Avenir Group Tax Update

May 2007

BUDGET CHANGES

The following are some highlights from the recent budget:

Individual Taxpayers

Personal income tax rates to change from 01/07/2007 as follows:

The low-income tax rebate will be increased from the current maximum of $600 to $750. This means that a taxpayer will now be able to earn up to $11,000 without paying any tax.

Business Taxpayers

The GST registration threshold has been increased from $50,000 to $75,000. This will exempt many micro-businesses from the onerous record keeping and reporting requirement of the GST system.

Large business with over $100M in turnover will from 01/07/05, be able to access the Same Business Test (“SBT”) for determining their eligibility to utilise brought forward tax losses. Previously SBT was only allowed to a business with less than $100m in turnover, with over $100M turnover businesses able to utilise brought forward losses only if the Continuity of Ownership Test (“COT”) was satisfied.

Superannuation Fund Taxpayers and Members

The superannuation changes announced this year were minimal compared to last year’s massive raft of changes. The major change this year was the government’s decision to reward eligible taxpayers who had made a co-contribution in the 2005-2006 year will now receive a one off bonus co-contribution for the year, matching the original contribution they were entitled to.

Source: Budget 2007 Announcement 08/05/07

SMALL BUSINESS CHANGES INTRODUCED

The Tax Laws Amendment (Small Business) Bill 2007 was introduced and passed by the House of Reps on 28 May 2007 and now awaits senate approval and royal assent. The measures to apply from 01 July 2007 .The bill is of importance to all small businesses as it implements some of the following significant changes:

• Increase in the maximum net asset threshold from $5M to $6M;
• The turnover threshold for entry into the Simplified Tax System to be increased to $2M ( up from $1M);
• The GST cash accounting threshold to be increased to $2M (up from $1M).

Source: Federal Parliament House Hansard 29/05/07

SUPER FUNDS AND INSTALMENT WARRANTS

The government has decided to legislate in favour of super funds investing in instalment warrants. Although this was common practice for many super funds it has always been a contentious issue as to whether investing in instalment warrants amounts to the super fund breaching the superannuation rules that disallow borrowing. Superfunds are not allowed to borrow as it exposes itself to the higher risks of gearing and may put fund assets under risk if they are put up as security. However, funds have always been able to invest into geared managed funds and many instalment warrants are limited recourse in any extent. It is the limited recourse nature of these warrants that has resulted in the government’s announcement.

Source: Treasury Press Release 22/05/07

MAIN RESIDENCE EXEMPTION NOT ALLOWED

A couple has been denied the main residence exemption on the sale of a dwelling as the couple failed to prove that the residence was their main residence. Amongst other things the AAT argued that the house had a very low consumption of electricity compared to other households during that period; only bare furnishings had been moved into the residence and the taxpayers had failed to notify various authorities of the change in the address.

It is clear when arguing these cases, that the taxpayers must present a set of determinative facts to the ATO, in order to prove that the property was occupied as a main residence.

Source: AAT Case [2007] AATA 1388 Erdelyi and FCT

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