Small business benchmarks are financial ratios developed to help a business compare its financial performance to similar businesses in the same industry. The benchmarks provide guidance on what figures, such as amounts of income, the ATO would normally expect a business in that particular industry to report. The ATO uses these benchmarks to work out which businesses in particular industries might be avoiding tax by not reporting some or all of their income.

The ATO has updated its small business benchmarks with information from the 2010 financial year and they have also published new activity statement ratios for a range of industries. Benchmarks are now based on the most recent data available. The number of benchmark ratios has increased so businesses can now check their performance and recordkeeping against a greater range of ratios.

An “instant write-off” amount of $6,500 (increased from $1,000) will apply to small businesses who acquire “low cost” assets from 1 July 2012. “Low cost” assets might include, for example, inexpensive items of equipment, such as office furniture. In addition, an instant write-off for the first $5,000 of the cost of a motor vehicle purchased by a small business will also be available (unless the vehicle can be written off immediately).

Other changes simplifying depreciation for small businesses include the creation of a “general small business pool”. This will be made up of depreciating assets that you might already have in separate pools of assets (that are being depreciated at a faster rate than if they were not in
3 a pool) that will now be combined. Assets will be depreciated at a rate of 15% in the first year and at 30% in each subsequent year.

If you are currently considering some new asset purchases, your tax agent is the best person to help you decide when you should make those purchases.

The entrepreneurs tax offset is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less.

The entrepreneurs tax offset ceases to be available on 30 June 2012. The new small business asset instant write-offs and depreciation pool in effect replace this tax offset.

As announced in the Federal Budget on 8 May 2012, starting in the 2012-13 income year, companies (and entities taxed like companies) will be able to carry back up to $1 million of tax losses incurred in the 2012-13 year to offset against tax paid in the 2011-12 income year. From the 2013-14 income year, tax losses will be able to be carried back and offset against tax paid up to two years earlier.

You should talk to your tax agent about how you might be able to take advantage of these rules and carry back any tax losses your business may have to offset against tax you have paid in prior years.

In the 2012-13 Budget, the Federal Government announced several changes will occur to the CGT provisions, including:

• How certain CGT rollovers (that allow taxpayers to defer recognising capital gains) would apply to trusts, superannuation funds and life insurance companies. The changes ensure certain provisions that relate to certain types of taxpayers (eg absolutely entitled beneficiaries, bankrupt individuals, security providers and companies in liquidation) interact appropriately with certain CGT rollover provisions and with the “connected entity test” in the small business entity provisions. Taxpayers may apply these changes from the 2008-09 income. Otherwise, the measures will apply from the date of Royal Assent of the new provisions.
• How certain rollovers that affect assets replacing revenue assets and trading stock apply to interposed companies, broadening the availability of the rollovers for all interests (eg shares) that qualify for the general conditions of each of the rollovers, rather than only shares in a tax consolidated group. These changes apply from Budget night (7.30pm AEST 8 May 2012).
• These changes apply from Budget night (7.30pm AEST 8 May 2012), so if you are considering applying this rollover to a transaction, see your tax agent for assistance on how the changes might impact your transaction.
• Amendments to the CGT rules so the same outcomes apply where a taxpayer receives compensation, damages or certain insurance proceeds indirectly through a trust as they would have if they had received the proceeds directly. It will also ensure that insurance policies owned by superannuation funds that were treated as being exempt from CGT prior to the 2011-12 Budget changes to compensation payments and insurance policies continue to be exempt from CGT. As this change is effective from the 2005-06 income year, you should speak to your tax agent to see if there is any impact on amounts of compensation payments you have received (if any) and insurance policies you have taken out since the 2005-06 income year.

In prior income years, trustees who were required to make resolutions prior to distributing income to beneficiaries had until 31 August following the end of the income year to make the resolutions. This extension came out of two old income tax rulings which the ATO withdrew in September 2011. This means that all trustees affected by this change must issue their resolutions by 30 June. As this change applies to the current year (1 July 2011 to 30 June 2012), trustees will need to make their resolutions by 30 June 2012.

The Budget edition of TaxWise referred to recently announced changes to the living-away-from-home allowance (LAFHA). The proposed changes:

• Mean that employees, rather than employers, will be liable to tax on any LAFHA received that is not exempt;
• Limit access to LAFHA to temporary residents who maintain a residence in Australia and who are required to live away from it for work purposes;
• Require individuals to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

These changes are due to apply from 1 July 2012. All employers who provide these types of benefits to their employees should consider reviewing their current arrangements and seeing how these proposed changes might affect those arrangements.

