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Newsletter January 2007

It has recently been announced that new tax arrangements for investments in forestry managed investment schemes (MIS) will take effect from 1 July 2007. The new arrangements will allow investors in forestry MIS to claim an upfront deduction for all expenditure provided that at least 70 per cent of the expenditure directly relates to developing forestry. Taxpayers will not be required to prove that they are carrying on a business in order to claim the deduction.

 The government will review the new tax arrangements for forestry MIS within two years of commencement.

An amendment has been made to the goods and services tax (GST) Act which ensures that supplies of some types of real estate property are input taxed, such as serviced apartments and strata units which are leased to operators of commercial residential complexes.

The Tax Office has stated that for people impacted by this amendment who make revisions and pay the GST amount owing by 28 February 2007, the Tax Office will not apply a tax shortfall penalty and any general interest charge will be remitted to nil.

The government has introduced the Bankruptcy Legislation Bill 2006 to enable bankruptcy trustees to clawback superannuation contributions made for the purpose of defeating creditors.

The Bill overturns the High Court’s decision in Cook v Benson (2003). In that case the High Court ruled that superannuation contributions could not be clawed back by a trustee in bankruptcy because they were transfers of property made for ‘valuable consideration’, and were therefore not void transfers under the Bankruptcy Act.

Over the next few weeks, the NSW Office of State Revenue will be issuing the 2007 Land Tax Assessments. Land tax is a tax levied on the owners of land in NSW as at midnight on 31 December of each year. In general, your principal place of residence (your home) or land used for primary production (a farm) is exempt from land tax.

 The land tax rate for 2007 will be 1.7 percent (plus $100) on the combined value of all taxable land in excess of the threshold. The land tax 2007 threshold is $352,000.

During 2007 the Australian Taxation Office (ATO) will continue its crackdown on service entity arrangements. The ATO has stated that it understands that it is common for accountants, lawyers, and other professionals to engage associated entities to provide them with labour hire, recruitment, clerical, administrative and other services. It also understands that it is common for professionals to view service arrangements as an effective means of protecting their assets from professional negligence actions and other claims. The ATO’s main concern is whether the service fees being claimed are deductible under the income tax law.

It will be critical for you to review your service arrangement if one or more of the following has occurred;

• You have agreed to pay service fees and charges that are disproportionate or grossly excessive in relation to the benefits conferred on your business by the service arrangement,
• You have agreed to pay service fees and charges calculated by the service entity without regard to the value of the services it provides,
• You have not clearly separated or distinguished the business you are carrying on from the business carried on by the service entity,
• You have failed to maintain adequate records that give evidence of the service arrangement and its perceived benefits.

The Pay-roll Tax Incentive Scheme (PTIS) was introduced to assist new and existing businesses to establish and grow in locations where unemployment is above the state average. The scheme provides a rebate to offset the pay-roll tax paid by eligible employers for employees working in eligible locations over a five year period.

The scheme is available to new applicants for a period of three years from 1 July 2006 to 30 June 2009. Rebates will continue to be paid to employers already registered for the scheme after it is closed to new applicants.

To be eligible for the rebate, the following criteria must be satisfied;

• you must be registered with OSR as a pay-roll tax employer,
• employees must be employed by the employer registered for pay-roll tax,
• employees must perform their duties wholly or predominately in the eligible location(s).
• neither the employer, nor any group member has paid pay-roll tax in NSW prior to the date of applying.