2005/06 Tax News

2006 Individual Tax Return Changes include

  • New return label for non-commercial losses
  • New 25% entrepreneurs’ tax offset, may be claimed more than once!
  • New 30% Child Care tax offset may have option to transfer a portion to spouse.
  • New calculation for $500 mature age worker tax offset also may be claimed in company and trust returns.
  • Self education claims should be in accordance with the latest ATO advice
  • Changes to the medical tax offset for certain cosmetic procedures
  • New 2 year amendment rule

Rental Properties

  • Tax planning opportunities exist under depreciation rules with increased write-offs
  • ATO ruling gives capital gains tax concession for landlords
  • Deductions may be allowed for properties which are never rented and replacements of fixtures in accordance with recent cases

Other Changes include

  • Spouse super splitting from 1 January 2006
  • New bankruptcy changes attack asset protection strategies
  • New ATO approach to anti avoidance legislation, Part 1VA · New changes to STS provides tax planning opportunities
  • More business start up expenses are deductible over 5 year write-offs
  • Superannuation and pension planning can now save even more tax
  • ATO allows some Personal Services Income splitting to save more tax
  • Trust distributions may be made to some “bucket companies”

Other News

Four years jail for GST fraud Source ATO Media Release – Nat 2006/13 A Brisbane man was sentenced by the Brisbane District Court to four years jail for GST fraud totalling $408,576 and attempted GST fraud of $51,046.

He pleaded guilty to three counts of fraud, 14 counts of obtaining financial advantage by deception and one count of attempting to obtain a financial advantage by deception.

The Court was told he lodged 18 fraudulent quarterly business activity statements between July 2000 and December 2004 in relation to the sale of second-hand computer parts, programs and DVDs over the internet.

The ATO said while many businesses do the right thing, they examine unusual, large and multiple claims.

They will check more than 62,000 GST refunds this year and take action where they find these claims to be fraudulent.

The offender will be eligible for release on parole after serving 18 months.

21 April 2006

May 9 AAP -

Some winners and losers from the 2006-07 federal budget:

Winners

  • Taxpayers - personal income tax cuts worth $36.7 billion over four years.
  • Over 60s - no tax on super benefits paid from a taxed superannuation fund.
  • Families - family tax benefit rises.
  • Parents at work - up to an extra 25,000 childcare place by 2009.
  • Pensioners and carers - cash bonuses.
  • Business and small business - tax cuts.
  • Motorists - upgraded highways.
  • Murray River - extra $500 million to restore its health.

Losers

  • Corporate cheats - more money for the investment watchdog.
  • Illegal foreign fishermen - targets of new funding.
  • Our enemies - more money on defence and spies.
  • Party drug users - subjects of a new campaign.
  • Telemarketers - funding for a new "do not call" register.

The Tax Office has authorised Dun and Bradstreet (D & B) to secure the payment of tax debts from or to enter into payment arrangements with taxpayers.

The Tax Office signed a contract with D & B on 30 March 2006 for the provision of services to run a debt referral pilot. As part of this pilot, D & B may contact taxpayers by letter and/or phone regarding an amount owing to the Tax Office. However, payment will still be made via existing Tax Office payment channels, as D & B will not be receipting payments on the Tax Office’s behalf.

D & B will initially contact taxpayers by letter using the business address registered with the Tax Office. If the business address is a tax agent address, tax agents can advise D & B of an alternative mail address and/or telephone contact for the clients without making any change to the contact details recorded in the Tax Office’s systems.

Further information is available on the Tax Office website at: http://www.ato.gov.au/taxprofessionals

Luxury Vehicle Project

The Tax Office will request and collect details of approximately 600,000 individuals or entities who have purchased or acquired a motor vehicle valued at $70,000 or higher from the various roads and traffic authorities across the states and territories.

The information will be electronically matched with certain sections of Tax Office data holdings to identify non-compliance with lodgment and payment obligations under taxation law.

A document describing this project is available from: Luxury Vehicle Project, Australian Taxation Office, PO Box 11, Newcastle 2300; or by phoning Greg Moran on (02) 49 231112.

Source: Commonwealth of Australia Gazette No. GN 15, 19 April 2006, p 946.

Prime Minister John Howard says income tax returns are here to stay.

