THE REPORT - September 2000

Index






Option 2 Delayed
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The treasurer has announced that there is ‘no requirement for a July 1 start-up’ for the proposed Option 2 – Tax Value Method of taxation.

He suggested that there are a number of detailed issues to be resolved, a need for ongoing consultation and a major education process to be undertaken before it can be introduced.

So, while it is still possible that the Government will adopt a 1 July 2001 start date, this now appears unlikely.

The Tax Value Method will base tax liability on net cash flows and changes in the tax values of assets, rather than taxable income.





Interest Deductions
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The Federal Court has remitted an interest deduction case back to the Administrative Appeals Tribunal (AAT) for them to reconsider based upon the facts.

The AAT previously decided to disallow an interest deduction relating to amounts borrowed to renovate a house acquired for a profit-making purpose.

The facts of the case showed only a small amount of income had been derived from the property in almost 14 years, and that no definite profit making had been settled.

The Federal Court affirmed that where there was a profit making intention on acquisition, interest would typically be deductible unless incurred too soon before the commencement of the income producing activity.

The Federal Court also suggested that where the taxpayer is engaged in a profit making undertaking or scheme, interest may be deductible where incurred, as opposed to when the profit is realised.





Franking Account Changes
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Companies were reminded that they were required to convert franking accounts on 1 July 2000 to reflect the new 34% company tax rate.

In addition, credits or debits arising after that date which reflect tax paid at the old company rate must typically be converted.

Franked dividends paid from 1 July 2000 will carry imputation credits reflecting the 34% rate.





FBT Blow for Tax Commissioner
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The Federal Court has held that certain payments made by a company on behalf of directors who were also shareholders did not necessarily constitute fringe benefits.

The Court found that the benefits may not have been provided in respect of employment, because a relationship other than employment existed. Thus, benefits would not be fringe benefits. The matter has been referred back to the AAT to be re-determined on its facts.

The Court also upheld the AAT’s decision that certain loans by the company were made to the directors in their capacity as shareholders rather than employees and were not loan fringe benefits.

The case follows the earlier decision in Knowles case, and is of particular relevance to proprietors of closely-held businesses.





No PAYG Withholding Required
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The Commissioner has released Pay-As-You-Go (PAYG) withholding schedules which effectively confirm that in certain circumstances no withholding is required where an ABN is not quoted, for example where:
  • The GST exclusive price for a supply is $50 or less; or
  • The supply is input taxed.

In addition there is no need to withhold where:

  • A supplier is acting in a private capacity;
  • The payment us exempt income of the supplier or
  • The payment is no a non-resident entity which does not carry on business in Australia.




PAYG and Accounting Period
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The Tax Office has issued a draft determination on whether taxpayers can calculate their PAYG instalment amount for an instalment quarter having regard to their normal accounting periods, rather than strict calendar months or quarters.

It provides that such an approach is only allowable where similar approval has been obtained for GST purposes. This is only available to taxpayers with an annual turnover of $20 million or more.





Extensions For BAS Lodgement Deadlines
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QUARTERLY REMITTERS

Lodgement and payment dates for a quarterly Business Activity Statement (BAS) are as follows:

Quarter Date

1st (01/07/00- 30/9/00) 11/11/00

2nd (01/10/00 - 31/12/00) 04/02/01

3rd (01/01/01 - 31/03/01) 28/04/01

From the fourth quarter the normal 21 day lodgement period applies.

MONTHLY REMITTERS

The Commissioner has announced an extension for the lodgement of first and second Business Activity Statements and payments for taxpayers that elected to lodge and pay monthly. The extensions are to 4 September and 21 September respectively.

The extension does not apply to taxpayers required to lodge monthly because of annual turnover exceeding $20 million.

BAS forms currently being issued to taxpayers do not reflect this extension.





Aggressive Tax Planning
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The Tax Office has indicated it intends to take a tougher stance towards and to target promoters of aggressive tax planning schemes.

It will have to rely on existing law to do so, as a request to introduce further retrospective anti-avoidance legislation has been rejected by the Government.




FBT Car Parking Threshold
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The car parking threshold for the FBT year commencing 1 April 2000 is $5.46 (replacing $5.31 for the previous year).

Employer provided car parking facilities are subject to FBT if the lowest all day fee charged by a commercial car park within one kilometre exceeds this rate.

Different rules apply in relation to car parking costs paid on behalf of an employee.





Drug Trafficking Deduction
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In an unusual case, it was held that a convicted drug trafficker was entitled to a tax deduction for $220,000 which had been buried in his backyard and subsequently stolen during a drug deal.

The Court found that the stolen amount was a loss directly connected with the carrying on of his business.





Important: This is not advice. Clients should not act solely on the basis of the material contained in this Report. Items herein are general comments only and do no constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas. The Report 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.