In March 2012, changes to super were announced. These changes include:

• The superannuation concessional contributions cap will remain at $25,000 for individuals under 50 years of age up to and including the 2013-14 financial year, commencing 1 July 2013;
• From 1 July 2011, eligible individuals will be able to have refunded to them contributions to their superannuation fund that exceeded the concessional contributions cap (amounts up to $10,000 only). This amount will be treated as assessable income to the individual (and subject to tax at the individual’s applicable marginal tax rate for the year) rather than being subject to “excess contributions tax”.
• The ATO can disclose an individual’s superannuation interests and benefits to a regulated superannuation fund or public sector superannuation scheme, an approved deposit fund, retirement savings account (RSA) provider or their administrators. The purpose of this change is to assist administrators of these bodies to gain access to a member’s superannuation interests, including amounts held by the ATO, and help their members consolidate their superannuation interests; and
• Employers MUST report on employees’payslips the amount of superannuation contributions they will make on behalf of an employee as well as the date on which they expect to pay the contribution into the superannuation fund. The employer must also specify on the payment slip the name and number (if applicable) of the fund to which the contribution has been or will be paid.

The following announcements were made in the 2012-13 Budget in relation to superannuation changes:

• Increasing concessional contributions caps (also known as pre-tax contributions) for individuals over 50 with low superannuation balances announced in the 2010-11 Budget has been deferred and will now start on 1 July 2014. This measure is intended to allow individuals aged 50 and over with superannuation balances below $500,000 to contribute up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap of $25,000, which will apply to them in the 2012-13 and 2013-14 income year. In 2014-15, the general cap is likely to increase to $30,000 (the higher cap for individuals aged over 50 would then be $55,000).
• Individuals with income greater than $300,000 (including superannuation contributions) will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy). That is, the flat superannuation contributions tax rate will increase from a rate of 15% to a rate of 30%.
• From 1 July 2012, the tax offset that applies to Employment Termination Payments (ETP) will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.
• Amounts above $180,000 (known as the “whole-of-income cap”), will be taxed at marginal rates. This cap will complement the existing ETP cap (which will be $175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

With effect from 1 July 2012, a new system will apply to GST, the luxury car tax (LCT), the wine equalisation tax (WET) and fuel tax credits to harmonise the system under which these taxes are collected with the self-assessment system that applies to companies and certain other entities for income tax purposes. The amendments apply to tax periods for the GST, LCT and WET and the fuel tax return periods that commence on or after 1 July 2012.

This means that the current system that applies to indirect taxes will now be aligned with the self-assessment system that applies for income tax purposes. Under the new system, for example, the Commissioner will be able to make a determination that errors made on a previous Activity Statement can be corrected on a current Activity Statement.

Anti-avoidance provisions contained in the tax law are aimed at trying to prevent taxpayers from structuring transactions and entering arrangements designed to avoid tax. Avoiding tax is different to evading tax which is a criminal offence.

Anti-avoidance provisions might apply in cases such as where a taxpayer tries, for example, to structure a transaction to gain a tax benefit that may not ordinarily arise if the transaction is carried out in another way and there aren’t necessarily sound commercial reasons why the transaction was structured in a particular way.

On 1 March 2012, the Federal Government announced that changes will be made to the existing general anti-avoidance provisions contained in the Federal Income Tax Act. The Government has not specified how it intends to change the general anti-avoidance provisions, though the amendments are intended to “clarify” how these provisions apply.

However it is important to be aware that the changes are intended to apply from 1 March 2012. So if you are currently considering entering into a transaction, you should seek advice from your tax adviser around the potential tax implications that may arise from the proposed transaction and guidance on what impact the general anti-avoidance provisions might have, if any.

Proposed amendments to the “director penalty regime” were announced by the Assistant Treasurer on 18 April 2012 to expand the tax law protections afforded to protect workers’entitlements and impose greater obligations on directors. The amendments will:

• Expand the director penalty regime to include superannuation guarantee amounts meaning that directors will also be held personally liable for their company failing to pay employees’super contributions;
• Ensure that directors cannot have their director penalties remitted by placing their company into administration or liquidation when unpaid Pay As You Go (PAYG) withholding or superannuation guarantee amounts remain unpaid three months after the due date; and
• Restrict access to PAYG withholding credits for company directors and their associates where the company has failed to pay withheld amounts to the Commissioner.

