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The Report
DECEMBER 1999/JANUARY 200 |
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New (CGT) Tax Rules |
The Senate has passed a Parliamentary Bill to enact many of the recently announced CGT reforms (as a result of the Ralph Committee's review of business taxation).
Importantly, it confirms that the proposed 50% CGT exemption may apply to gains derived by trusts.
The exemption also applies to gains derived directly by individuals and a 331/3% exemption applies for complying superannuation funds.
The concessions apply to assets held for at least 12 months and disposed of after 21 September 1999.
Other CGT reforms include:
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freezing of indexation at 30 September 1999; |
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eliminating indexation for assets acquired from 21 September 1999 or subject to the 50% concession; |
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value-shifting rules which can apply where a debt is forgiven, or in some cases where losses are transferred, between commonly owned companies; |
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clarifying that a taxpayer cannot claim both revenue and capital losses on the disposal of an asset; and |
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deferring recognition of a deduction or capital loss on asset transfers between related parties. |
With the introduction of the GST, and corresponding changes to FBT (yet to be introduced) the decision about when to buy a car, and whether it should be taken as part of a salary package, has never been more complex. The full effect of tax reform on car pricing and salary packaging is impossible to predict at present.
The price of most new and used cars should fall from next July.
An individual buyer without a car to sell might consider delaying the purchase until after July 1 next year. Where a trade-in is involved, it is less clear whether there will be a significant benefit in waiting.
Transitional rules will deny businesses a GST input tax credit in the first year of GST, and businesses will only be entitled to a 50% credit in the second year. From 1 July 2002 the full input tax credit can be claimed so cars will be cheaper from that point, but businesses may not wish to delay the purchase until then.
In the longer term, the popularity of novated leases should not be adversely affected as the impact of the GST should be fairly neutral. Associate leases may however be less attractive. We will keep you informed.
The Senate has also passed Bills to enact other tax reforms including the following:
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· recognising assessable income for a lessor on disposal of leases, or interests in leased plant, from 22 February 1999, where the consideration exceeds the written down value of the plant; |
limiting deductions for;
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· prepayments from 21 September 1999. Business prepayments, other than those by small business taxpayers, for things done within 13 months will no longer be immediately tax deductible; · excluding plant and equipment from the CGT rules from 21 September 1999, and including any gain in ordinary assessable income; · removing balancing charge rollover relief for most disposals from 21 September 1999, other than by small businesses; · removing accelerated depreciation (except for small business) and replacing it with depreciation based on the effective life, for plant acquired from 21 September 1999; and · defining a small business under the rules above as one with an average turnover (based on the current and preceding two yews) of $1 million.
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The Tax Office has released a draft ruling concerning the meaning of 'carrying on an
enterprise' for Australian Business Number (ABN) purposes.
This draft ruling relates to noncorporate and non-Government entities and their entitlement to an ABN.
Unless businesses have an ABN, from 1 July 2000 payments made to them may be subject to Pay As You Go (PAYG) deductions.
According to the ruling, the definition will include:
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· a business, based on the ordinary common law meaning; · an adventure or concern in the nature of trade, which includes non business commercial activity, including isolated transactions; and activities of various religious, charitable, or government entities. |
Entities which are carrying on more than one enterprise will only need one ABN (unless acting as trustee). The Tax Office has also announced that an ABN kit will be sent to all business, from early November 1999.
Businesses may register immediately, and must register by 31 May 2000. Please contact us if you would like further details.
| Ultimate Beneficiary Statement Lodgement |
The new closely held trust rules require trustees of certain trusts to provide the Commissioner with an ultimate beneficiary (UB) statement identifying the ultimate beneficiary of trust distributions for distributions from 13 August 1998.
The Tax Office has advised that the required lodgement date for these statements will be:
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31 October 1999 if the trust does not use a tax agent; |
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1 1 May 2000 if lodging via · tax agent. |
Please contact us if you need further information concerning LTB statements.
It is understood the States intend to impose stamp duty on a post-GST basis. This potentially creates a circular or cascading impact as stamp duty and GST are perhaps charged on each other.
We anticipate that this anomaly will be addressed in due course.
The continuation of business stamp duties also represents a substantial and unexpected additional cost to business as it was originally proposed these would be abolished from 1 July 2001, following introduction of the GST.
This has since been deferred to 1 July 2005.
The September 1999 CGT indexation factor is
123.4.If the Govemment's proposal to freeze indexation is passed, this will be the final CGT
indexation factor.