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Newsletter August 2004

The Australian Taxation Office recently confirmed that retirees who withdraw their superannuation money by way of a lump sum on retirement and immediately re-contribute the money to a superannuation fund as an undeducted contribution are not in breach of tax avoidance rules.

The advantage of re-contributing money to a superannuation fund as an undeducted contribution is that this contribution is returned by way of a tax free income stream.

The maximum tax free lump sum for post June 1983 component from a superannuation fund for the year ended 30 June 2005 is $123,808.

In a recent Interpretative Decision, the ATO has confirmed that the cost base of a CGT asset acquired after 13 May 1997 is to be reduced by any capital works (2.5% building write-off) amounts that have been claimed as a tax deduction.

Under current law, a taxpayer is allowed a deduction for capital works expenditure in respect of certain income producing buildings and structural improvements.  In order to prevent a taxpayer from "double dipping", the allowable deduction amount must be subtracted from the cost base of the CGT asset.

Member choice of superannuation funds, due to commence on 1 July 2005, is a compliance issue for employers.  The penalty for non-compliance will be an increase in the employer's superannuation guarantee charge for the relevant quarter.  In summary employers will have the following obligations:

• Before 29 July 2005 the employer must give to each employee a "standard choice form".  This form will advise the employee that they may choose any complying superannuation fund for their 9% superannuation to be paid into.
  
• It will further advise the employee the name of the fund to which the employer will contribute if the employee does not make a choice.
  
• The standard choice form must be given to every new employee within 28 days of their employment.

In a recent Interpretative Decision, the ATO declared that a taxpayer is entitled to a deduction for a gift made to a client after the provision of services has ended.

The ATO allows the deduction on the grounds that the taxpayer provides the gift to the clients on the expectation that it may assist in generating future business from the client or motivate the client to recommend the taxpayer's business to others.

Where the taxpayer has no other purpose in providing the gift, the expenditure is considered to be of the nature of business promotion and is hence deductible as an outgoing incurred in the production of assessable income.

Please note that gifts made to existing clientele are also an allowable deduction.

Private companies will avoid the deemed dividend rules where loans to shareholders or associates are repaid, or put on a commercial basis, by the due date for lodgement of the company's tax return.  Currently, a potential deemed dividend arises unless a complying loan agreement exists before funds are advanced.  The changes will apply for the 2004/2005 income years.

www.delisted.com.au is a useful site for tracing what may have happened to delisted/hard to trace shareholdings.

www.asic.gov.au/fido/fido.nsf is a website to trace unclaimed money.