Recently released figures showed taxpayers paid out about $1 billion a year to get their returns done, leading to a call for the government to review whether there were ways to save some people the effort.

Mr. Howard said he had looked at the issue and found many taxpayers wanted to file their own returns.

"I made some inquiries about this issue of not having tax returns and I've been informed that there was quite a lot of research carried out on this," Mr. Howard told Macquarie Radio.

"It indicated that a surprisingly large number of people like the idea of putting in their own returns because they felt they could get deductions that they might otherwise not get.

"The main reason why many people ... get tax returns done by accountants or tax agents is that they believe that is the best way to get a refund.

"And people like getting a cheque from the government."

During April 2006 the Tax Office has released Taxation Statistics 2003/04: which is a summary of tax returns for the 2003/04 income year and collections for the 2004/05 financial year.

Highlights from the latest issue of Taxation Statistics include:

  • In the 2004 financial year nearly 11 million individual taxpayers lodged returns. They had total income of $414.1b, taxable income of $394.7b and net tax payable of $95.5b
  • 684,009 companies lodged returns and disclosed $35.4b in total net tax liability. Companies reported total income of $1,526.8b and total expenses of $1,405.8b
  • 447,207 partnerships lodged returns and reported total business income of around $123.4b. The largest proportion of partnerships (27%) was in the agriculture, forestry and fishing industry. Partnerships reported $108.3b in expenses, with the main type of expense being cost of sales, which accounted for $44.5b
  • 501,860 trusts lodged returns and reported total business income of $201.3b. Investment income recipients accounted for the largest share (30%) of trust returns. Trusts reported $185.4b in expenses, with the main type of expense being cost of sales, which accounted for $96b
  • 248,149 funds lodged tax returns and reported total income of $66.4b. Funds were liable for $4.5b in net tax. Self managed superannuation funds accounted for 96% of the total number of funds
  • in June 2005, approximately 90% of employees had some form of superannuation ,
  • Around 52% ($20.9 billion) of individual total capital gains were sourced from shares
  • For the 2005 FBT year, FBT payable (excluding FBT payable by Australian Government departments) was $3.4b
  • During 2004/05 the Tax Office collected $98.0 billion of PAYG withholding revenue, accounting for 46% of total Tax Office revenue collections. Collections from PAYG withholders who sent $1m or more to the Tax Office reached $66b, accounting for 67% of total PAYG withholding collections
  • In 2004/05 total net GST liabilities (including Customs collections, penalties and interest on overpayments) increased by 4% from the previous year to $35.4b. Luxury car tax collections (including Customs collections) decreased by 11% from the previous year to $297.9m. As of 30 June 2005 the Tax Office had registered 4,924,864 entities for an Australian Business Number.

Fuel tax changes from 1 July 2006

Claims for fuel tax credits will be made through Business Activity Statements (BAS). In addition the eligibility base for tax credits on fuel purchased for business has been widened to include a wider range of vehicles using all fuel used on-road by vehicles between 4.5 and 20 tonnes gross vehicle mass. Also a wider range of activities will become eligible for the fuel tax credit.

Importantly, new environmental requirements will be in place in order to claim fuel tax credits with all businesses claiming fuel tax credits needing to comply with some basic emission control standards and large claimants will also have to join the Greenhouse Challenge Plus program.

Annual FBT Returns and payments are due 21st May

Some FBT Tips

For FBT, Goods and Services Tax (GST) transactions need to be grossed up even if GST input tax credits haven’t been claimed.

Recent FBT legislation changes means new exemptions exist for portable printers for use with laptop computers and personal digital assistants from 1 April 2006; but in some cases exemption from FBT may be claimed for these items in the last FBT period.

Entertainment which is not subject to FBT is not deductible for income tax and is also ineligible for any GST input tax credit.

Tax Office has recently found that around 30% of records were unsatisfactory

The biggest problems found for small businesses are:

not recording every sale or all the cash received from each sale

not regularly reconciling sales with bank statements

not issuing appropriate tax invoices

not apportioning business and private use of assets, and

not keeping stock-take records.

In the area of individual taxpayers, the Tax Office's main focus areas for 2005/06 are Capital Gains Tax (CGT), rental income and expenses, and work related expenses.

The main risk areas for individuals with CGT are taxpayers claiming the main residence exemption when they have never moved into the house, poor record keeping, and incorrectly using the date of settlement (should be date of contract) when working out the capital gains or losses from the disposal of a property.

