Tax Facts

Tax Facts contains news and alerts relating to tax practice, for the benefit of accountants and other professionals in public practice. Please click on the links below for recent issues. You may also like to peruse Tax Facts by topic category - topics are listed below to the right.

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  • Director's wife was 'connected with' taxpayer company

    The Commissioner has been successful in overturning a decision of the AAT about whether the assets of the sole director's wife had to be taken into account for the (former) $5M net asset value test. At issue was whether the taxpayer company had correctly applied the retirement exemption under the small business CGT concessions to a capital gain derived on the sale of its interest in a business in the 2007 year of income.

    In a very brief judgement, the Federal Court on appeal held that the director's wife was connected with the entity and the matter was remitted to the AAT for it to reconsider on that basis. Although the wife owned no shares in the company, she was connected through her husband’s shareholding in the company, given that he was her ‘small business CGT affiliate’ under the laws as they stood at the relevant time.

    This case is straightforward but the important thing to note is that the law has since changed about who an affiliate is for the purposes of the small business CGT concessions. There is a common misconception that the assets of both spouses and all family controlled entities must be taken into account for the $6M net asset value test, but that is not always the case. One of the reasons for this is that, unless a person's spouse carries on a business, then that spouse cannot be an affiliate of the person for these purposes (except in some favourable instances, not presently relevant) (C of T v Altnot Pty Ltd [2014] FCA 362).
    ... Read More

    30 Apr 2014

    Topic: CGT

  • 'Special Licence Fee' constituted capital expenditure

    The Full Federal Court has dismissed the taxpayer's appeal of its claim to deduct special fees imposed as part of the arrangements for the taxpayer to acquire part of the Victorian Government's electricity transmission business. The fees were fixed in advance for the relevant 3 1/2 year period after the business was acquired, in order to prevent a windfall from increased tariffs applying after privatisation of the Government's electricity distribution network. Although not part of the stated purchase price, the fees were agreed to by the taxpayer as part of the overall package of transactions for its acquisition of the business. Further, the special fees were not dependent in any way on the extent of usage of the transmission network. The Full Court (by majority) held in the circumstances that the special licence fees constituted part of the cost of acquiring the transmission business and consequently were outgoings of capital (SPI PowerNet Pty Ltd v FC of T [2014] FCAFC 36).
    ... Read More

    16 Apr 2014

    Topic: Income Tax

  • Practice Statement on testamentary trusts continuing

    In an apparent reaffirmation of the Commissioner's policy, minor changes have been made to Practice Statement PS LA 2003/12. The references to the former Government's proposal to enact the policy in legislation have been removed, given that the current Government has decided not to proceed with that proposal.

    Continuation of the Commissioner's policy is very important, since it enables the assets of a deceased to pass through the deceased's estate, then to the trustees of a testamentary trust created under the deceased's will and finally to a beneficiary of that trust (perhaps many years later), without any taxing point. It is arguable that, without the Commissioner's concessionary policy, that outcome might not be achieved. That is arguable because the CGT concessions in Division 128 apply where a deceased's assets passed to a beneficiary through the executor or administrator of the estate. Under the general law, the role of executor or administrator (arrange funeral, collect assets, pay the deceased's debts, etc) is quite distinct from the trusteeship of a testamentary trust that then arises under a person's will, even though the same people often occupy both roles.
    ... Read More

    16 Apr 2014

    Topic: Income Tax/Trusts

  • Final Tax Determination on SMSF bank accounts as segregated current pension assets

    This final Tax Determination was released by the Commissioner last Wednesday. It follows from a draft Determination last August referring to SMSF assets generally (rather than just bank accounts), which was subsequently withdrawn in December. That earlier draft had suggested, unless all fund balances were supporting pension payments, that a separate bank account would be required in relation to pensions in order to constitute a segregated current pension asset. The final determination adopts a less restrictive approach.

    The Commissioner now accepts, if a bank offers sub-accounts, that a sub account may be maintained for the requisite sole purpose relating to the discharge of pension liabilities (even if other sub-accounts are not). More significantly, the division of a single bank account into notional sub-accounts will also be accepted provided that proper accounting records of those notional sub-accounts are maintained by the SMSF trustees. The prompt division between a bank account for pension liabilities and one that is not for that sole purpose, of receipts or payments requiring apportionment between the accounts, will also be accepted (Taxation Determination TD 2014/7).
    ... Read More

    16 Apr 2014

    Topic: SMSFs

  • Amendments to the Personal Property Securities Regime

    A Bill was introduced into Parliament on 19 March to repeal the provision that deems a lease or bailment of serial-numbered goods for more than 90 days to be a ‘PPS lease’. A PPS lease is a security interest, therefore potentially requiring registration to protect the owner. Serial-numbered goods are specified in the regulations – examples are motor vehicles and aircraft.

    The biggest beneficiaries of this amendment will be businesses operating in the leasing industry. But it is unlikely to be of much benefit for businesses with leases or bailments of goods to associated entities. In general terms, and although the amendment decreases the scope of a PPS lease, the only category of lease or bailment that will fall outside the definition of a PPS lease after the amendment will be those that are not in substance a means of finance and whose term does not extend beyond 1 year. Further amendments to the PPS regime may result from a substantial review of its operation that is due to be completed by 31 January 2015. (Personal Property Securities Amendment (Deregulatory Measures) Bill 2014).
    ... Read More

    03 Apr 2014

    Topic: Other News

  • Continuing problems with excess super contributions

    The line of cases dealing with excess superannuation contributions continues. In the latest, the Commissioner has successfully appealed against a previous AAT decision to disregard a contribution on the basis of ‘special circumstances’ (FC of T v Dowling [2014] FCA 252). Obviously, the only real way to avoid all problems is to make sure that no excess contributions occur – whether concessional or non-concessional. Ongoing education of your clients is necessary to stress to them the importance of getting your help to make sure that contributions caps are not exceeded.

    The new regime from 1 July 2013 for excess concessional contributions reduces the pain (particularly for taxpayers with lower marginal tax rates), but nothing has changed for excess non-concessional contributions. In general terms, excess concessional contributions will be taxed in total at the marginal rate of the relevant member (15% tax payable by the super fund on the contribution and the balance payable by the member) and excess non-concessional contributions will continue to be taxed at 46.5%. Excess concessional contributions will also result in an ‘interest type’ charge at the same rate as the shortfall interest charge, calculated daily.

    An important planning point arises if there is a slip up and excess concessional contributions are made for a member. The member may elect to release all or part of the excess contributions from the super fund, up to a maximum of 85%, ostensibly to pay the additional tax assessed to the member on the excess contributions. Even if not requiring the funds for that purpose, in some cases the member will be much better off to elect to release the maximum amount. The reason is that excess concessional contributions still count towards non-concessional contributions, except to the extent that the excess concessional contributions are elected to be released by the relevant member (in which case there is also a reduction for the 15% tax payable by the super fund). This might be very important where otherwise the member's non-concessional contributions cap will be exceeded or the 3 year ‘bring forward’ rule will be triggered.
    ... Read More

    03 Apr 2014

    Topic: Income Tax/SMSFs