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Newsletter April 2007

In order to reduce the compliance costs for small businesses and increase the availability of the small business CGT concessions, several amendments have been made to the current legislation. The major changes include;

• The controlling individual 50% test will be replaced with a significant individual 20% test that can be satisfied by either directly or indirectly through one or more interposed entities.
  
  
• The changed active asset test will require the asset to be active for the lesser of 7 1/2 years or half the period of the ownership and the asset no longer needs to be an active asset just before the CGT event.
  
  Under the 80 per cent look through test, cash and financial instruments inherently connected with the business will be counted towards the 80 per cent requirement. Also, the 80 per cent look through test will not need to be tested in circumstances where it is reasonable to conclude that the 80 per cent test has been passed. If there is a breach of the threshold which is only of a temporary nature, then the 80 per cent look through test is not failed.
  
  
• The changes to the maximum net asset value test will allow provisions for annual leave, long service leave, unearned income and tax liabilities, as well as a negative asset value of a connected entity to be taken into account. Further, in relation to a partnership, the test will only apply to the individual partners in a partnership.
  
  For the purposes of the test, the individual’s assets will include only the proportion of a dwelling that was used for income producing purposes.
  
  From 1 July 2007, the $5m threshold will increase to $6m.

The Minister for Education, Science and Training has announced an increase in the repayment threshold for the Higher Education Loan Programme (HELP) to $39,825, effective from 1 July 2007.

 This means that, in 2007/2008, people with a HELP (formerly HECS) debt who earn $39,825 or more will be required to begin repaying their loan through the tax system.

Repayments start at 4% of a person’s annual income, increasing to a maximum of 8%. Weekly income would need to be $765 before repayments need to be made, with repayments of around $30 a week of that income.

The rates at which taxpayers can claim income tax deductions for the 2006/2007 year for car expenses have been announced. Taxpayers whose income producing use of a car does not exceed the 5,000 kilometre threshold can deduct car expenses on a per kilometre basis (i.e. by multiplying the number of business kilometres by the rate per kilometre as shown below).

The rates are also used to calculate the taxable value of a number of fringe benefits that relate to motor vehicles provided in the FBT year ending 31 March 2007.

The rates for cars are as follows;

The rates for non-cars are as follows; 

The benchmark interest rate for the FBT year commencing 1 April 2007 is 8.05% (and increase from 7.30% for the previous year).

The rate is used to calculate the taxable value of;

• a fringe benefit provided by way of a loan, and
• a car fringe benefit where an employer chooses to value the benefit using the operating cost method.

Under Australian tax law a resident is subject to Australian tax on income from all sources inside and outside of Australia. Foreign residents are also required to pay tax on income from sources within Australia as well as certain capital gains.

The Tax Office has warned that Australia’s comprehensive tax treaties with 42 other nations provide for information exchange about income earned overseas by Australian residents. This information is matched against individual and business tax returns. Therefore, the Tax Office and stressed the importance to include all foreign sourced income in returns.