TaxPackExpress service will be withdrawn effective 1 July 2006

The Commissioner has announced the TaxPackExpress service will be decommissioned, effective from 1 July 2006.

This decision has been taken because the viability of the service has been severely affected by declining client take-up, the high unit processing costs and the error rate associated with the service.

No deduction for abnormal clothing expenses The AAT has held that the CEO and director of a company was not entitled to a deduction of about $38,800 for abnormal work-related clothing expenses as the clothing was private in nature and not distinct or unique. AATA 100 (Case 3/2006)

Part IVA applied to capital loss

The Federal Court has confirmed that the general anti-avoidance provisions of Pt IVA of ITAA 1936 applied to disallow a capital loss resulting from the transfer of the beneficial interest in shares by a taxpayer (as the trustee of one family trust) to himself (as the trustee of a second family trust).

Call for removal of the current 15% superannuation tax

Currently superannuation is taxed at three levels; on entry, earnings of the fund, the call from many levels is for removal of the entry tax. The Minister for Finance and Administration, Senator Nick Minchin, is one of the main supporters for this proposal, however there is no stated intention from the Government to implement this.

The removal of the 15% contribution tax would encourage more persons self funding their retirement, the loss of government revenue would be offset to an extent by an increase in superannuation assets and earnings tax, and increase investment spending by superannuation funds.

ATO telemarketing of small business debt

From April 2006, the ATO will contact people directly by phone during business hours to bring small business debt levels down. The ATO will trial “dialer technology” which automatically dials through a list of phone numbers with answered calls being put through without delay to an ATO staff member. Some debts less than $7,500 still outstanding will be referred to an external debt agency with outstanding debt remaining with the ATO.

Anyone concerned about their ATO debt can phone 13 11 42.

· Simplified GST accounting for food retailers

Supermarkets or convenience stores have the option of using a simplified GST accounting method (SAM) to calculate their entitlements to input tax credits for trading stock for a particular tax period.

Further information is available from the ATO

· Super co-contributions paid out

According to the Assistant Treasurer, the government has paid out $309m in superannuation co-contributions to the superannuation accounts of 571,000 individuals. Women, baby boomers and low income earners have been the major recipients to the super co-contributions so far.

· Contributions for self-employed contractors now deductible?

Proposed amendments to the super guarantee legislation have raised the possibility that employers will be able to deduct contributions made to self-employed contractors

· Changes to GST property legislation – need to review activity statements

Amendments to the GST Act relating to the margin scheme, new residential premises and grouping provisions became law on 29 June 2005.

Due to these changes taxpayers should review their transactions from 17 March 2005. Adjustments to activity statements generally need to be done.

Adjustments made during this period will not incur shortfall penalties or general interest charges. The changes aim to ensure the appropriate amount of GST is collected when property is bought, sold, or otherwise transferred or acquired.

The changes apply from 17 March 2005, except for the written agreement, where to apply the margin scheme to a sale of real property, the vendor and purchaser must now agree in writing that the margin scheme is to apply. This change generally applies to supplies made under contractual arrangements entered into on or after 29 June 2005.

· Failed to satisfy the results test

The AAT has found that a computer consultant’s income was not derived from conducting a personal services business and must, therefore, be included in his assessable income.

· 5 years of rent expenses allowed despite no rental income

A first time property investor purchased an investment property in 1998 and due to various setbacks no income was received. Nevertheless he was allowed to claim almost $65,000 in deductions.

Ormiston v. C of T (2005) AATA 978

· Jail for fraudulent Activity Statements

A man has been sentenced to three years jail by the Brisbane District Court for fraudulently claiming $86,441 and attempting to claim $72,024 in activity statement refunds.

The offender, aged 43, pleaded guilty to four counts of obtaining a financial advantage by deception and one count of attempting to obtain a financial advantage by deception.

In 2001, he lodged four monthly activity statements in which he overstated purchase and sales figures, and fraudulently claimed BAS refunds to which he was not entitled.

The Tax Commissioner noted that 31 people have received prison sentences for tax fraud this year. He emphasized that the Tax Office will check more than 62,000 GST refunds this year to ensure the accuracy of claims.

