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Newsletter October 2006

The NSW land tax threshold for the 2007 land tax year has been determined to be $356,000, however the way the land tax threshold is calculated has changed and an average of the thresholds for this year and the previous two years will be used. As this average threshold is below the land tax threshold for 2006, the previous year's threshold of $352,000 will continue to apply for the 2007 land tax year. The threshold applies to land owned on 31 December 2006.

You may be liable for land tax if you own or part-own;

• vacant land, including vacant rural land,
• a holiday home,
• investment properties,
• company title units, or
• residential, commercial or industrial units.

In general, your principal place of residence or land used for primary production (a farm) is exempt from land tax.

Retailers and wholesalers may elect to value each item of trading stock on hand at the end of an income year at cost. Where they elect to value trading stock at cost, the cost of each item of stock includes all direct and indirect expenditure incurred in bringing the item to its present location and condition up to the time that the item is located in its final selling location, otherwise known as the absorption cost method. This may include costs such as freight, insurance, distribution or storage costs.

Simplified tax system taxpayers only need to account for changes in the tax value of their trading stock if there is a difference of more than $5,000 between the tax value of their stock on hand at the start of the income year and a reasonable estimate of their stock at the end of the year.

The enhanced assistance will effectively exempt up to around $1.7 million of domestic wholesale wine sales from WET each year per wine producer, compared to $1 million a year under the current scheme.

Parents may be entitled to an offset of 30% for the out-of-pocket child care expenses they have paid. The offset for the 2005/06 income year is calculated from the 2004/05 income year. Parents should be eligible to claim the child care tax offset provided they;

• used approved child care,
• were entitled and have received the child care benefit (CCB),
• passed the CCB work/training/study test, and
• had out-of-pocket child care expenses (ie had child care expenses in excess of the CCB).

The child care offset can reduce a taxpayer's tax liability to nil but they cannot get a refund from the offset. The offset is calculated for each child separately and limited to a maximum of $4,000 per child. The offset is calculated as follows;

1. Calculate total child care fees paid for the child during the period,
2. Work out CCB entitlement for the child,
3. Subtract b) from a) - the excess amount is out-of-pocket expenses,
4. Multiply the amount at c) by 30%
5. If the amount at d) exceeds $4,000 the offset is equal to $4,000.

Special measures apply to prevent losses from a non-commercial business activity carried out by an individual taxpayer (alone or in partnership) being offset against other assessable income in the year in which the loss is incurred. Under the measures, the losses, which cannot be offset against other income in the year in which they arise, may be carried forward to be offset in a future year when there is a profit from the non-commercial activity.

You can offset a loss from a business activity against other income if you pass one of the following tests;

• have an assessable income from the activity of at least $20,000,
• have produced a profit in three out of the past five years,
• use real property or an interest in real property worth at least $500,000 on a continuing basis, or
• use other assets worth at least $100,000 on a continuing basis.

If a business activity does not pass any of these tests, you may still claim a loss if the Commissioner exercises a discretion to allow the loss to be offset against other income.

An exception applies to net losses from certain primary production or professional arts business activities if the assessable income from sources not related to that business activity is less than $40,000 in an income year.