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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  • Legislative changes for the new tax year

    In brief:  Several new measures, mainly from the 2015/16 Federal Budget, passed through Parliament by the close of the winter sittings in late June:

    • a reduction of the corporate tax rate from 30% to 28.5% from 1 July 2015, for companies that satisfy the small business entity test (carry on a business and satisfy the $2M aggregated turnover test);
    • an increase from $1,000 to $20,000 in the threshold for accelerated depreciation applies from 12 May 2015 up to 30 June 2017 for small business entities;
    • primary producers from 12 May 2015 will have immediate deductions for capital expenditure on water facilities and fencing assets, plus a 3 year write off for fodder storage assets; and
    • of more limited benefit to SME’s, additional tax concessions have been added to the employee share scheme rules.

    In addition, legislation has also been introduced (but not yet passed) to implement the 5% non-refundable tax offset (capped at $1,000) starting from 1 July 2015, for an individual taxpayer's income from an unincorporated small business entity. The same Bill introduces the proposed immediate deduction for business start-up expenses and FBT exemption for multiple portable electronic devices.

    More:  The changes provide some welcome benefits to small businesses, starting for the 2015 year of income in the case of the changes to depreciation. The entire balance of a small business depreciation pool may be written off, starting from the 2015 year’s tax return, if the balance of the pool before depreciation for the year falls below $20,000.

    Note that the 28.5% corporate tax rate applies only to companies that satisfy the small business entity test – other companies in a family group will still be subject to the 30% rate. Oddly, although perhaps for ease of administration, companies paying the 28.5% rate will still be able to frank dividends as if 30% tax had been paid. Naturally, a company paying the lower tax rate is likely to run short of franking credits if it proposes to distribute all after tax profits, franked to the maximum extent.

    Note also that there is no proposed legislation yet for the Budget announcement to provide CGT rollover relief for the restructuring of small business entities into different legal forms. And in any case, that measure is to commence only from 1 July 2016.

    ... Read More




    30 Jul 2015

    Topic: Income Tax

  • Board of Taxation's report on Division 7A

    In brief:  The Board's post-implementation review has been released, with it concluding that Div 7A is "complex, inflexible and costly to comply with" and in "urgent need for improvements" – this will be no surprise to any tax practitioner advising SMEs! The Board advocates a much more flexible approach for the repayment of loans, with the same treatment afforded to unpaid trust entitlements of corporate beneficiaries.

    The ‘Amortisation Model’ model proposed by the Board also has an additional feature to assist trading trusts wanting to retain profits as business working capital. The proposal is that a trust may elect that loans and UPEs owed to corporate beneficiaries will not be subject to Div 7A, although the trust will consequently forgo the general 50% CGT discount on assets other than goodwill and intangibles inherently connected with its business. The idea is that Div 7A would apply to such trusts in a similar way as it applies to trading companies.

    More:  The proposal for trading trusts warrants consideration by practitioners in the context of structuring for SME business acquisitions. The Board's proposals to simplify Div 7A are also welcome – the main changes proposed are:

    • 10 year repayment terms (except for grandfathering of existing 25 year loans);
    • flexible interest and principal repayments, subject to achieving repayment milestones (loan balance not to exceed 75% of original amount at the end of year 3, 55% at the end of year 5, 25% at the end of year 8 and 0% at the end of year 10);
    • no formal loan agreement, but some written/electronic evidence required; and
    • a higher interest rate (linked to small business overdraft rates), fixed at the start of the loan.
    ... Read More




    30 Jul 2015

    Topic: Income Tax/CGT

  • ATO's risk assessment for professional firms

    In brief:   In an objectionable move, the ATO has finalised its guidelines about risk assessment as to whether Part IVA might apply to the allocation of profits from a professional firm. They are to apply to situations where practice structures are otherwise effective and income of the firm does not constitute personal services income under Part 2-42 of the 1997 Tax Act. Principals in such firms will be regarded by the ATO as low risk, and consequently unlikely to be subject to ATO compliance review, if they satisfy one of the following benchmarks:

    • the remuneration package of the principal is at least as great as the lowest paid member of the upper quartile of professional employees in the firm providing equivalent services;
    • the principal is assessed in his or her hands to 50% or more of the income from the firm to which the principal and associated entities are collectively entitled for the year; and
    • the effective tax rate on the income of the principal and associated entities is at least 30%.

    More:   The ATO has also now revised its view about the potential application of Part IVA to Everett assignments. Such assignments that occur on or after 1 July 2015 will only be considered low risk if one of the 3 benchmarks is satisfied.

    Examples to illustrate the ATO's views about the benchmarks are contained in the guidelines situated on the ATO's website – below is a link to the guidelines.

    https://www.ato.gov.au/Business/Starting-your-own-business/In-detail/Professional-firms/Assessing-the-risk--allocation-of-profits-within-professional-firms/

    ... Read More




    30 Jul 2015

    Topic: Income Tax/CGT

  • Important case about whether expenses "incurred"

    In brief:  In an important decision, the Full Federal Court has held that R & D expenditure had not been incurred by the taxpayer to an associated company who managed and funded the R & D, despite monthly invoices being raised for the expenditure and the amounts debited in the books of the taxpayer to a come and go loan account with the associate. The reason was that the parties had agreed that payment of the invoices would be made to the associate by the taxpayer ‘as funds received from investors, loan funds received, and any amounts [the R & D company] may receive from other sources will prudently allow’. The Court held that, irrespective of the way the arrangements were characterised, the obligation for payment was merely contingent and the taxpayer was consequently not definitely committed to the expenditure.

    More:  One often hears practitioners talk about some entity invoicing another entity in a particular client group, whether to change tax outcomes or for some other purpose. This case serves as an important reminder that invoices of themselves are insufficient to ground an allowable deduction. What is important is the underlying legal relations and obligations between parties, which may be evidenced (but not created) by invoices. An allowable tax deduction will only be incurred if, according to those underlying legal relations and obligations, the taxpayer is relevantly committed to expenditure. (FC of T v Desalination Technology Pty Ltd [2015] FCAFC 96)

    ... Read More




    30 Jul 2015

    Topic: Income Tax