Avenir Group Tax Update

April 2007

COURT JUDGEMENT AFFIRMS STRICT GST RULES

A Supreme Court decision has reinforced the fact that unless a product fits the specific GST free definition, it will be difficult to classify it as GST free.

A recent judgment concerned a manufacturer of fruit juice, which was carbonated and had some added preservatives. Item 11 of Schedule 2 of the GST Act states that carbonated juices are only GST free where they consist “wholly of juices of fruits”. The ATO maintained that the strict literal interpretation must be maintained, and not the trade meaning. The court found that, although the additive made up only 1% of a drink that would otherwise have met the definition, the supply was not GST free.

Source: P & N Beverages Australia v FCT, NSWSC 338

NO ABILITY TO REMIT SUPER GUARANTEE CHARGE

Employers must remit the compulsory super contributions for all eligible employees by the due dates every quarter, otherwise they will incur a superannuation guarantee charge equal to the amount of these contributions.

In a recent administrative appeals tribunal case, the ATO’s position was reaffirmed. That position is that it has no power to remit a super guarantee charge where a breach has been discovered. In the case before the tribunal, a taxpayer sought for the ATO to apply some discretion where superannuation contributions were late due to the sale of business around the time that superannuation was due. The taxpayer argued that superannuation was paid, although late, by the purchaser.

The only reprieve in this case was that the tribunal remitted the additional penalties above the charge.

Source: AATA 1239, Re Victorian Patient Transport Pty Ltd, AAT, Ref No: VT200600213

BANKRUPTCY AND SUPERANNUATION

The Bankruptcy Legislation Amendment 2006 was passed on 27 April 2007 and is in force from 28th July 2006. It seeks to eliminate situations where large amounts are contributed to superannuation just before filing for bankruptcy in an effort to remove assets available to trustees in bankruptcy to pay creditors. Under the new laws, the trustee can now access these diverted funds from superannuation to fairly pay off creditors.

To determine whether the contributions were in fact to defeat creditors, the courts will be able to take into account the pattern of contributions for the individual, for example where a person contributes most of his life savings into super prior to filing for bankruptcy, or where the individual has not had a prior history of making large contributions but does so just before bankruptcy.

Sources: www.commlaw.gov.au [Bankruptcy Legislation Amendment (Superannuation Contributions) Bill 2006] & ATP Tax update 17th April 2007

GUIDANCE ON GST FREE SUPPLIES

Services enjoyed overseas can be deemed to be GST free under section 38-190 of the New Tax System (Goods and Services Tax) Act 1999.

The conditions include where the “the effective use and enjoyment” occurs in a place other than Australia.

Recently released ruling GSTR 2007/2 provides guidance on this section. In accordance with this ruling, the entity enjoying the supply must be identified and it must be considered whether the enjoyment of the supply by that entity occurs outside Australia. If the enjoyment is split between Australia and overseas, the ATO says that apportionment can be allowed.

Source: GSTR 2007/2

LIMITED NON-CONCESSIONAL SUPER SPLITTING

Non-concessional contributions made from 6th April 2007 can no longer be split between spouses. This is relevant mainly for those who wanted to utilise the one-off transitional cap of up to $1million to top up their own and their partners super before 30 June 2007. In order to be able to split between spouses the large amount would have needed to be contributed prior to 6th April.

The benefit of being able to transfer non-concessional contributions lies in accessing tax-free super early. For instance, where contributions are transferred to an older spouse who has reached the age of 60, (the access age for tax free superannuation), the couple benefits from an earlier tax free income stream and tax free pension.

Source: Superannuation Industry (Supervision) Amendment Regulations 2007 (No 1)

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