% contributions tax in the hands of the fund.
Where
a contributions-splitting superannuation benefit is transferred to an
account within the same fund and paid to a taxpayer because her or
his spouse is a member of the superannuation fund, the receiving
spouse is deemed by s 307–5(6) to be the member of the fund for
tax treatment of the superannuation benefit.
At
the benefit payment stage, a contributions-splitting superannuation
benefit is deemed to consist entirely of a taxable component of a
superannuation benefit.
A
person entitled to a tax deduction for a personal superannuation
contribution who wants to split personal contributions and claim a
deduction must provide a notice under s 290-170 of ITAA 1997 to her
or his superannuation fund before requesting the fund to split the
contributions. Once a contribution has been split, a self-employed
person is not able to make a new s 290-170 election to claim a
deduction or amend an existing election in respect of the split
amount.
Spouse
contributions tax offset
A
tax offset is available up to $540 under s 290-230 of ITAA 1997 for a
resident taxpayer in respect of eligible contributions made by the
taxpayer to a complying superannuation fund or a retirement savings
account for the purpose of providing superannuation benefits for the
taxpayer's low-income or non-working resident spouse (including a de
facto spouse): see Tax Rates and Figures.
A
taxpayer is entitled to the spouse-contributions tax offset only if:
the
contribution is made on behalf of a person who was the taxpayer’s
spouse when the contribution was made;
both
the taxpayer and the spouse were Australian residents and were not
living separately and apart on a permanent basis when the
contribution was made;
the
total of the spouse’s assessable income and any reportable
fringe benefits for the income year is less than $13,800;
the
taxpayer cannot and has not deducted an amount for the spouse
contribution as an employer contribution under s 290-60 of ITAA
1997; and
if
the contribution is made to a superannuation fund, it must be a
complying superannuation fund for the income year in which the
contribution is made.
If
the spouse in respect of whom the contribution is made is age 65 or
over, the contribution cannot be accepted by the fund unless the
spouse satisfies the requisite work test. Likewise, a regulated
superannuation funds is not able to accept contributions on behalf of
a spouse aged 70 to 74.
TIP:
The definition of a ‘spouse’ includes a person who,
although not legally married to a person, lives with the person on a
genuine domestic basis as the person’s husband or wife.
STOP:
From the 2009/10 income year, the offset will not be available if
the total of the taxpayer’s spouse’s assessable income,
reportable fringe benefits and ‘reportable employer
superannuation contributions’ exceeds $13,800: see Tax
Laws Amendment (Budget Measures No 1) Act 2009.
Spouse’s income test and
limit on amount of tax offset
The
assessable income and any reportable fringe benefits of the spouse
must be less than $10,801 in total to obtain the maximum tax offset
of $540, and less than $13,800 to obtain a partial tax offset.
The
taxpayer’s own assessable or taxable income, and whether he or
she qualifies for a deduction or tax offset for any superannuation
contributions made on behalf of herself or himself, is irrelevant to
entitlement to the rebate. Similarly, whether the spouse has any
other superannuation is also irrelevant.
There
is no limit on the amount of the actual contributions that can be
made on behalf of the spouse, merely a $3,000 limit on the
contributions for which a tax offset can be obtained. Where less than
$3,000 is contributed, the tax offset is 18% of the actual amount of
the contributions. Where the sum of assessable income and reportable
fringe benefits (if any) of the spouse is greater than $10,800, the
$3,000 maximum contributions subject to the tax offset is reduced by
$1 for each dollar of assessable income and reportable fringe
benefits in excess of $10,800 and an 18% tax offset applies on actual
contributions up to this maximum.
Transition
to retirement pensions
Broadly,
a transition to retirement pension (TRP) allows a taxpayer who has
reached preservation age to access his or her superannuation benefits
by commencing a non-commutable pension or annuity without having to
retire permanently from the workforce. At the same time, an
individual can salary sacrifice employment income back into
retirement savings. However, the pension cannot be cashed or commuted
to a lump sum while the taxpayer is still working, unless a condition
of release with a ‘nil’ cashing restriction has been
satisfied (eg attaining age 65). All superannuation funds, including
self-managed superannuation funds, are able to offer such a product
to their members, provided the fund’s deed allows it.
A
TRP can take the form of a non-commutable allocated pension but has a
maximum annual payment limit of 10%. Both the minimum and maximum
annual payment amounts are calculated according to the ‘account
balance’ under Sch 7 of the SIS Regs. Further, the minimum
annual payment amount is determined by the age of the taxpayer at the
start of each financial year.
