April 2017

Are you?
– A taxpayer who sells or disposes of real estate?

At a glance:
– When taxpayers sell or dispose of real property the transaction can take several months. The Tax Office has issued a guide detailing when the taxable Capital Gains Tax (CGT) event should be recognised.

You should:
– Understand when it is the correct time to record a real estate CGT event.
– Contact us if you require any clarification or advice.

When a taxpayer sells or disposes of real estate, the time of this CGT event is usually:

• when the taxpayer enters into the contract, not the time of settlement;
• when the ownership changes if there is no contract; or
• the earliest of the following if the real estate is compulsorily acquired:
  • when the taxpayer receives compensation from the acquiring entity;
  • when the entity became the property’s owner;
  • when the entity enters the property under a power of compulsory acquisition; or
  • when the entity takes possession under that power.

Taxpayers are not required to report their capital gain or loss in the tax return for the income year in which the contract is entered into until settlement occurs. However, if settlement takes place after the taxpayer has lodged the tax return, the taxpayer may need to request an amendment.

If the assessment of a capital gain is amended, a liability for shortfall interest charge (SIC) may arise. SIC can be remitted in full if the request for amendment is lodged within a reasonable time after settlement. However, remission must be requested and will be considered on a case-by-case basis.

For more information, click here.

Remember:
– Ensure you report the real estate CGT event correctly in the tax return.

This article was published on 30/3/2017 and is current as at that date

Are you?
– Operating a business?

At a glance:
– The Tax Office has compiled a list of common errors made by businesses in submitting their Business Activity Statements (BAS) on the Business portal website.

You should:
– Ensure that all the information submitted in your BAS is correct.
– Contact us if you require any clarification or advice.

Businesses that are registered or required to be registered for Goods and Services Tax [GST] and PAYG Withholding need to prepare Business Activity Statements (BAS) periodically to report and pay their tax obligations.

Activity statements are personalised to each business and any options which they may have chosen at the time of registration. Items which taxpayers may need to disclose include:

GST;

PAYG Instalments;

PAYG Withholding;

Fringe benefits tax; and

Luxury car tax.

The Tax Office has published a list of common errors made by businesses when submitting their BAS and provided explanations on how to rectify these errors.

Some of the common mistakes frequently made include:

Problem: Including wages and superannuation contributions as purchases at label G11.
Solution: Wages should be reported at W1. Superannuation contributions do not need to be disclosed.

Problem: Lodging blank forms.
Solution: When lodging statements with nothing to report at any label (a nil statement), insert zeros against labels 1a, 1b and 9.

Problem: Lodging printed activity statements
Solution: You must lodge original activity statements with the Australian Taxation Office (ATO)

Problem: Claiming GST credits for purchases used for private purposes.
Solution: GST can only be claimed for business expenses. If a purchase was used for both business and private purposes, GST credits need to be apportioned.

Problem: Not notifying us of the accounting method used.
Solution: If you are new to business reporting, notify us on 13 28 66.

Remember:
– If you have disclosed incorrect information in your BAS, the Tax Office may contact you to clarify the error and / or impose penalties.

This article was published on 30/11/2017 and is current as at that date

Are you?
– A shareholder or associate of a private company.

At a glance:
– The Tax Office has issued guidelines to assist private company shareholders to manage their Division 7A tax obligations attributable to their company transactions.

You should:
– Consider whether Division 7A will apply to any transactions made between shareholders and their private company.
– Contact us if you require any clarification or advice.

Division 7A is a measure aimed at preventing private companies from making tax-free payments to shareholders and their associates.

Generally, any payments, loans and rights to use company assets that a company has given to its shareholders and shareholders’ associates are treated as unfranked dividends for tax purposes.

However, there are some exclusions to these provisions including:

• Minor use of assets where the value would be under $300;
• Otherwise deductible use where the shareholder would have been entitled to a deduction for the amount had they paid for the expense; and
• The use of certain homes and dwellings.

Some common tips issued by the Tax Office to avoid being captured by Division 7A provisions, include:

• Not paying private expenses using your company’s assets;
• Paying back any money borrowed from your private company;
• Paying market value rates for the use of the company assets;
• Putting written loan agreements in place before the “lodgment day” of your company’s tax return to ensure any borrowings are not treated as deemed dividends; and
• Ensuring that your company pays you adequate remuneration to ensure you have enough money to pay all your living expenses.

For more information about managing Division 7A risks, click here.

For more information about exceptions to Division 7A, click here.

Remember:
– To avoid deemed unfranked dividends, shareholders need to repay the company or prepare a loan agreement before the company lodges its tax return.

This article was published on 30/3/2017 and is current as at that date

Are you?
– A trustee or beneficiary of a trust?

At a glance:
– The Tax Office has published a guideline for trustees in respect of using a tax loss to reduce trust income.

You should:
– Be aware of how trusts treat tax losses.
– Contact us if you require any clarification or advice.

A common use of a trust is to distribute profits made by a business held by the trust, such as a family discretionary trust.

Where a trust incurs a tax loss during an income year, it is quarantined within the trust and carried forward indefinitely provided that the specific trust loss tests are satisfied. The trust cannot distribute the loss nor has the option to choose when to apply a tax loss.

If the tax losses of a trust are carried forward to an income year where a profit is made, the losses must be utilised. Any excess loss can be applied to future profitable income years.

To apply previous year losses, a trust should consider all the tests applicable to the trust type. There are five tests:

• Control Test;
• 50% stake test;
• Same business test;
• Pattern of distribution test; and
• Income injection test.

For any income year where a trust incurs a loss, any franking credits that the trust is entitled to may be lost. This is due to the fact that credits can only be applied where a profit is made, regardless if the trust has made a profit for income tax purposes.

For more information about trust losses, click here.

For more information about trust loss tests, click here.

Remember:
– Trust accounting losses cannot be distributed to beneficiaries.

This article was published on 30/3/2017 and is current as at that date