TAX | NEWS | VIEWS & CLUES

It is FBT time and we are generally thinking about our cars and tax. Have you captured your odometer reading as at 31 March?

This also reminds me about how I will be claiming my motor vehicle expenses when it comes to that other tax time – 30th June. As flagged in our December Report, the proposed changes to how you can claim tax deductions for car expenses in your tax return has now passed into law. This means that for this year you only have a choice of using the cents per kilometre or log book methods. The options to claim one-third of operating costs or 12% of the vehicle costs have been removed.  As you probably know, claiming cents per kilometre is restricted now to 66 cents per kilometre, and for a maximum of 5,000 kilometres. For many that means the log book method is the only realistic option for maximising the claim. A log book needs to be maintained for a 12 week representative period, which generally then remains valid for up to 5 years. If you wish to rely on a log book and need to update your previous one, or do your new log book, time is fast running out for this year. We only have 12 weeks from now until 30th June.

On other FBT matters the Tax Office has published the per kilometre rates for the use of a motor vehicle that is not a car, applicable for the 2016/17 FBT year. They have all crept up a bit! For those with motor cycles the rate is going to 16 cents; for vehicles with engine capacity of 0-2500cc – the rate is 52 cents, and for vehicles with engine capacity above 2500cc – the rate is 63 cents.

There was a good win for a property developer tax-payer on land tax last month. Land purchased for future development that was rezoned as residential was still exempt from land tax as the primary use of the land was in primary production, through agistment arrangements with farmers. It didn't matter that the owner was pursuing development approval for the land at the time – that was held not to be the actual primary use of the land. This was a NSW land tax case so particularly relevant in this State.

An issue that occasionally confronts small business – those with less than 15 employees – is employee dismissal and how that should be approached. There is an excellent Small Business Fair Dismissal Code published by Fair Work Australia - a one page summary and a four page checklist of what to do. Interestingly, in a small business an employee cannot generally make a claim for unfair dismissal in the first 12 months of their employment although this should not be confused with a redundancy. For a redundancy the position cannot be refilled with a replacement employee – it is the position that is redundant; not the employee!

At its meeting on 5th April, the Board of the Reserve Bank decided to leave the cash rate unchanged at 2.0 per cent.  A statement from Bill Evans, Westpac Chief Economist noted "We are retaining our call that rates will remain on hold for the remainder of the year. That is predicated on the Australian dollar remaining broadly in the 70-76c US range. Factors that will assist the containment of the recent lift in the AUD will be a tightening by the US Federal Reserve in June and ongoing concerns about stability in China. Today's statement certainly does not identify a trigger level for the AUD to elicit a policy response. We do not envisage a further significant surge in the AUD and remain comfortable with a steady policy outlook".

In other news....

• Deadline looming for SMSF collectables compliance - SMSF trustees have until 1 July 2016 to comply with strict rules concerning collectables acquired before 1 July 2011.
• Overseas student debts: repayment threshold - From 1 July 2017, Australians living overseas who earning above the repayment threshold will be required to repay their student debts.
• ATO data-matching for insured "lifestyle" assets - The ATO is working with insurance providers to identify policy owners on a wider range of asset classes.
• Market value of shares is not the selling price - The AAT has agreed with a taxpayer's arguments concerning a share sale, with the result that he could access tax concessions.
• Individual not a share trader - The AAT has found that a childcare worker was not a share trader, which meant her claims for share losses were denied.
• Small business restructures made easier - The Government has made changes to the tax law to provide tax relief for small businesses that restructure.
• Tax law changes to treatment of earnouts - Tax law changes have been enacted to change the treatment of the sale and purchase of businesses involving certain earnout rights.
   

As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.

Warm regards,

Martin

Martin Roughley, Director
Spry Roughley Services Pty Limited

Liability limited by a scheme approved under Professional Standards Legislation

The ATO has reminded trustees of self managed super funds (SMSFs) that if they have investments in collectables or personal-use assets that were acquired before 1 July 2011, time is running out to ensure their SMSFs meet the requirements of the superannuation law for these assets. Assets considered collectables and personal-use assets include artwork, jewellery, antiques, vehicles, boats and wine.

From 1 July 2011, investments in collectables and personal-use assets have been subject to strict rules to ensure they are made for genuine retirement purposes and they do not provide any present day benefit. SMSFs with investments held before 1 July 2011 have until 1 July 2016 to comply with the rules.

The ATO says SMSF trustees have had since July 2011 to make arrangements, and it expects that they will take appropriate action to ensure the requirements are met before the deadline.

Appropriate actions may include reviewing current leasing agreements, making decisions about asset storage and arranging insurance cover.