Therefore,
it is necessary to decide how much superannuation capital needs to be
set aside to guarantee a TRP within the minimum/maximum annual
payment limits. Due consideration must also be given to the make-up
of the capital, which consists of taxable components and/or
non-taxable components, because the composition will impact upon the
tax treatment of a pension received by a taxpayer under age 60.
Tax treatment
A
TRP paid from a taxed source to an individual aged 60 or over is
non-assessable non-exempt income, ie tax free. As such, it is
not counted in working out the tax payable on any other assessable
income of the individual.
Conversely,
if an individual is under age 60, the ‘taxable component’
of a TRP paid from a taxable source is included in the individual’s
assessable income. Where the individual is above his or her
preservation age (but below age 60) a 15% tax offset in respect of
the tax component of the pension is available.
The
tax-free component of a TRP paid from a taxed source is tax free,
regardless of an individual’s age.
Salary sacrifice and TRP
An
advantage of a TRP is that instead of employment income being taxed
at an individual’s marginal rate, the salary-sacrifice
superannuation contributions are only taxed at the rate of 15% on
entry into the superannuation fund. This, generally, results in less
overall tax being paid on the pension income (as compared to
employment income). However, it is important to note that the amount
available for salary sacrificing is effectively restricted by the
annual concessional contributions cap, which is determined by
reference to an individual’s age. (See Tax Rates and
Figures.)
Another
advantage is the income-tax exemption available to superannuation
funds in respect of income derived from assets that are segregated to
support a fund’s current pension liabilities.
Self-managed
superannuation funds
The
establishing of a self-managed superannuation fund (SMSF) can be part
of a taxpayer’s tax-planning options. However, it is important
to be aware that the SISA and the SIS Regs impose various
restrictions on the fund. In addition, the Act and the Regs impose
various duties upon a trustee of an SMSF. Failure to comply with
those restrictions and duties may result in the trustee facing civil
and/or criminal penalties, and the SMSF losing its complying fund
status.
The
restrictions imposed on an SMSF include the sole purpose test,
borrowings and acquisition of assets from related parties (eg for
residential rental properties).
Pension
drawdown relief
The
Government has introduced regulations which temporarily suspend the
minimum drawdown requirements for account-based annuities and
pensions for the second half of the 2008/09 income year (ie 1 January
2009 to 30 June 2009).
The
temporary suspension occurs through a 50% reduction in the minimum
payment amount for 2008/09. For those people who have already taken
half of the current minimum payment for 2008/09, the annual nature of
the minimum payment rules means that a further payment will not be
required until the end of the 2009/10 income year. The temporary
suspension of the minimum payment requirement will apply to:
account-based
annuities and pensions;
allocated
annuities and pensions;
account-based
and allocated pensions payable from retirement saving accounts; and
market-linked
(term allocated) annuities and pensions.
The
relief is also available to individuals who are receiving a
transition to retirement pensions, provided the pensions are paid
through one of the pension products stated above.
Tax Offsets and
Rebates
A
variety of tax offsets and rebates are available to resident
individual taxpayers. Unlike deductions, tax offsets and rebates are
not taken into account in determining taxable income. Instead, they
are subtracted from the tax payable on the taxable income of a
taxpayer. The amount of any tax offset or rebate to which a taxpayer
is entitled to will depend on several factors, including the level of
the taxpayer’s taxable income and the separate net income of
the taxpayer’s dependants.
It
is important to be familiar with the individual requirements of each
tax offset or rebate because of the impact the tax offset/rebate may
have on a client’s tax position.
Where
a tax offset or rebate is of a kind specified in s 67-75 of ITAA
1997, a refund of the tax offset/rebate is allowed if it exceeds the
taxpayer’s income tax liability for an income year. For these
purposes, the taxpayer’s tax liability is effectively
determined by disregarding any refundable tax offsets/rebates and any
franking tax offset, but taking into account any non-refundable tax
offsets/rebates. The refundable amount is the excess.
The
specified refundable tax offsets/rebates are:
the
private health insurance tax offset;
the
first-child tax offset;
the
research and development tax offset;
the
various film tax offsets;
the
national rental-affordability scheme offset;
the
education tax offset (see Developments since 1 July 2008);
the
franking tax offsets and venture capital franking tax offsets;
the
tax offset available under s 713-545 of ITAA 1997 where a life
insurance company’s subsidiary joins a consolidated group; and
the
no-TFN contributions income tax offset.
