The Government has with-drawn its proposed entity tax legislation, conceding that the proposals were ‘not workable’. The entity tax regime was going to tax many trusts in the same way as companies and was set to apply from 1 July 2001. This will not happen.
The Government intends to commence a new round of consultation on principles which can protect legitimate small business and farming arrangements whilst addressing ‘tax abuse’ in the trust area.
There has been no deadline set for any future reforms. It is not clear whether the new dividend imputation rules and the unit trust restructure proposals (included in the same draft entity tax legislation) will proceed.
We will keep you informed of any developments.
The Treasurer has announced a simplification of the BAS reporting process. Briefly, the main changes are as follows:
• GST-registered taxpayers with less than $1 million annual turnover may rely on the Tax Office to calculate their quarterly PAYG, based on their previous year’s assessment.
• A simplified BAS form for quarterly GST remitters has been introduced; it only requires information on sales, GST collected and GST paid. A more detailed yearly statement must be lodged by the income tax return due date.
• Quarterly GST remitters with an annual turnover of less than $2 million may elect to pay pre-calculated GST instalments and not lodge quarterly returns. For the March and June 2001 quarters, this payment will be the same as that for the December 2000 quarter. An annual return must be lodged by the income tax return due date.
• Quarterly GST payments will be due on 28 July, 28 October, 28 February and 28 April.
In other words, less that a year after the BAS regime started it’s going to change.
We can help you comply with the new BAS reporting process.
The Tax Office recently expressed its views on the calculation of home office expense tax deductions. If you do any work from home you may be entitled to tax deductions. Tips for calculating deduction amounts include:
• Diary records covering a representative four-week period may be used to establish a pattern of use for the whole year.
• Deductions are allowable for electricity, gas and the depreciation of office furniture based on either the actual expense (based on the pattern of use) or calculated at a rate of 20 cents per hour.
• Deductions for other expenses, such as telephone costs and the depreciation of computer equipment, must be calculated by apportioning actual costs between income-producing use and other use.
Tax-deductible cents per kilometre rates for the year ending 30 June 2001 are as follows:
|
Engine Capacity |
Cents per |
|
|
Non-rotary |
Rotary |
Kilometre |
|
0 – 1600cc |
0 – 800cc |
48.9 |
|
1601– 2600cc |
801 – 1300cc |
58.5 |
|
2601cc + |
1300cc + |
59.5 |
These rates apply to claims for no more than 5,000 business kilometres use of a car during the income year.
Trustee Liable on Invalid Distributions
The Federal Court recently decided that a trustee of a trust was liable to pay tax on purported income distributions to an invalidly appointed beneficiary.
The distribution was void because it was contrary to the provisions of the trust deed. In addition, the Court found that the default clause in the trust deed did not make any beneficiary ‘presently entitled’ to the income. A beneficiary has to be ‘presently entitled’ to be taxed on the income they receive.
Accordingly, as no beneficiary was presently entitled, the trustee was liable to pay the tax.
The case highlights the importance of confirming that trust beneficiaries are validly appointed.
Thin capitalisation refers to restrictions regarding the tax deductibility of interest payments from an Australian enterprise to a related non-resident. There is a thin capitalisation regime currently in place but it is about to change.
The Government has released draft rules concerning its proposed reforms to the thin capitalisation regime. The draft comprises 335 pages of legislation and explanatory memorandums. The proposed rules are complicated and we would be happy to help you if you think that they potentially apply to you.
The following points highlight the main aspects of the proposed rules:
• Unlike the existing regime, which only applies to inward investment, the proposals also apply to Australian entities which control foreign entities or which have foreign permanent establishments.
• The new proposals apply to the total debt of the Australian entity, not just its foreign debt.
• To avoid these rules, taxpayer’s must satisfy either a safe harbour test, an arm’s length test or, for outward investment, a worldwide gearing test.
• The safe harbour test is likely to be the most commonly applicable.
It requires that debt must be no more than 75% of the entity’s net asset value, excluding certain equity in related entities, and non-debt liabilities (e.g. most accounting provisions).
It is proposed that these measures will apply from 1 July 2001.
Controlling Interest Superannuation Schemes
Amendments to superannuation law are currently being considered in Parliament. These amendments have retrospective start dates. The amendments seek to:
• deny tax deductions for superannuation contributions made by a taxpayer (as employer) on behalf of themself (as employee) from 19 May 1999;
• deny tax deductions for superannuation contributions made knowingly to non-complying superannuation funds (including offshore superannuation schemes) from
30 June 2000. Non-complying superannuation funds are those which do not comply with the superannuation laws; and• ensure that contributions made on behalf of an associate of an employee are subject to FBT from
7 September 2000. Employee superannuation contributions are generally exempt from FBT.