In addition to the GST, a raft of new tax changes took effect from 1 July 2000. As a reminder these include:
- Personal income tax cuts;
- Increases in family assistance payments;
- Refund of franking credits to resident individuals, complying superannuation funds and certain charities;
- Company tax rate falling to 34%;
- PAYG;
- Abolition of wholesale sales tax;
- Restricted deductions for non-commercial losses (e.g. farming or hobby losses) against other income;
- New alienation of personal services income rules; and
- Removal of immediate deductions for payments under certain tax shelter arrangements.
| No Penalty if Reasonable Position |
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The Tax Office has advised that taxpayers will not be penalised for mistakes made in implementing the new tax system, provided they act reasonably.
The Tax Office will only concern itself with collecting the correct amount of tax.
Factors it will consider when assessing reasonableness include whether an entity obtained an ABN, publications and information used by the entity in attempting to comply with its obligations, and whether the entity sought advice.
| New Personal Tax Rates |
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The new personal tax rates for residents, applicable 1 July 2000 (excluding Medicare levy) are:
| 0 - $6000 | Nil |
| $6,001 - $20,000 | 17% |
| $20,001 - $50,000 | 30% |
| $50,001 - $60,000 | 42% |
| $60,001+ | 47% |
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The beginning of the new financial year on 1 July triggered the commencement of the PAYG instalment system.
Under this system the Tax Office predetermines an instalment rate, based on the 1999 income tax return, for taxpayers to pay their income tax instalments.
Taxpayers are expected to be notified of these rates during July 2000. If a business taxpayer does not receive a PAY instalment rate (prior to the due date), that instalment will not be required.
Taxpayers who pay quarterly instalments may vary their instalment rate. Where the varied rate proves to be understated by more than 15%, penalties may apply.
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The Tax Office has issued several Draft Rulings concerning the interaction of FBT and GST. The Rulings consider, amongst other things, whether an employer is entitled to an input tax credit in relation to things acquired to provide a fringe benefit to am employee.
In such cases, a higher 2.1292 gross-up factor must be used.
Input tax credits will not be available where, for example, the supply to the employer is input taxed or GST-free.
If the employer reimburses a non-employment related expense there will also be no input tax credits. In such cases the higher gross-up factor would not apply.
Whether the supply of a fringe benefit is subject to GST is also considered.
Whilst there will typically be a taxable supply, the value on which GST is charged will be the contribution (if any) made by the recipient towards the cost of the benefit, rather than its market value. This recognises that employees would otherwise pay GST on supplies to them.
| Personal Services Income Rules Now Law |
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The alienation of personal services income rules received Royal Assent on 30 June and are now law.
Readers will recall that under this legislation, payments to an entity for services performed by an individual will be assessable income of that individual, unless the entity is carrying on a personal services business.
For a business to exist, 80% of income cannot come from one source and one of several other prescribed tests must also be satisfied.
| Losses of Companies Owned by Trusts |
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The Tax Office has issued a final determination (the draft was issued in 1996) concerning losses incurred in the 1995/96 year and earlier by companies owned by trusts.
Currently, companies whose shares are owned 50% or more by a discretionary trust are unable to satisfy the continuity of ownership test for the carry forward of tax losses.
This is because the shares in the company are not beneficially owned by any particular person and beneficiaries have no fixed entitlement to trust assets or income.
The Tax Office will nevertheless allow carry forward of the losses where:
- The trust was administered for the same family for the relevant period; and
- There has not been a change of 50% or more of the underlying interest in trust assets.
For losses incurred in the 1996/97 and subsequent income years, legislation applies so that the continuity of ownership test will be passed if the trust is an elected family trust, or if certain other tests are satisfied, under trust loss rules.
| Superannuation Funds Get a Reprieve |
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Earlier in the year, the Government attempted to introduced measures to apply capital gains tax (CGT) to certain superannuation funds on any unrealised gains upon allocation of the fund’s assets into a pension fund. These proposals have been shelved, at least temporarily.
We will keep readers informed of any further developments.
| CGT on Forfeited Deposit |
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The Full Federal Court has held that a forfeited deposit on an aborted rental property sale resulted in an assessable capital gain.
The Court distinguished an earlier case on the basis that it involved a forfeited deposit concerning a principal place of residence, rather than a rental property (as was applicable in this case).
The court also held that this position potentially applied to option fees in relation to prospective purchases as well as forfeited deposits.
| Eligible Termination Payment (ETP) Not for Redundancy |
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In a recent case, a Court held that an ETP paid to a Tax Office employee was not a bona fide redundancy payment. The employee accepted early retirement as he was not coping with technological changes and was unwilling to undertake further training.
The Court found that there was no redundancy as there was no significant change in the work required, and positions of the kind held by the taxpayer were not reduced.
It was merely a case of ensuring that those occupying the position had the necessary skills.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Item herein are general comments only and do no constitute or convey advice per se. Also changes in legislation may occur quickly. We therefor recommend that our formal advice be sought before acting in any of these areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore is should be regarded as confidential and not be made available to any person without our prior approval. |
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