TIP:
A refundable tax offset/rebate can
be set off against the Medicare levy payable and any other tax
liability (under the rules in ss 8AAZLA to 8AAZLE of the Taxation
Administration Act 1953) of a
taxpayer.
TIP:
Where a trustee is assessed under s
98 of ITAA 1936 on behalf of a beneficiary who is a resident (other
than a company beneficiary), the trustee may be entitled to a
personal tax offset/rebate in that assessment.
Developments since
1 July 2008
It
is important to note the changes to the tax legislation which are
effective for the 2008/09 income year and later income years. Some of
the changes are discussed below.
Education
Tax Refund
From
1 July 2008, eligible families can claim a 50% Education Tax Refund
for qualifying education expenses incurred on their children’s
education every year up to:
$750
for each child undertaking primary studies (ie a maximum of $375
refund); and
$1,500
for each child undertaking secondary studies (ie a maximum of $750
refund).
Families
who receive Family Tax Benefit (FTB) Part A with one or more children
undertaking primary or secondary studies and who satisfy the
schooling requirement are eligible for the refund. Families who would
be eligible for FTB Part A in respect of a child but for the fact
that they or the child receive payments under:
a
prescribed educational scheme (eg Abstudy, the Veterans’
Children Education Scheme, the Student Financial Supplement Scheme);
the
scheme under s 258 of the Military Rehabilitation and
Compensation Act 2004;
a
social security pension (eg carer payment, sole parent pension,
widow B pension or disability wage supplement);
a
social security benefit (eg youth allowance, Austudy payment,
Newstart allowance or sickness allowance); or
a
payment under a Labour Market Program,
are
also eligible for the refund.
Independent
students (aged under 25) undertaking secondary studies at an
educational institution such as TAFE may also be eligible. However,
students attending general TAFE courses and/or university are not
eligible.
A
child satisfies the schooling requirement contained in s 61-630 of
ITAA 1997 if the child undertakes primary or secondary studies (which
can include home schooling) on at least one day in a six-month period
beginning on 1 July or 1 January.
The
list of eligible education expenses is contained in s 61-640 of ITAA
1997 and includes the following:
computers;
computer-related
equipment;
computer
software;
home
internet connection;
school
textbooks and stationery; and
prescribed
tools of trade.
The
acquisition cost of an item can be by way of purchase, lease or
hire-purchase. Where applicable, the cost of an item can include
associated costs such as repair and maintenance, and establishment
costs.
An
expense is not eligible for the refund to the extent that the expense
is deductible under another provision of ITAA 1997 or ITAA 1936, is
subject to another tax offset, or a claimant received or is entitled
to receive payment or property for the expenses: see s 61-640.
The
Tax Office’s FAQs state that if an item is used for different
purposes (eg education and business) only the amount that relates to
the education of the child is eligible for the refund. The Tax Office
has also stated various items which it considers not eligible for the
refund. These include: computer games and consoles, school fees,
sporting equipment, musical instruments, tuck shop expenses and
transport.
The
Education Tax Refund is claimed through the tax system on lodgment of
an income tax return. Those not required to lodge an income tax
return can claim the refund through the Tax Office by lodging a
separate form at the end of the income year.
TIP:
Where a child transits from primary to secondary school in the same
financial year, the secondary-school limit of $750 will apply.
TIP:
Where a child ceases full-time study, a partial refund is available
for that part of the financial year that the child meets the
schooling requirement.
STOP:
A Frequently Asked Questions document released by the Tax Office
states that parents can only claim for items that they have paid for
themselves.
Medicare
levy surcharge threshold
The Medicare levy surcharge
thresholds for the 2008/09 income year were amended by Tax Laws
Amendment (Medicare Levy Surcharge Thresholds) Act (No 2) 2008.
The
Medicare levy surcharge thresholds for the 2008/09 income year are
set out in Tax Rates and Figures.
Transitional
arrangements apply so that individuals who have insurance policies
that provide private patient hospital cover before 1 January 2009
will avoid the levy surcharge for the period 1 July 2008 to 31
December 2008.
