Print Newsletter

Newsletter September 2007

The Tax Office has announced it is giving taxpayers a one-off opportunity to correct certain mistakes regarding payments and loans from their private companies and avoid penalties under Div 7A. Recent changes to the tax law have given the Commissioner the discretion to disregard the operation of Div 7A in circumstances where an honest mistake or inadvertent omission has been made, and corrective action is taken to fix these mistakes.

 Broadly, the corrective action taken by the taxpayer may include;

• converting the payment into a loan or treating the debt as a loan,
• entering into a loan agreement that complies with the requirement of s109N,
• making a payment/s at least equal to the total minimum yearly repayments pursuant to s109N that would have been payable had the loan existed from the start of the period that began with the year in which the deemed dividend arose.

 The offer applies to mistakes made between 2001/02 and 2006/07.

The object of the sole purpose test is to ensure that self managed superannuation funds (SMSF’s) are maintained for the purpose of providing benefits to members upon their retirement, or their dependents if a member dies before retirement. The trustees of a regulated superannuation fund must ensure the fund complies with the sole purpose test for the fund to be eligible for the tax concessions available.

Common breaches of the sole purpose test are;

• seeking out an investment that offers a pre-retirement benefit to a member or associate, or
• entering into an arrangement to provide financial assistance or a pre-retirement benefit to a person or entity at a financial detriment to the fund.

 Examples of common breaches include;

• The trustee of a SMSF purchased a golf club membership, or shares in a golf club where membership rights are attached to the shares and are taken up by the member or associate.
• The trustee of a SMSF acquires artwork which is displayed in a member’s home or office.
• The trustee of a SMSF invests in a block of holiday apartments, and it was negotiated that the members of the SMSF are able to stay at the holiday apartments for free, which was not a standard feature of the investment.

• consolidated revenue for the financial year of the company and the entities it controls (if any) is $25 million or more (previously $10 million)
• the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million or more (previously $5 million)
• the company and the entities it controls (if any) have 50 or more employees at the end of the financial year.

The proprietary company that does not meet at least two of these criteria is considered small.

CGT rollover relief on marriage breakdown means capital gains tax is not payable on the transfer of assets to a former spouse but is deferred so that the former spouse pays any CGT when they later sell or dispose of those assets.

A recent change has extended the CGT marriage breakdown roll-over to in specie transfers of personal superannuation interests from a small superannuation fund to another complying superannuation fund under specific conditions. This enables separating spouses to achieve a clean break from each other in terms of their superannuation arrangements.

This measure will apply to CGT events that happen on or after 1 July 2007.

Legislation has been enacted to make it easier for small business to access a number of existing concessions covering the following areas of tax:

• capital gains tax (CGT)
• income tax
• goods and services tax (GST)
• pay as you go instalments (PAYGI), and
• fringe benefits tax (FBT).

 These changes apply from 1 July 2007 and will give small business greater choice and flexibility by streamlining the eligibility criteria for these concessions. Eligible businesses can pick and choose the concessions that best suit their needs, helping them to reduce red tape and compliance costs. In most cases, if you are currently using these concessions, these changes won’t affect your eligibility or how you continue to access them.

Small businesses with less than $2 million turnover may be eligible for the following concessions from 1 July 2007:

• choice to account for GST on a cash basis
• choice to pay GST by instalments
• annual apportionment of GST input tax credits
• simplified trading stock rules
• simpler depreciation rules
• entrepreneurs' tax offset
• CGT 15-year asset exemption
• CGT 50 per cent active asset reduction
• CGT retirement exemption
• CGT roll-over provisions
• PAYG instalments based on GDP-adjusted notional tax
• two-year period for amending assessments (exceptions may apply)
• immediate deductions for certain prepaid business expenses, and
• FBT car parking exemption (will apply from 1 April 2007).