Avenir Group Tax Update

February 2007

EXTENSION TO LODGE FAMILY TRUST AND INTERPOSED ENTITY ELECTIONS

A family trust election enables simpler rules to be adopted in order to utilise losses by family trusts.

For those trusts that missed making this election, an opportunity to elect to be a family trust for prior years was provided by the ATO in 2004.

The ATO has now released a revised guidance to its “Practice Statement Law Administration” (PSLA 2004/1), where this opportunity has been extended to 31 May 2007.

Source: PS LA 2004/1

ST GEORGE SHARE SELL BACK RIGHTS TREATED AS ASSESSABLE INCOME

In a test case McNeil v FCT, the High Court has held that the share sell back rights issued by St George Bank is assessable income.

St George Bank when announcing a share buy back in 2001, announced that for every 20 shares held in St George, it would issue one “sell-back right”. The ATO claimed that the value of the share sell back rights is ordinary assessable income but the full federal court dismissed the tax commissioner’s appeal. On appeal, the High Court allowed the appeal in a 4-1 majority.

The ATO will inform taxpayers of the requirement to amend their returns if the amount has been omitted.

Source: McNeil v FCT (2005) 60 ATR 275

INTEREST DEDUCTION ALLOWED

A taxpayer has been allowed a deduction for interest by the Full Federal court on a loan some 10 years after the debt was due and the taxpayers involvement in the business.

In Guest v FCT, Guest borrowed money to invest in an agricultural fruit-growing project. The terms of the loan required two repayments to be made by a certain date, and the balance to be paid out of proceeds from the sale of the produce. In the event of a failure to meet these payments, the taxpayers were personally liable for the balance of the loan. The business went into liquidation and the taxpayers were personally liable for the loan and interest payment.

The ATO claimed no deduction would be allowed:

- due to the lapse of time between the payment of the interest and when the loan was

originally due for repayment; and

- the nexus between the income producing activity had been broken.

Source: Guest v FCT [2007] FCA 193, Federal Court

NEW DEPRECIATON RATES

TR 2006/15 outlines new effective lives to be used from 1st January 2007 for the following type of assets:

- “beef cattle and beef cattle feedlots assets;

- exploration assets;

- farm sheds;

- hay and foraging assets;

- poultry farming and hatchery assets; and

- printing industry newspaper assets.”

Source: TR 2006/15

INPUT TAX CREDIT DENIED - GST AND THE GOING CONCERN

In 2002 Debonne Holdings purchased land and a business from Castle Rock in two separate contracts. The contract for sale of land “contemplated that GST may be payable”. The contract for the sale of the business stated that this was a sale of a going concern and therefore GST free.

Debonne sought to claim input tax credits on purchase of the land. The commissioner rejected the taxpayers claim for input tax credits and sought to apply the conditions under the going concern exemptions and treated the transaction for the sale of the land and businesses in its totality.

Source: 2006 ATC 2467

PAYROLL REFORMS

Businesses operating in NSW and Victoria will have simpler payroll tax compliance with the state governments announcing they will attempt to harmonise each state’s payroll tax legislation. Each state will set its own tax rates and thresholds but from 01 July 2007, for payroll tax purposes, each state will have the same definitions, standardised laws and will have common eligibility.

Source: Media release 25th February 2007

SGC CONCESSIONS

Employers must remit superannuation payments to their employee’s super fund account within 28 days of the end of the quarter to avoid the superannuation guarantee charge, being a penalty for late payment which equates to at least the amount of super paid late. This means that the employer would pay twice the amount of superannuation expense.

The ATO may extend the deadline under some very specific circumstances.

In accordance with PS LA 2007/1, where an employer has physically mailed the cheque to the super fund within the 28 days or has provided a clearing house with the funds within the time limit, the deadline may be extended.

Note however that practice statements are only guidance for tax office employees on how to administer the law and not law in itself. The ATO may seek to apply the law and ignore the practice statement.

Source: PS LA 2007/1

NOTE: The above articles presented here are provided for information purposes only and are not to be treated as taxation or financial advice.