July 2009

ESV welcomes a new partner

The Partners are pleased to announce that Peter Muscolino was appointed as an ESV Partner on 1 July 2009.  Peter has held Senior Management roles for nearly ten years in public and mid-tier accounting practices and has been with ESV for the past three years. He provides our clients with a specialised skill relevant to medical, dental and legal practices, executives, investors, small businesses, as well as high net worth individuals and family groups.

Peter has been a frequent contributor of articles to industry bodies and the print media over the course of his career.   He has extensive experience in tax research, advice and technical training. He has prepared and presented many seminars on GST and other tax legislation matters.

Bamford decision and appeal

The Full Federal Court handed down a decision in June which shed some light on two major issues affecting trusts. Firstly, the Court decided that the proportionate view prevails over the quantum view. Under the proportionate view, a beneficiary is held to be entitled to the same proportion of the net income of the trust (ie income for tax purposes) as they receive of the accounting income. So, say a trust has $10,000 of accounting income and $1,666 is distributed to a beneficiary, then the beneficiary is entitled 16.66% of the net income of the trust for tax purposes. The quantum view allowed trustees to avoid that situation by fixing the amount certain beneficiaries received and directing potential adjustments to another beneficiary. If the net income was increased to $20,000 because, say, a tax audit reversed deductions for certain non-deductible expenses, the beneficiary would be taxed on $3,332 (with no further money distributed) while under the quantum view they would still be taxed on $1,666.

While the success of the proportionate view was seen as a victory for the Tax Office, the other side of the decision is definitely seen as a decision for taxpayer. The other decision affirms that the income of trust is determined under the terms of its deed and not according to ordinary concepts. A few months ago, the Australian Financial Review warned of changes in the taxation of trusts based on the Tax Office position in this Bamford Case. Fortunately, the Court overruled that decision which may have seen trustees taxed on capital gains assessed at top rates.

We understand that the taxpayer and the Commissioner have both appealed this decision. Einfeld Symonds Vince are closely monitoring progress in this case. In the meantime, it is critical that trustees and their advisors are familiar with, and consult, their trust deeds. Regardless of the final outcome, trustees must operate within the terms of the trust deed.

New tax rates and thresholds from 1 July 2009

The new Individual Resident tax rates and thresholds applying from 1 July 2009 are:

The Australian Taxation Office (ATO) is continuing its work-related expenses program providing guidance to people on what they can claim in their 2009 returns.

This year, the ATO will write to around 180,000 employees in the following occupations outlining common mistakes and providing advice on how to avoid these mistakes in this year’s tax return:

• truck drivers;
• sales and marketing managers;
• sales representatives; and
• electricians.

The ATO may also write to other individuals with large work-related expense claims in their most recently lodged return.

Some of the deductions that the ATO will be paying attention to include:

• claiming motor vehicle expenses associated with transporting bulky tools when not entitled;
• failing to keep appropriate records to support claims for internet and mobile phone use;
• over-claiming home office expenses such as rent, rates and electricity;
• not keeping an up-to-date log book when required for claiming motor vehicle expenses; and
• claiming the living-away-from-home allowance when they’re not entitled to it.

Employee share acquisition schemes

Budget changes announced in May 2009 have caused sufficient uncertainty over employee share acquisition schemes (“ESAS”) for many major companies to put their schemes into hibernation.

The proposed measures would assess discounts provided on shares or rights in the income year the shares or rights are acquired. The measure would also limit access to the upfront concession to employees with an adjusted taxable income of less than $60,000.

Taxpayer backlash has encouraged the Government to at least shelve until legislation is drafted and to increase the access to the upfront concession to taxpayers with an adjusted taxable income of less than $180,000.

Taxpayer Alerts: Inappropriate loss schemes

The ATO is closely reviewing a number of arrangements that attempt to falsely generate claims for inappropriate tax losses. These are generally organised tax minimisation schemes and we do not encourage our clients to participate.