· Tax Agent Registration

A tax agent applicant has unsuccessfully argued that the tax agents’ board should have considered his period of self-employment as relevant employment when assessing his tax agent registration.

  • ATO increasing focus on SMSF auditors Self managed superfund (SMSF) auditors should prepare for increased surveillance from the ATO according to Tony Keir, Senior Policy Adviser to the Association of Superannuation Funds of Australia (ASFA).
  • New levy arrangements for SMSF trustees The ATO has reminded self managed superannuation fund (SMSF) trustees of new arrangements for paying the annual $45 supervisory levy

· Parliamentary Enquiry into Taxation

A parliamentary committee (the Joint Committee of Public Accounts and Audit or JCPAA) is to conduct an inquiry reviewing a range of taxation issues within Australia. The inquiry will be split in two parts, running concurrently. Part A of the inquiry will be looking at the administration by the Tax Office of ITAA 1936 and ITAA 1997. This will include:

  • the impact of the interaction between self-assessment and complex legislation/rulings
  • application of common standards of practice by the Tax Office across Australia
  • the level and application of penalties (including the GIC and the shortfall interest charge), and
  • the operation and administration of the PAYG system. Part B of the inquiry will be looking at the application of the fringe benefits tax, including any double taxation consequences arising from the intersection of fringe benefits tax and family tax benefits.

The committee will accept submissions and will be holding public hearings on both parts of the inquiry, which will be run concurrently.

The committee stresses that it will not be reviewing individual cases or grievances with the Tax Office.

The closing date for submissions is Friday, 24 February 2006.

The preferred format for submissions is by email to jcpa@aph.gov.au.

· Changes for taxpayers with a nil liability or loss return

As a result of Royal Assent being granted to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No.2) 2005, nil liability and loss returns issued after early January 2006 for 2004–05 and later income years will receive a notice of assessment. Full self assessment taxpayers will be deemed to have been served a notice of assessment.

In addition, 2004–05 nil liability and loss returns processed prior to this time will be regarded as original assessments. This means that the taxpayer’s period of review will commence on the day the Commissioner gave a non-taxable advice for their 2004-05 return.

· Recent proposed changes regarding Anti-Money Laundering.

These changes are very significant and include:

  • a requirement to get to know your customers' business from the very start;
  • an ongoing obligation to update your knowledge of your customers, to monitor their records, and report any suspicious matters and certain high value transactions;
  • a need to implement and maintain internal anti-money laundering/counter-terrorist financing programs; and
  • an obligation to maintain appropriate records of the above

· Choice of fund help for employers

The ATO has released a new fact sheet to assist employers with their choice of fund requirements and helps employers determine whether their employees are eligible for super choice.

· ATO Legal Profession Data Matching Program

The Tax Office has indicated that it will electronically match names and addresses from state and territory legal practitioner registers and lists of the judiciary with certain sections of Tax Office data holdings to reveal compliance with lodgment and payment obligations under taxation law. Records relating to approximately 41,000 individuals within the legal profession (including the judiciary) will be matched.

· GST: barter exchange schemes

The Tax Office has released Taxpayer Alert TA 2005/4 to warn about schemes to create GST input tax credits by barter exchanges. Under these schemes, a barter exchange buys and sells in its own right, effectively acting as a member with its own trading account. The barter exchange has access to unlimited trade dollars to spend on the acquisition of goods and services often at commercially unrealistic prices from its members. Consequently, large GST refunds are claimed by ensuring that its acquisitions continually exceed its supplies by significant amounts within the barter operation.

The Tax Office considers that the schemes give rise to taxation issues, including:

  • whether the acquisitions made using the trading account of the barter exchange are
  • creditable acquisitions under Div 11 of the GST Act
  • whether the barter exchange is carrying on an enterprise
  • whether the anti-avoidance provisions of Div 165 apply.

· Serial fraudster jailed over tax scam

A SERIAL fraudster and masters taxation student has been jailed for three years for scamming almost $24,000 in tax returns for businesses that don't exist.

Judge Warren Howell ordered him to serve six years' jail, with a non-parole period of three years.

Between October last year and March this year, while serving a suspended sentence for opening false bank accounts, Fairfax created six businesses that didn't exist and lodged claims for false business activity statements.

Email: adam@pikusa.com.au

Phone: +61 8 8390 3885

Postal Address: PO Box 309 Summertown SA 5141

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