Anyone who is a director of a company with employees should familiarise themselves with these proposed amendments as they directly impact a director’s obligations and responsibilities under the tax law in respect of employee entitlements.

The good news is there are some concessions under the proposed amendments:

• New directors will have time to familiarise themselves with a company’s accounts (30 days instead of 14 days) before being held liable for the company’s debts.
• The ATO will be required to serve penalty notices on directors in all cases before commencing action.
• Directors will also have available to them a new defence where they may face penalties for superannuation debts where, broadly, they had a reasonable basis for thinking that the worker was a contractor rather than an employee.

The amendments are contained in an exposure draft. Directors concerned by these proposed changes should ask their tax agents to keep an eye out for when these changes might become law.

All developers of residential premises should take note that the GST provisions have been amended to ensure that sales of residential premises that have been constructed under certain arrangements known as “development lease arrangements” will be subject to GST (ie they will be treated as sales of new residential premises).

Even if there has previously been a “wholesale supply” of the newly built premises to the developer (ie the freehold or long-term leasehold interest in the land transferred to the developer upon completion of the development on the land), this will still be the case. This is something that developers who build residential properties under these types of arrangements should be aware of.

There are also some changes under the GST law confirming that subdividing or strata-titling newly built residential property won’t have the effect of stopping the new building from being new residential premises.

You should be aware that these changes will apply from 27 January 2011. If you are a builder who has constructed new residential premises since 27 January 2011, you should see your tax agent to see if these amendments affect the GST treatment you have applied to your project. You might need to consider amending your previously lodged Activity Statements if these amendments impact your business.

If you are in the Building and Construction industry and you have an Australian Business Number (ABN), you may need to report certain payments you make to contractors for certain building and construction services.

You need to report certain details in relation to the contractor to whom you make payments, including their ABN, name, address and amount you paid them (including GST). Generally, these amounts need to be reported to the ATO by 21 July, which is very soon after the financial year end.

As these rules apply from 1 July 2012, it might be a good time now to look at the kinds of records you keep in relation to payments you make to contractors and see if you need to change anything to help you comply with these new rules. Your tax agent can assist you with the types of records you might need to start keeping to help you meet this obligation, or it might turn out that you don’t need to change any of your record-keeping details and you will be able to meet this obligation.

Due to the current budgetary restraints faced by the government, the implementation of a number of previously announced tax law measures will be deferred until a later date. In addition, a number of additional measures have also been announced. Further details are as follows:

• The government will restrict the dependent spouse tax offset to those with spouses born before 1 July 1952, effective from 1 July 2012. This reform will not affect people whose spouse is an invalid or a carer, or who receive the zone, overseas forces or overseas civilian tax offsets.
• The dependent spouse tax offset is a measure to reduce the amount of tax you’re expected to pay. To claim the offset, the dependent spouse cannot have earned more than $9,426 for the year, must be an Australian resident for tax purposes, and must have been otherwise dependent on the breadwinner. The main earner’s income has to be less than $150,000.

The government will defer the following previously announced tax reforms by one year:

• The start date of the standard deduction for work-related expenses will be deferred until 1 July 2013. Once available, the standard deduction will start at $500 and then increase to $1,000 in the subsequent year. We will provide further detail on how the standard deduction will operate closer to its time of introduction.
• The start date of the 50% tax discount for the first $500 of interest income will be deferred until 1 July 2013. This amount will increase to $1,000 in the subsequent year. We will provide further detail on how the discount will operate closer to its time of introduction.
• The start date of the new tax system for managed investment trusts will be deferred until 1 July 2013.

The start date of the phase down in interest withholding tax for financial institutions will be deferred until 2014-15.

The government recently announced that, due to some perceived rorting of the existing tax treatment of the living-away-from-home allowance (LAFHA), changes will be made to:

• Remove the taxation of LAFHA from the FBT sphere into the income tax sphere. This means that the employee (rather than the employer) is liable to be taxed on any LAFHA received that is not exempt,
• Limit access to the tax exemption for temporary residents to those who maintain a residence for their own use in Australia, from which they are living away from for work purposes.
• Require individuals to substantiate their actual expenditure on food and accommodation beyond a statutory amount.

