According to the Tax Office, most businesses have not yet applied for an Australian Business Number (ABN). Businesses need to apply before 31 May to ensure their application is processed before 1 July.

Without an ABN, businesses cannot register for the GST and certain payments of income to them may be subjected to a 48.5% withholding tax.

The Full Federal Court has reversed the decision in Knowles' case and held that interest-free loans provided to directors of a corporate trustee were not necessarily subject to FBT as benefits provided in respect of employment.

The Court held that their employment as directors was not necessarily a sufficient or material reason for the provision of benefits in this case.

They effectively took a substance over form approach and held that loans were made because the trust was established for the benefit of the directors and their families (rather than in respect of employment), then they would not be subject to FBT.

The matter was referred back to the Administrative Appeals Tribunal for a decision on the facts.

The Government has finally introduced legislation which, from 1 April 200, proposes to limit the FBT concession applicable to FBT exempt and rebateable employers.

Broadly, for fringe benefits provided to an employee in a FBT year up to a grossed-up taxable value of $17,000 (hospitals) or $25,000 (other public benevolent institutions or FBT rebateable organisations), the existing concessions will continue to apply. Any excess will be subject to 48.5% FBT.

Where a person is an employee of more than one employer, a separate (additional) threshold applies for each employer.

Benefits which are exempt from FBT group certificate reporting, such as superannuation, laptop computers, car parking and meal entertainment will not be subject to the thresholds.

The Tax Office has finalised its ruling regarding the deductibility of interest incurred on monies drawn under line of credit facilities, or redrawn under loan redraw facilities.

For line of credit facilities, the ruling discusses the need to apportion interest and principal repayments between the income and non-income producing purposes for which the funds were used, to determine how much interest is deductible.

The ruling sets out a method of apportionment that the Commissioner will accept.

In relation to redraw facilities, the ruling emphasises the need to determine the deductibility of interest by reference to the use of which the redraw monies are put (regardless of the purpose for the original borrowing). Interest and principal repayments are then apportioned as discussed above.

The Tax Office has finalised its ruling regarding the meaning of business premises in relation to childcare and FBT. Broadly, the ruling adopts the position taken by the Federal Court in the Esso case, concerning the FBT exemption for childcare on business premises.

For premises to be business premises of an employer, the ruling requires some form of possession over the premises such as an ownership or leasehold interest. The extent of possession required will depend upon the facts in each case.

Businesses providing childcare will need to consider the ruling carefully. Please contact us for further assistance.

New legislation may prevent companies from claiming revenue or capital losses following a change in ownership of the company to the extent that losses have accrued (but are unrealised) before a change.

To utilise the losses, the companies must pass the same business test.

The amendments will add to compliance costs. In particular, companies will need to determine the extent of any unrealised losses when ownership changes, in case they cannot ultimately satisfy the same business test.

In addition, the continuity of ownership test has been tightened for ordinary tax losses. Ownership is now measured throughout the loss year, the income year and the entire intervening period, and only the lowest shareholding of each continuing owner throughout that period is taken into account.

Tax losses and capital losses will now be more difficult to recoup in the future.

Please contact us for further details.

The Government has introduced legislation concerning the interaction of the FBT and GST provisions.

The proposed rules will require employers to apply a higher gross-up factor of 2.12921 (currently 1.94175) to the taxable value of fringe benefits where the provider of the benefit is entitled to a GST input tax credit for goods and services used in providing the benefit.

The higher gross-up rate will apply even when the provider does not actually claim the input tax credit or is entitled to only a partial credit.

Where the employer does not pay GST on inputs used to provide the benefit supply, or is not entitled to an input tax credit, the current FBT gross-up rate will apply.

GST will not typically apply on the actual provision of a benefit by an employer to an employee.

The Tax Office has released a draft determination stating that a partner in a partnership is not entitled to tax deductions for interest on money borrowed to pay personal income tax.

A reminder to all employers (including FBT exempt employers) that FBT reporting rules apply for benefits provided during the FBT year ending 31 March 2000.

Employers must record on group certificates (for the year ended 30 June 2000) the grossed-up taxable value of certain reportable fringe benefits provided to employees where the non-grossed-up taxable value exceeds $1,000.

Benefits excluded from the reporting requirements include car parking, meal entertainment facility leasing expenses, and various benefits relating to employees in remote areas.