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June 2004 Newsletter

The traditional measures as follows continue to apply to year end tax planning as at 30 June 2004:

Accelerated Deductions

Initiatives to accelerate deductions could include:

• Ensuring Superannuation contributions are paid by year end;
• Review and physically write off bad debts before year end;
• Consider scrapping stock and plant and equipment of nil value before year end;
• Valuing stock to a lower replacement price or market value where appropriate;
• Consider realising foreign exchange losses and deferring realisation of gains; and
• Hold meetings before year-end to ratify bonus obligations.  This is because an entity is not entitled to a deduction for directors' fees, bonuses or similar payments until the income year in which the entity has definitively committed itself to the payment.

Capital Gains Tax

Strategies to minimise CGT include:

• Deferring a disposal to a subsequent income year;
• Deferring a disposal to ensure the asset has been held for at least 12 months to (potentially) benefit from the 50% discount;
• Match gains and losses where possible to avoid carrying forward a capital loss, this may mean that when a capital gain has taken place, selling other assets so as to realise a capital loss;
• Seek liquidators' determinations to crystallise a capital loss on valueless shares in a company in liquidation.

Other Issues

Other important matters include:

• The payment of dividends to ensure there are no debit director/shareholder loan accounts;
• Ensuring minimum prescribed repayments are made on private company loans and documentation of loans prior to 30 June as required;
• Consider making a family trust election where a trust holds shares acquired post 31 December 1997 to maintain franking credit benefits, or losses to be recouped;
• Consider whether the non commercial loss rules apply;
• Do the alienation of personal services income rules apply, is a personal services business determination required or can the rules be avoided through careful planning.

The final date for payment of the 9% superannuation guarantee contributions for employees for the quarter 1 April 2004 to 30 June 2004 is 28 July 2004.  However, in order to obtain a taxation deduction for the year ending 30 June 2004 the superannuation payment must be received by the superannuation fund by the 30 June 2004.

The proposed bill allowing employees to choose the superannuation fund of their choice for which employers are to contribute the 9% superannuation is still pending in the Senate and accordingly the date of operation being the 1 July 2004 has been deferred until the 1 July 2005.

The High Court has held in Hart's Case that the general anti-avoidance provisions of Part IVA of the ITAA 1936 applies to deny a deduction for the additional interest expense on the investment loan created by the "wealth optimizer" split loan facility.

The High Court decision means that part of the interest deduction a taxpayer has claimed is not allowable.  The ATO has the authority under tax laws to amend returns for up to six years if Part IVA applies.

The ATO states that taxpayers who have claimed the entire interest deduction under a split loan facility should voluntary disclose by seeking an amended assessment, and that penalties will be reduced to 5% of the tax shortfall.  General interest charges (GIC) will also be payable.

If taxpayers do not make a voluntary disclosure and the ATO detects that they have over claimed deductions for interest, a significantly higher penalty may be imposed.

"Never let the tax tail wag the economic dog"

http://www.ato.gov.au/individuals/content.asp?doc=/content/45127.htm For more information on split loans, the ATO has a new page on its website.

www.eweek.com  This site enables business to appraise new technology and then deduce what is appropriate for their operations.