Fuel
tax credits scheme
From
1 July 2008, the fuel tax credits scheme has expanded to include all
taxable fuels that an entity uses in machinery, and plant and
equipment for its business activities, provided that the fuel is not
used in a vehicle with a gross vehicle mass (GVM) of 4.5 tonnes or
less travelling on a public road. Examples of taxable fuels are
diesel, petrol, kerosene, heating oil, toluene and fuel oil. However,
aviation fuels and alternative fuels such as such as liquefied
petroleum gas, compressed natural gas, liquefied natural gas, ethanol
and biodiesel are not eligible fuels for the purpose of the scheme.
The
expansion means that most taxpayers, including businesses in
construction, manufacturing, wholesale/retail, property management
and landscaping activities, are now able to claim fuel tax credits.
The Tax Office has provided the following examples of business
equipment that a business can claim the credits for:
An
entity can claim $0.190715 per litre for fuels it acquires for use in
machinery, and plant and equipment that it uses for its business
activities. If the entity is claiming a credit for vehicles with a
GVM greater than 4.5 tonnes or operating in a specified activity such
as fishing or mining, separate rates will apply.
Tax Office Focus
Consideration
should be given to the Commissioner’s approach to administering
the tax law, which includes pronouncements on aggressive tax
planning, Taxpayer Alerts as to arrangements that have come to his
attention, and the annual Compliance Program of the Tax Office.
Compliance
Program 2008/09
Individuals
Investors
The
Tax Office has stated that it will carry out data-matching programs
to ensure individuals are reporting their capital gains tax
obligations correctly. It also states that it will focus on whether
capital gains distributed to investors in managed funds have been
correctly classified.
The
Tax Office will check that managed investment schemes are implemented
as described in their product rulings and identify schemes that have
proceeded without product rulings. The Tax Office will increase its
monitoring of aggressive new financial products and arrangements to
ensure financial products (including tax exploitation schemes) comply
with the tax and superannuation laws.
Rental
properties
The
Tax Office has said that it will focus on the following areas for
rental property owners:
claims
for body corporate fees;
claims
for capital works;
incorrect
claims for stamp duty deductions on the purchase of a property
title;
incorrect
classification of expenditure as repairs and maintenance;
incorrect
completion of rental schedules; and
incorrect
deductions for interest expenditure.
Senior
executives and directors
The
Tax Office will expand its review of compliance of senior executives
and directors of public companies to private companies and resident
executives and directors of foreign-owned companies. It will focus on
remuneration packages and any failure to report equity benefit and
cash or share bonuses. The Tax Office has stated that, where
compliance action with senior executives identifies significant
issues that are relevant to other employees, it will extend its
compliance work to the larger population.
Work-related
expenses claims
The
Tax Office will review and audit activities, particularly in relation
to nurses, medical practitioners and chefs. The Tax Office said it
will also focus on ‘out of pattern’ claims for
self-education, car and travel expenses.
Micro enterprises
Micro
enterprises refer to taxpayers with an annual turnover of less than
$2 million and to self-managed superannuation funds. The key
priorities that the Tax Office are focusing on include:
tax
obligations of small businesses;
employer
obligations (including superannuation guarantee);
cash
economy;
offshore
income including dividends and interest, royalties and rental
income;
capital
gains on sales of assets and investments;
tax
debt management;
refund
fraud, in particular unusual and high value GST and income tax
refund claims;
obligations
of trustees and auditors of superannuation funds;
partnership
and trust distributions;
GST
and property transaction; and
claims
for fuel tax credits.
Small to medium enterprises
Small
to medium enterprise businesses refer to taxpayers with an annual
turnover of between $2 million and $250 million, including highly
wealthy individuals who, with their associates, effectively control
$30 million or more in net wealth. The key priorities that the Tax
Office are focusing on include:
private
companies and Div 7A issues;
highly
wealthy individuals;
tax
planning around business exits;
transactions
between related Australian and offshore entities that shift profits
from Australia to other countries and capital gains from overseas
assets;
trusts
issues such as the effectiveness of clauses in trust deeds that seek
to equate trust income with trust taxable income and trust cloning
involving the permanent deferral of tax; and
claims
fuel tax credits.
Superannuation
The
Commissioner has highlighted several superannuation-related
compliance priorities for 2008/09. Key priorities include:
ensuring
employees’ superannuation guarantee contributions are
correctly paid;
over-claiming
deductions for superannuation contributions and excess
contributions;
early
access to superannuation by individuals; and
regulatory
issues associated with self-managed superannuation funds.
