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Newsletter March 2005

Trustees of self managed superannuation funds (SMSFs) must ensure that the fund's assets are appropriately recorded to legally demonstrate fund ownership.  In situations where it is not legally possible to include the fund's name as the asset owner (eg ownership of land and buildings), a caveat, instrument or declaration of trust must be executed for the asset.

If this rule is breached, fund trustees are expected to rectify the breach as soon as is reasonably possible.

In a recently released Interpretative Decision, the Taxation Office has ruled that a company is able to utilise part of a tax loss generated in a year in which the company failed both the continuity of ownership test, and the same business test.

Broadly, the law prohibits a company from deducting a tax loss unless:

• It has the same owners throughout the period from the start of the loss year to the end of the year in which the loss is deducted.  This is referred to as the continuity of ownership test.
• It carries on the same business for the period starting just before the continuity of ownership test was failed through to the end of the year in which the loss is deducted.

Specifically, where a loss company fails both tests in the year in which an overall loss is made, the law required the loss company to divide the income year into periods.  The dividing point between periods is the time when the ownership test was failed.  The company is required to treat each period as if it were a separate income year and work out the notional loss or notional taxable income for each period.

A notional loss calculated in a period after the change of ownership can then be carried forward and offset against future years' taxable income.

In a recent GST case, the issue was whether land acquired through a compulsory acquisition by a Shire Council was subject to GST.

The taxpayer had obtained a private ruling from the Taxation Office in which it was held that the acquisition was not subject to GST.  Despite the ruling, the Council insisted that the taxpayer issue them with a tax invoice and withheld 1/11^th of the proceeds payable to the taxpayer when a tax invoice was not received,

The Court held that the acquisition was not a taxable supply.  The Council was required to pay the taxpayer the proceeds withheld in addition to an amount of compensation.

The Taxation Office has held that an employee who used their personal loyalty program points to acquire an airline tickets for work related purposes is not entitled to a tax deduction for the value of the airfare.

Although the law allows a deduction for consideration paid otherwise than in cash, the consideration paid must have a money value.  The Taxation Office formed the view that the money value of the loyalty points used by the employee was nil because the loyalty points cannot be transferred or assigned and are not convertible into cash.

The table below details the rates at which taxpayers can claim income tax deduction for the 2004/2005 income year for car expenses, under the cents per kilometre method.   To use this method the taxpayer must own, lease or hire purchase a motor vehicle.  The taxpayer is not required to maintain substantiation documents under this method, but rather a reasonable estimate of business kilometres.  The maximum claim is 5,000 business kilometres.
 

These rates can be used by employers in calculating the reimbursement of employee work travel.

"The pen is mightier than the sword, but no match for the accountant" Jonathan Glancey.