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Newsletter January 2006

Owners of land as at 31 December 2005, who are liable for land tax for the first time in the 2006 tax year, or who have not previously lodged a land tax return or received an assessment, should lodge an 'initial return' by 31 March 2006.

For the 2006 land tax year a $330,000 threshold will apply to owners of liable land.  The 2006 land tax rate will be 1.7 % (plus $100) on the combined value of all taxable land in excess of $330,000.

Recent reviews by the Tax Office indicate that some taxpayers are not keeping adequate records to support the income returned or claims being made in regards to rental properties.

Records of rental expenses must be in English, or be readily convertible to English, and include:

• name of the supplier of the goods or services,
• amount of the expense,
• nature of the goods and services,
• date the expense was incurred,
• date of the document.

Records of rental income and expenses must be kept for five years from the date the tax return was lodged.  If at the end of this period there is a dispute pending with the Tax Office, all records must be kept until this dispute is resolved.

For capital gains tax purposes, records relating to ownership and all costs of acquiring and disposing of the property must be kept for five years from the date of disposal.

A new bill has been introduced into Parliament to extend the tax deductibility of gifts and contributions made to independents and political parties at a State or Federal level.

Currently, the tax laws allow a non-corporate taxpayer to deduct a contribution of $2 or more to political parties registered under the Commonwealth Electoral Act up to a maximum of $100 in an income year.

The proposed amendments expand and extend these arrangements by:

• raising the tax deductible threshold from $100 to $1,500 for an income year;
• allowing deductibility for contributions made to political parties registered under State and Territory electoral legislation;
• allowing deductibility for donations from companies.

The amendments will apply to gifts or contributions made after the date of assent of the Bill.

Each year the Tax Office receives data from Centrelink, the Department of Veterans' Affairs and other external sources, including financial institutions.  Recently, the Tax Office has indicated that it will electronically match names and addresses from state and territory legal practitioner registers and lists of the judiciary with certain sections of Tax Office data holdings to reveal compliance with lodgement and payment obligations under tax law.  Records relating to approximately 41,000 individuals within the legal profession will be matched.

The tax office will also compulsorily acquire names, addresses and telephone numbers from Pickles Auctions Pty Ltd, Fowles Auction Group Pty Ltd and Auto Auction Group Pty Ltd. Records relating to approximately 5,000 individuals and entities that purchased or sold vehicles through these auction houses will be matched with Tax Office data holdings.

The Commissioner has considered what reasonable amounts are for the 2005-06 income year in relation to claims made for:

• overtime meal allowance expenses;
• domestic travel allowance expenses;
• travel allowance expenses for employee truck drivers; and
• overseas travel allowance expenses.

Key points about claiming travel allowance expenses and meal allowance expenses are:

• Claim must be allowable - A deduction claim cannot exceed the amount actually incurred for work-related purposes. The payment of an allowance does not of itself allow a deduction to be claimed.
• Expenses covered - Certain expenses are subject to substantiation exceptions:
  • domestic travel allowance expenses - accommodation, food and drink, and incidentals that are covered by the allowance
  • overseas travel allowance expenses - food and drink, and incidentals that are covered by the allowance (the exception does not apply to accommodation); and
  • meal allowance expenses - for food and drink in connection with overtime worked.
• For travel allowance expenses - the employee must sleep away from home.
• Substantiation exception for reasonable amounts - Where the amount claimed is no more than the applicable reasonable amount, substantiation of the claim with written evidence is not required.
• Allowance must be paid - The substantiation exception only applies if the employee is paid a meal allowance under an industrial instrument or a travel allowance. The allowance must have an identifiable connection with the nature of the expense covered.
• Claims in excess of reasonable amounts - If the amount claimed is more than the reasonable amount, the whole claim must be substantiated, not just the excess.
• Verification of reasonable claims - In appropriate cases, where the substantiation exception is relied on, the employee may still be required to show an entitlement to the substantiation exception, the reasonable rate used, and entitlement to a deduction.