The ATO warns it is also paying close attention to people who attempt to claim losses as share traders on a revenue account where previously they claimed to be long-term investors eligible for the CGT 50% discount.

Although the ATO expects to see an increase in tax losses in the current economic environment, they will be carefully scrutinising claims to ensure taxpayers only claim losses to which they are entitled.

Rewrite of New Zealand double tax agreement

On 26 June 2009, Simon Crean signed a new tax treaty between Australia and New Zealand in Paris to replace the existing treaty and amending protocol.

The Minister said that the new tax treaty represents an important further step in the move towards an integrated trans-Tasman economy under the Closer Economic Relations trade agreement and the Single Economic Market initiative.

The new treaty reduces withholding tax rate limits on certain dividends, on certain classes of interest, and on royalty payments. There are also changes to free up funds for managed investment trusts.

The new treaty should also allow Australia's managed investment trusts to access the treaty's benefits on income derived from New Zealand.

The new treaty provides time limits on transfer pricing audits, the inclusion of arbitration provisions and a non-discrimination article, as well as new provisions intended to facilitate short term cross-border secondments.

The new treaty will commence when both countries advise that they have completed their domestic requirements. Legislation will be introduced into the Parliament as soon as practicable.

Tax Office Benchmarking

As previously reported in this alert, the Tax Office is developing a range of Business performance benchmarks to complement its Industry Input Benchmarks. 

These benchmarks will be targeted at the cash economy, so that businesses can use them together with (soon to be launched) personal living expenses worksheets to see how likely it is that they may expect a visit from the Tax Office.

Using industry data, the ATO will calculate average Cost of Goods Sold, Labour and Rent per $100 of sales for certain businesses, such as coffee shops and plasterers, and will then use these figures to work backwards to "guesstimate" a business's anticipated Gross Income.

Although very little concrete information is available on this project yet, we have a watching brief on this project.

Cash-strapped small business – Help from the ATO

The ATO has announced new measures to help small businesses that are struggling to manage their tax debts in the current economic climate.

12 month GIC-free payment arrangements

Businesses with an annual turnover of less than $2 million with an activity statement debt can apply to the ATO for an interest-free payment arrangement from now until 30 June 2010.

They will have the GIC remitted for a maximum period of 12 months, provided the payment arrangement is maintained.

Deferred activity statement payment due dates
Small businesses can also request a deferral of payment on their next activity statement.

Businesses with short term cash flow problems that pay quarterly and annually may be granted a deferral of up to two months, with those that pay monthly eligible for up to one month.

Activity statements still have to be lodged on time, but no interest will apply for the period of the deferral.

 

Super guarantee 2009/10: Maximum superannuation contribution base

Many employers do not realise that they are not required to pay the 9% superannuation guarantee charge for the excess salary paid over the maximum superannuation contribution base. The maximum superannuation contribution base for each quarter in the 2009/10 year is $40,170.  This means that you do not need to contribute more than $3,616 per quarter for any one employee unless you have a private arrangement, such as packaging, to do so.

CGT improvement threshold

For the 2009/10 income year, the improvement threshold, which is used for working out when a capital improvement to a pre-CGT asset is a separate asset, and for capital improvements to CGT assets where a rollover may be available, is $124,258.

ESV walking the walk

Einfeld Symonds Vince has, once again, entered a team in the Oxfam 100km Trailwalker Challenge on 29-30 August 2009. Our team is made up of participants and supporters with the twin goals of:

• getting all four participants to the finish of a 100km walk together through the
   bush in under 48 hours, and    
• raising at least $8,000 for Oxfam.

The Challenge requires endurance and teamwork from both participants and supporters. You can sponsor our team, the ESV Grasscutters (Team No 34) through the Oxfam website
http://www2.oxfam.org.au/trailwalker/sydney/team/34

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The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability. 

If you have any queries regarding the information contained in this
update please do not hesitate to contact us.

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