Note
that this year the Tax Office will also focus on supporting the
implementation of the introduction of the new First Home Saver
Accounts (FHSAs) from 1 October 2008 and ensuring that people
understand the product.
Taxpayer
Alerts
Taxpayer
Alerts are only intended to be an ‘early warning’ of
tax-planning arrangements that the Tax Office have under risk
assessment. However, it is expected that the Tax Offie will follow-up
on the release of an Alert with either a public ruling or
determination.
TA 2009/1 – Early access
to superannuation
In
Taxpayer Alert TA 2009/1, the Tax Office describes arrangements that
incorrectly offer people early release of their preserved
superannuation benefits prior to retirement without meeting statutory
conditions for such release. The Alert also reiterates the Tax
Office’s concerns about similar arrangements to those described
in Taxpayer Alert TA 2002/3.
The
Tax Office says the arrangements are ineffective and may involve
misleading or deceptive conduct and breaches of the sole purpose
test.
Tax Rates and
Figures
Individuals
General rates for residents —
2008/09
|
Taxable
income ($)
|
Tax
payable ($)1
|
|
0 –
6,000
|
Nil
|
|
6,001 –
34,000
|
Nil + 15% of
excess over 6,000
|
|
34,001 –
80,000
|
4,200 + 30%
of excess over 34,000
|
|
80,001 –
180,000
|
18,000 + 40%
of excess over 80,000
|
|
180,001 +
|
58,000 + 45%
of excess over 180,000
|
Medicare
levy is payable at the flat rate of 1.5% of taxable income, subject
to concessions for low income earners and various exemptions
Division 6AA income —
resident minors
|
Div 6AA
income ($)
|
Tax
payable ($)
|
|
0 –
416
|
Nil
|
|
417 –
1,307
|
66% of
excess over 416
|
|
1,308+
|
45% of
entire amount
|
Medicare levy surcharge
threshold
|
No of
dependent children or students
|
Surcharge
threshold ($)
|
|
0 (Single)
|
70,000
|
|
1
|
140,000
|
|
2
|
141,500
|
|
3
|
143,000
|
|
4
|
144,500
|
|
Each extra
child
|
+ 1,500
|
Tax
offsets and rebates
Low-income tax offset —
2008/09
|
Taxable
income (TI) ($)
|
Offset ($)
|
|
0 –
30,000
|
1,200
|
|
30,001 –
59,999
|
1,200 –
([TI – 30,000] x 4%)
|
|
60,000+
|
Nil
|
Spouse contributions tax offset
|
Spouse’s
assessable income (SAI)
|
Maximum
rebateable contributions (MRC)
|
Maximum
tax offset
|
|
($)
|
($)
|
($)
|
|
0 –
10,800
|
3,000
|
5401
|
|
10,801 –
13,799
|
3,000 –
[SAI – 10,800]
|
MRC x 18%1
|
|
13,800+
|
Nil
|
Nil
|
The
actual amount of the contributions x 18% will be the maximum tax
offset where it is less than this figure.
Companies
|
Company tax
rate
|
30%
|
|
Division 7A
benchmark interest rate for 2008/09
|
9.45%
|
Superannuation
Tax rates for complying
superannuation funds
|
Investment
income and other income (other than non-arm’s length income)
|
15%
|
|
Capital
gains (after 1/3 discount if eligible)
|
15%
|
|
Non-arm’s
length income
|
45%
|
|
Concessional
contributions (below contributions cap1)
|
15%
|
|
Concessional
contributions (above contributions cap) 2
|
15%2
|
|
Non-concessional
contributions (below contributions cap3)
|
Nil
|
|
Non-concessional
contributions (above contributions cap) 4
|
Nil4
|
|
No-TFN
contributions
|
46.5%
|
|
SMSF
supervisory levy for 2008/09
|
$150
|
The
concessional contributions cap is $50,000 for those under 50 (or
$100,000 until 30 June 2012 for those aged 50 or over).
If
the contributions are above the concessional cap, the fund continues
to pay tax on those contributions at 15% but extra tax is levied on
the excess contributions on the individual contributor at 31.5%.
The
non-concessional contributions cap is $150,000 per person per year
(or $450,000 every three years for people under age 65).
If
the contributions are above the non-concessional cap, the
individual, rather than the fund, is taxed on the excess at 46.5%.
