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Newsletter February 2010

Although the government recently announced that it would be ending its ‘Wholesale Funding Guarantees’ to the banks, the current Financial Claims Scheme (Retail Bank Guarantees) will remain unchanged.

The announcement does not affect the Financial Claims Scheme, which the government said would give customers certainty over deposits of up to $1 million until the cap was reviewed in October 2011.

The government has amended the fringe benefits tax (FBT) law. This is to make sure that if an employer makes a donation under salary sacrifice arrangements to a deductible gift recipient, they don’t have to pay FBT. The change will apply from the 2008–09 FBT year.

Further to the ATO refund scams, the tax office has issued a notice about sham arrangements promoted as ‘mortgage management plans’ which promise to help home owners repay their home loan sooner and claim tax deductions to which they are not entitled.

The notice describes an arrangement which seeks to generate interest deductions for the taxpayer through refinancing a taxpayer’s existing home loan and establishing purported investment loans to fund the purchase of shares in companies controlled by the promoter of the arrangement. The taxpayer claims large deductions for the interest purportedly incurred on the investment loans. The arrangement may be promoted as part of a ‘mortgage management plan’ said to assist taxpayers to repay their home loan sooner.

From 1 January 2010 to 30 June 2010 the rate of payroll tax is 5.65%. From 1 July 2009 to 31 December 2009 the rate of payroll tax was 5.75%.

The requirement to lodge an initial land tax return in 2010 applies to ‘persons’ who are owners of land in NSW at midnight on 31 December 2009. A ‘person’ includes a company, a trustee, a beneficiary of a trust, or a natural person.

Persons who own land in NSW at midnight on 31 December 2009 which is not exempt from land tax must lodge an initial return unless they were assessed and received a land tax notice of assessment for the 2009 land tax year. Any person who is required to lodge an initial return must do so by 31 March 2010.

The Valuer General has determined that the land tax threshold for the 2010 land tax year is $376,000.

If a Self Managed Superannuation Fund (SMSF) breaches the SIS Regulations, an option of the Australian Taxation Office is to label the fund ‘non-complying’. Receiving a notice of non-compliance from the tax office usually has devastating consequences. These include;

• the market value of the SMSF as at the end of the financial year before it became non-complying less the value of any undeducted contributions is included in the assessable income of the SMSF in the year in which it became non-complying,
• the rate of tax payable in respect of taxable income of the SMSF is the highest marginal rate, 45%,
• the pension exemption is not available,
• general interest charge is also usually payable.

The tax office can use it discretion before issuing a notice of non-compliance. If a contravention occurs, the tax office has a couple of options;

• make the SMSF a non-complying fund by giving the SMSF a notice of non-compliance,
• accept an undertaking from the trustee to rectify the contravention,
• disqualifying individual trustees and prohibiting them from acting as a trustee of a SMSF,
• suspending or removing the trustee,
• freezing the assets of the SMSF if there is a risk of the member’s benefits being eroded, and
• seeking civil and/or criminal penalties through the courts.

In using its discretion, the tax office will consider a number of factors in deciding whether to issue a notice of non-compliance. These factors include;

• the behaviour of the trustee in relation to the contravention, whether the behaviour has been reckless of intentional disregard for the laws has been shown,
• the extent to which the contravention affects the SMSF’s assets,
• the number and duration of contraventions over a period of time,
• the nature of the contravention in the overall scheme of the legislation.

Generally, the cost of travel you incur to inspect or maintain rental properties or to collect rent is an allowable deduction. You can claim a deduction for travel expenses in order to:

• prepare the property for new tenants (except for the first tenants),
• inspect the property during or at the conclusion of tenancy,
• undertake repairs for damages incurred while the property is being rented out,
• maintenance of the property while it is rented or available for rent,
• visiting your agent to discuss your rental property.

Some common travel expenses that people often incorrectly claim include:

• your own personal use of the property,
• travel to carry out general maintenance of the property while it is not available for rent,
• travel to undertake initial repairs i.e. repairs before the property is first rented out.

Another common mistake is claiming the cost of travel to and from an inspection of a rental property you may be looking to purchase. You cannot claim a deduction for these costs.