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Overseas student debts: repayment thresholds

From 1 July 2017, anyone with a Higher Education Loan Programme (HELP) or Trade Support Loans (TSL) debt who is living overseas and earning above the minimum repayment threshold will be required to make loan repayments to the Australian Government, just as they would if they were living in Australia. The HELP minimum repayment threshold for 2016-2017 is $54,869.

If you have a student loan debt and are planning to move overseas for longer than six months, you need to provide the ATO with your overseas contact details within seven days of leaving Australia. You should also factor in potentially having to make repayments from 1 July 2017.

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ATO data-matching for insured "lifestyle" assets

In January 2016, the ATO advised it was working with insurance providers to identify policy owners on a wider range of asset classes, including marine vessels, aircraft, enthusiast motor vehicles, fine art and thoroughbred horses. The ATO has since formally announced the data-matching program that covers these "lifestyle" assets, and will acquire details of insurance policies for these assets where the value exceeds nominated thresholds for the 2013–2014 and 2014–2015 financial years.

The ATO said it will obtain policyholder identification details (including names, addresses, phone numbers and dates of birth) and insurance policy details (including policy numbers, policy start and end dates, details of assets insured and their physical locations). The data-matching program will provide the ATO with a more comprehensive view of taxpayers' accumulated wealth, as well as assist in identifying possible tax compliance issues.

It is estimated that records of more than 100,000 insurance policies will be data-matched. The ATO has released a list of insurers involved with the data-matching program. Please contact our office for further information.

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Market value of shares is not the selling price

The Administrative Appeals Tribunal (AAT) has ruled that the "market value" of a parcel of shares in a private company that a taxpayer sold in an arm's-length transaction (together with the other two shareholders' shares in the company) was not the proportion of the sale price he received from the sale of all the shares. Instead, the AAT agreed it was a discounted amount; the taxpayer was a "non-controlling" shareholder, so the market value was less than simply his one-third share of the sale price.

As a result of this AAT decision, the taxpayer passed the $6 million "maximum net asset value test", allowing him to qualify for small business capital gains tax (CGT) concessions, where otherwise he would not have.

The Commissioner has appealed to the Federal Court against this AAT decision.

This decision demonstrates that the actual selling price of an asset may not always represent its "market value". In this decision, the AAT agreed with the taxpayer's valuer that "all other things being equal, the average price per share of a controlling shareholding will be higher than the average price per share of a non-controlling shareholding because of the value of control". 

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Individual not a share trade

The Administrative Appeals Tribunal (AAT) has found that a taxpayer (a childcare worker) was not carrying on a business of share trading, and accordingly was not entitled to claim a loss resulting from her share transactions. In the year in question, the taxpayer turned over approximately $600,000 in share transactions (including both purchases and sales).

In deciding that the taxpayer was a share investor and not a share trader, the AAT considered each of the key indicators established in case law. The AAT decided that a lack of regular and systematic trade, especially in the second half of the income year, when only 10 transactions were made, went against the taxpayer's contention that she was conducting a share trading business.

The AAT weighs up all the relevant factors in cases like this. There have been cases where the AAT has found that a taxpayer was carrying on a business of share trading, and has therefore allowed them to claim a deduction for their losses.

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Small business restructures made easier

The Government has made changes to the tax law to provide tax relief for small businesses that restructure. The tax law changes provide an optional rollover for small business owners who change the legal structure of their business on the transfer of business assets from one entity to another. The effect of the rollover is that the tax cost of the transferred assets is rolled over from the transferor to the transferee.

This optional rollover is in addition to existing rollovers available where an individual, trustee or partner transfers assets to, or creates assets in, a company in the course of incorporating their business.

The changes to the tax law will take effect on 1 July 2016.

You must meet strict eligibility requirements in order to access the rollover. Among other things, the rollover must be part of a genuine business restructure that does not change the ultimate economic ownership of the assets. There are also tax consequences you should be aware of.

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Tax law changes to treatment of earnouts

The Government has recently amended the tax law concerning the capital gains tax (CGT) treatment of the sale and purchase of businesses involving certain earnout rights.

Specifically, the changes provide for a "look-through" treatment. Under the amended tax law, capital gains and losses that arise in respect of look-through earnout rights will be disregarded. Instead, payments received or paid under the earnout arrangements will affect the capital proceeds and cost base of the underlying assets to which the earnout arrangement relates when they are received or paid (as the case may be).

The changes apply from 24 April 2015.

These changes to the tax law do not apply for events that occurred before 24 April 2015. However, transitional protection is provided, subject to conditions, for taxpayers who have reasonably anticipated these changes to the tax law, which were originally announced by the former Government.

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