Concessional contributions cap
|
Age as at
30 June 2009
|
Cap
|
|
Under 50
|
$50,000
|
|
50 – 64
|
$100,000
|
|
65 – 74
|
$100,000
|
|
75+
|
Only mandated
employer contributions
|
Government co-contribution
|
Assessable
income plus reportable fringe benefits (AI)
|
Maximum
government co-contribution payment
|
|
$0 –
$30,342
|
$1,500
|
|
$30,343 –
$60,342
|
$1,500 –
([(AI – $30,342) x 0.05])
|
|
$60,343
|
Nil
|
Preservation age
|
Date of
birth
|
Preservation
age
|
|
Before 1
July 1960
|
55
|
|
1 July 1960
to 30 June 1961
|
56
|
|
1 July 1961
to 30 June 1962
|
57
|
|
1 July 1962
to 30 June 1963
|
58
|
|
1 July 1963
to 30 June 1964
|
59
|
|
30 June
1963+
|
60
|
Quarterly date dues for
superannuation guarantee
|
Superannuation
guarantee due dates
|
|
Quarter
ending
|
Due date
|
|
30 September
|
28 October
|
|
31 December
|
28 January
|
|
31 March
|
28 April
|
|
30 June
|
28 July
|
Miscellaneous
rates
Cents per kilometre rates for
car expenses — 2008/09
|
Description
|
Engine
capacity non-rotary engine (cc)
|
Engine
capacity rotary engine (cc)
|
Rate per
kilometre (cents)
|
|
Small car
|
0 –
1,600
|
0 –
800
|
63.0
|
|
Medium car
|
1,601 –
2,600
|
801 –
1,300
|
74.0
|
|
Large car
|
2,601 +
|
1,301 +
|
75.0
|
Luxury car limit/ car
depreciation cost limit
|
Income
year
|
Limit ($)
|
|
2008/09
|
57,180
|
|
2007/08
|
57,123
|
Overtime meal allowances (per
meal) — reasonable expenses
|
Income
year
|
Amount
($)
|
|
2008/09
|
23.60
|
|
2007/08
|
22.60
|
Value of goods taken from stock
for private use
|
Type of
business
|
Adult/Child
over 16 years1, 2
|
Child 4 –
16 years1, 2
|
|
($)
|
($)
|
|
Bakery
|
1,070
|
535
|
|
Butcher
|
720
|
360
|
|
Restaurant
/ café (licensed)
|
3,680
|
1,470
|
|
Restaurant
/ café (unlicensed)
|
2,940
|
1,470
|
|
Caterer
|
3,190
|
1,595
|
|
Delicatessen
|
2,940
|
1,470
|
|
Fruiterer /
greengrocer
|
770
|
385
|
|
Takeaway
food shop
|
2,780
|
1,390
|
|
Mixed business
(includes milk bar, general store and convenience store)
|
3,520
|
1,760
|
The
amounts are per adult or per child.
The
amounts exclude GST.
HELP repayment thresholds and
rates — 2008/09
|
HELP
repayment income ($)1, 2
|
Repayment
rate (%)
|
|
0 –
41,594
|
Nil
|
|
41,595 –
46,333
|
4.0
|
|
46,334 –
51,070
|
4.5
|
|
51,071 –
53,754
|
5.0
|
|
53,755 –
57,782
|
5.5
|
|
57,783 –
62,579
|
6.0
|
|
62,580 –
65,873
|
6.5
|
|
65,874 –
72,492
|
7.0
|
|
72,493 –
77,247
|
7.5
|
|
77,248+
|
8.0
|
‘HELP
repayment income’ is the sum of taxable income, reportable
fringe benefits total, net exempt foreign employment income and net
rental losses.
From
the 2008/09 income year, a taxpayer’s repayment amount may be
reduced by the HECS-HELP benefit if the taxpayer:
graduated
from an undergraduate mathematics, statistics or science course of
study from the second semester of 2008 onwards and is employed in a
related occupation, including teaching those subjects in a
secondary school; or
is
an early-childhood teacher employed in a childcare centre,
kindergarten or pre-school in a regional or remote area, Indigenous
community or an area of high socio-economic disadvantage.
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Important:
This is not advice. Clients should not act solely on the basis of
the material contained in this Bulletin. Items herein are general
comments only and do not constitute or convey advice per se. Also
changes in legislation may occur quickly. We therefore recommend
that our formal advice be sought before acting in any of the areas.
The Bulletin is issued as a helpful guide to clients and for their
private information. Therefore it should be regarded as confidential
and not be made available to any person without our prior approval.
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