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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  • Changed threshold intended for "small business entities" from 1 July 2016

    In brief:    A Bill has been introduced to increase the small business entity turnover threshold from $2M to $10M for most purposes (but not for the small business income tax offset, for which the turnover threshold is proposed to be $5M). The change is intended to apply from 1 July 2016 and will have a number of implications for small businesses, including imputation changes for companies that qualify as small business entities.

    More:    The proposed $10M turnover threshold is not to apply for accessing the small business CGT concessions – the existing $2M threshold will continue for that purpose. However, it is the new $10M threshold that will apply for the new small business restructure roll-over. In relation to the associated proposed reduction of the corporate tax rate to 27.5% for small business companies from 1 July 2016, it will no longer be possible to attach franking credits based on the 30% corporate rate. Instead, maximum franking is to be based on the particular company’s tax rate for the income year in which the distribution is paid, assuming that its turnover is the same as for the previous year.

    As set out in the Explanatory Memorandum to the Bill, the $10M small business entity threshold is intended to apply for a number of other small business concessions, including immediate deductibility for start-up expenses, simpler depreciation rules, simplified trading stock rules, immediate deductions for certain prepaid business expenses, accounting for GST on a cash basis, etc. [Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016]

    ... Read More

    05 Oct 2016

    Topic: Income Tax/CGT/GST

  • No input tax credits for provision of remote accommodation

    The Federal Court has rejected a mining group's claim to input tax credits for acquisitions made by the group in providing and maintaining residential accommodation for its workers in the Pilbara region. This is a test case and an appeal to the Full Federal Court has already been lodged by the taxpayer.

    There was no dispute about the facts involved. The taxpayer group owns approximately 2,300 houses and apartments in towns that it established to support its Pilbara mining operations. The accommodation is provided to workers on a subsidised basis and expenditure on providing the housing substantially exceeds the rental income received from workers. The Commissioner accepted that the acquisitions fell within the basic test for ‘creditable purpose’, being acquisitions in carrying on the enterprise of the taxpayer. However, the Commissioner’s view was that a creditable purpose was nevertheless denied because the acquisitions related ‘to making supplies that would be *input taxed’ (see s11-15(2)(a) of the GST Act). The Court agreed. The taxpayer argued alternatively that there should be an apportionment of input tax credits on the basis of revenue from its operations – the group’s income from iron ore production was 99.88% of the aggregate income from iron ore and from accommodation rental for the year involved, so it was argued that the taxpayer was entitled to 99.88% of the total input tax credits. However, the Court held that the acquisitions related wholly to the provision of accommodation and no apportionment was warranted.

    This sort of matter also arises where tax consequences depend on the purpose or use of something and there is both an immediate and wider purpose and use involved. An example is an accommodation unit provided in a motel or hotel to the manager – that use of that accommodation unit is plainly a business one from the perspective of the owner, but equally plainly is a private use by the manager to the extent that that is the relevant use. But the tests in the matter before the Court were more difficult for the taxpayer – an acquisition by the group in the course of carrying on its enterprise, as opposed to acquisitions that relate to input taxed supplies. (Rio Tinto Services Ltd v FC of T [2015] FCA 94)

    ... Read More

    18 Mar 2015

    Topic: GST

  • MBI Properties case - Commissioner wins in the High Court

    In a single, joint judgement, the High Court on Wednesday allowed the Commissioner's appeal in this case. This is a very significant GST decision for the property industry and, at least in an overall and pragmatic sense, restores structure to the relevant provisions of the GST regime.

    The critical point for determination in the case was whether the purchaser of the reversionary estate in land – relevantly, the purchaser of 3 residential apartments subject to a lease to the operator of the serviced apartment business in the relevant building – makes any supplies to the lessee following the purchase. The Full Federal Court had decided in favour of the taxpayer, holding that the supply constituted by the grant of a lease of property did not continue beyond the grant. The High Court disagreed, remarking that ‘[i]n observing and continuing to observe the express or implied covenant of quiet enjoyment under the lease, the lessor is appropriately characterised, for the purposes of the GST Act, as engaging in an "activity" done "on a regular or continuous basis, in the form of a lease".’

    The outcome was that, although each of the sales of the 3 apartments to the purchaser had been held in previous proceedings to be a GST-free supply of a going concern, s135-5 applied and an increasing adjustment resulted, effectively negating the GST-free supply. There was an increasing adjustment because the continuing observance by the purchaser of the apartments, of its obligations under the leases, constituted input-taxed supplies of residential premises. (C of T v MBI Properties Pty Ltd [2014] HCA 49)
    ... Read More

    05 Dec 2014

    Topic: GST

  • First 2014 amending Act passed

    The Bill containing the first 2014 tax amendments has been passed by both Houses of Parliament. The Bill deals only with 2 matters:
    • Farm Management Deposits – enables consolidation of multiple FMDs into a single deposit, increases the allowable limit of taxable non-primary production income from $65,000 to $100,000 (from 1 July 2014), and ensures that FMDs cannot become ‘unclaimed monies’.
    • Refunds of GST – the rules for refunds of overpaid GST have been rewritten to remove refunds being reliant on an exercise of discretion by the Commissioner and to correct several perceived deficiencies in the existing law, maintaining the rationale that taxpayers should generally not receive refunds if they have passed on the cost of overpaid tax to others.
    (Tax Laws Amendment (2014 Measures No. 1) Bill 2014)
    ... Read More

    21 May 2014

    Topic: Income Tax/GST