Avenir Group Tax Update

March 2007

NEW RATES AND THRESHOLDS

i) The following changes apply to the 2008 FBT year

• Threshold for gaining a small business record keeping exemption changed to $6614 (TD 2007/7);
• Benchmark interest rate: Increased to 8.05% (TD 2007/10).
• Employee entertainment
• The minor benefit exemption will increase to $300 (from $100)

ii) For individuals claiming the Motor Vehicle expenses based on cents per km the rate for 2006 -2007 tax year is as follows:

Source: www.ato.gov.au)

AGRIGULTURAL INVESTMENT CHANGES

The ATO has previously issued guidance to investors in agricultural managed investment schemes that it will no longer be issuing product rulings for these schemes.

Instead a deduction will be allowed only where the scheme invests at least 70% of the investor’s funds in direct agricultural expenditure. The tax office has confirmed this will still be the case; however the new rules will only apply from 1st July 2008 onwards.

These types of investment have been under review by the ATO because of their ability to produce large upfront deductions of investors. They can have a long time horizon between incurring the upfront expenditure and producing returns for investors, in some cases over 10 years

Source: ATO media release 27/03/07

PRICIPLE PLACE OF RESIDENCE AND LAND TAX

The meaning of principle place of residence has been extended following a recent case.

where a couple who had purchased and lived in their principle place of residence purchased an adjoining lot of land, removed any barriers between their old and new properties and claimed the principle place of residence exemption on both lots.

Both the new and old properties had houses built on them, which led the Commissioner to levy land tax on the new property, claiming that the place of residence had not changed and did not include the new property. The tribunal decided that both lots were eligible for the exemption as they were not used in different ways and were occupied as one block by the couple.

Source: Kourtesis & Anor v Chief Comr of State Revenue [2007] NSW ADT 64

WHEN DOES A NEW ASSET BEGIN TO DECLINE IN VALUE?

There is often a time lag between the purchase of a new asset and its initial use in the business. Where this occurs there has been some debate as to whether the asset begins to decline in value from purchase date and therefore would be depreciated at a lower value in the business. This, in effect, means that some of the deduction for decline in value will be permanently lost.

The Commissioner of Taxation has affirmed in TD 2007/5 that an asset does not decline in value until it is used or installed ready for use.

For example, a new business purchases computers and stores them in a warehouse prior to commencement of business. It can start claiming depreciation on the computers when it commences business and the assets are installed and ready for use.

With an existing business, it can purchase equipment, store it and - when ready - install it and claim depreciation from that date.

Source: TD 2007/5

NEW SMALL BUSINESS CGT REFORMS

On the 29th of March 2007 the new changes to the small business CGT concessions were passed by Parliament. One of changes is that the controlling individual test of 50% is  replaced it with a significant individual test of 20%. This allows many more taxpayers to be access the CGT concessions.

Example: Where 4 stakeholders hold at least 20% and each of their spouses own some portion of the remaining 20%, allowing 8 people to access this concession. Previously only a maximum of two people were eligible.

ALLEGED SUPERANNUATION FRAUD BY SPOUSE

A husband has claimed that his wife withdrew his super benefits without his permission. The benefits were transferred from the fund to their joint bank account where they were later withdrawn by the spouse. Although the benefit redemption form was completed by the husband, he claimed that depositing the funds into the joint bank account was a breach of the duties of the fund’s trustee.

The husbands claim was dismissed. The court heard how the wife controlled their joint bank account and had exclusive access to the couple’s mailbox, in effect acting like an agent of the husband when he applied for the withdrawal. The fact that the money was deposited into a joint bank account made no difference to this case.

Source: Price v MLC Nominees Pty Ltd [2007] FCA 298

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