News & Tax Insights

There has been a huge blowout in the wages bill for Australian Governments over the past four years.   We have checked the statistics provided by the Australian Bureau of Statistics. They say that the total cash wages for Government employees in the 2010/11 financial year was around $123 billion. In 2007/08, the wages bill was around $100 billion. Government wages increased by 5.6% pa in that four year period.   In the same timeframe, the number of Government employees increased from 1.75 million to 1.9 million an increase of 2.1% per year.   This large growth in the Government…

The Tax Office will exercise its data collection powers to chase up lawyers, visa holders, boat owners, motor vehicle registration holders, credit card holders and other taxpayers. Databases held by other Government departments, banks and insurance companies will be accessed and matched to the Tax Office’s own data holdings.   Data on approximately 1.3 million taxpayers will be taken from Centrelink to check on eligibility for Family Tax Benefit Part B for the 2009, 2010 and 2011 years with comparisons being made to check on incorrect claims for the Dependant Spouse Tax Offset.   Current membership and deregistration from State…

Complicated super contribution rules are about to get… more complicated! Draft legislation was released in December to provide some people a once-off chance to be refunded up to $10,000 of excess concessional (employer or deductible personal) superannuation contributions made after July 2011.   Way back in 2007, the then Liberal Government made significant changes to the superannuation system providing significant additional tax benefits to retirees and creating incentives to get more money into super. To control the amount flowing into super, the Government placed limits on concessional and non-concessional (after tax non-deductible) contributions. The limit was originally $50k for concessional…

Official inflation for the 2011 calendar year was 3.1% with some categories out of the “basket of goods and services” up and others down.   Domestic holiday travel and accommodation prices rose by 7.3%, where international holiday travel and accommodation got 1.9% cheaper.   Other categories that were up include: + Rents 1%; + Telecommunications 1.1%; + Beer (Oh no!) 1.2%; and + Automotive fuel 0.7%.   These were the declines in the CPI categories: + Fruit - 13.4%; + Pharmaceuticals - 5.6%; + Vegetables - 5%; + Audio, visual and computing equipment - 3.4%; and + Motor vehicles -…

Deemed dividends where a company makes payments or loans, or forgives a debt to a shareholder or their associate, may be reduced following a decision of the Full Federal Court and the issue of a replacement Draft Tax Determination about when income tax becomes a present legal obligation.   The infamous Division 7A of the 36 Tax Act can deem a dividend (usually unfranked) to be paid where a company pays money, loans money, forgives a debt or provides the use of an asset to a shareholder or associate. The amount of the deemed dividend is limited to the “distributable…

Employers that misclassify someone as an independent contractor (rather than an employee) face big risks for employee entitlements, withholding tax, superannuation and also unfair dismissals following a Fair Work Australia decision in December.   The Full Bench of the national employment arbitrator found that a purported independent contractor working as a shop assistant in a furniture store was not a contractor, was paid a fixed weekly rate, did not have other clients and was not working through a company.   Unions, the Fair Work Ombudsman and the Tax Office are all cracking down on supposed “sham contracting”. In its decision,…

Private equity investors will miss out in the Government’s newly announced Investment Manager Regime designed to attract substantial funds from offshore for management within Australia.   The announcement in December follows acceptance of most of the recommendations from the Board of Taxation and pressure from the funds management industry.   The funds will have an exemption for Australian tax on “passive assets” invested on a portfolio basis, but this exemption will exclude certain land rich investments and withholding tax on dividends and interest.   The fund will not be able to operate or control a trading business in Australia and…

Unforseen problems can arise if your grown up children become part of your self-managed super fund.   In July last year, DBA Lawyers argued against bringing your children into your super fund quoting two key cases.   In Triway Super Fund, a mother, father and son were members and trustees of the fund. The son was addicted to drugs and withdrew all of the funds such that the parents’ retirement savings were lost. The son became bankrupt and a couple of years later the trustees made a voluntary disclosure to the Tax Office.   The Tax Office issued a notice…

$305,000 of software license fees paid over two years will stand as an allowable deduction after the Tribunal overturned an assessment disallowing deductions for the fees.   A Personal Services Income audit for the 2004 and 2005 income years resulted in amended assessments to knock out claims for license fees of $155,420 in 2004 and $150,273 for 2005.   The license fee was for six years and with a resident of South Africa who would not testify and whose business name was not registered by the relevant South African authorities.   The Tax Office thought the fee was inherently unbelievable…

In contrast to the usual non-application of tax on distributions of cash representing trust capital, the Tax Office has issued an Interpretative Decision applying tax to a new Australia resident beneficiary of a non-resident trust. The Trust had derived foreign source income, accumulated it as trust capital and paid that corpus amount (comprising previous income) to the beneficiary.   The first limb of Section 99B of the 36 Tax Act creates a tax obligation for the beneficiary when trust property is paid to, or applied for the benefit of a trust beneficiary subject to reductions in the second limb of…

The burden of new charity regulations could lead to smaller not-for-profit organisations closing up and turn civic-minded people away from involvement in philanthropic organisations. Draft legislation to intensify regulation of charities was released in December last year together with a consultation paper which focuses on implementing the new rules.   In the 2011/12 Budget (announcements in May 2011), the Government spruiked reform of the not-for-profit sector and allocated $50 million to establish The Australian Charities and Not-For-Profit Commission (the Commission) with the following objectives: + Establishing a national “one-stop-shop” regulator for the not-for-profit sector... to remove the complex regulatory arrangements…

Dividends can only be paid from profits according to a new draft ruling released by the Tax Office. This contradicts recent changes by Treasury to the Corporations Act.   For many, many decades, the law about dividends required that they could only be paid from profits that were retained by the company. This was prescribed in the Corporations Act and also a key aspect of company law, as defined by the Courts.   Recently, Treasury and the Parliament amended the relevant section of the Corporations Act to require that dividends could not be paid unless: + The excess of the…

Valuers should check their calculations and supporting evidence particularly for profit and risk ratios, market interest rates, comparable sales and development costs on real property valuations according to a new Tax Office Issues Paper released in January.   Valuations are used extensively in tax for CGT and GST purposes. There are recent cases where disputes over valuations have lead to taxpayers being defeated in the Tribunal on small business CGT concession matters.   The Tax Office says it has consulted the Australian Property Institute and the Australian Valuation Office in drafting the paper.   Where a property transaction is involved…

380 “deep law experts” maybe redeployed from the Tax Office Tax Counsel Network and Centres of Expertise to front line areas to lift the level of expertise in complex and international tax matters for field and advice staff.   Tax Office Second Commissioner Jennie Granger said that many more taxpayers had complex affairs with sole traders trading internationally over the internet and individuals moving in and out of Australia for work. International tax was no longer a speciality solely required for large multi nationals.   She further argued that the Tax Office “cannot apply commercial settlement approaches” when it is…