These changes are due to apply from 1 July 2012, with consultation currently ongoing in relation to a range of implementation issues, including whether transitionalmeasures are appropriate.

According to the Treasurer’s media release, no permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.

Regardless, these changes will require re-examination of any LAFHA you pay to your employees, both in relation to the increased compliance burden that will result and also to determine the substantive issue ofwhether your employees will continue to benefit from the tax exemption.

If the tax outcome under the proposed laws differs from the outcome under the current laws, and the allowances paid to the affected employee are governed or affected by an existing arrangement (such as an employment agreement or a rental agreement), you will need to consider how the changes will affect those contracts and whether renegotiation is necessary.

After months of uncertainty for taxpayers and the ATO, the government announced its plan to tackle the issue of the tax treatment of rights to future income in the context of consolidation late last year.

This issue relates to the manner in which rights to future income (such as the right to receive payments under a contract) were treated on consolidation following legislative amendments in 2010 to equate such tax treatment with the treatment allowable outside the tax consolidation context.

Broadly, the amendments allowed the cost base in these rights to future income to be deducted over a set period. Notably, these amendments applied retrospectively to the start of the consolidation regime (ie 1 July 2002), as the amendments were considered at the time to be a mere clarification to restore a tax treatment that was always intended to result.

Uncertainty arose after the 2010 amendments in relation to the type of assets that could constitute a “right to future income” for these purposes. The government was of the view that some taxpayers were interpreting the provisions too broadly so as to allow amore generous tax treatment than was allowable outside the consolidation regime.

The government directed the Board of Taxation to investigate and report on the issue and has now announced that the Board’s recommendations (set out below) will be implemented retrospectively (ie from 1 July 2002).

The Board made the following recommendations for changes to the future operation of the consolidation rules:

• The consolidation tax cost setting rules should apply only to assets already recognised for taxation purposes.
• The residual tax cost setting rule should be modified so that, for the purpose of applying the rule to an asset, the consolidated group is taken to acquire the asset as part of a business acquisition.
• The rights to future income rules should be limited to rights to unbilled income (or work in progress amounts) so that they align with deduction provisions in the general tax law.
• The tax cost setting rules should treat majority-owned revenue assets as retained cost base assets, to prevent the double claiming of deductions by a single economic group in relation to the same revenue asset.

While the changes are retrospective, the specific impact will depend on the time when the relevant acquisition took place.

Corporate acquisitions that took place before 12 May 2010 will be affected by the changes, subject to the application of normal amendment periods. These changes are necessary to ensure that deductions are claimed only when it was intended.

Changes for the period between 12 May 2010 and 30 March 2011 will largely protect taxpayers who made business decisions on the basis of the current law before the Board’s review was announced.

For acquisitions after 30 March 2011, changes will be made to limit the circumstances in which deductions may be claimed and to ensure that a business acquisition approach is applied in specific circumstances.

Private rulings sought and received by taxpayers from the ATO, including written advice under advance compliance agreements, will be honoured.

As noted in earlier editions of Taxwise, the government is currently undertaking a broad reform project in relation to the taxation of trusts.

Following the case of Bamford (in which the High Court confirmed that “trust income” for the purposes of Div 6 is determined by the trust deed), a number of previously established and accepted practices in relation to the taxation of trusts were potentially no longer legally viable.

These practices included:

• Streaming particular types of income to specific beneficiaries.
• Allowing primary production trusts to average income.
• Allowing trustees and beneficiaries to enter into agreements to allocate the tax liability with respect to the capital gains of the trust.

The streaming amendments introduced just before 30 June 2011 were an interim measure to allow the streaming of franked dividends and capital gains.

As previously announced by the government, a broader review of the taxation of trusts is now underway in order to tackle the other problems set out above and to bring a degree of functional simplicity to the trust tax laws.

Consultation in relation to these models is ongoing, and legislation to implement the chosen option is due to come into effect on 1 July 2013.

The tax treatment of losses is currently being examined.

It is not expected that the reforms will affect losses incurred to date. Instead, the new laws will likely apply in relation to losses incurred after the date of introduction of the measure/s.

An announcement in relation to possible reforms is expected in the middle months of this year, or as part of the 2012-13 Budget papers.

Late last year, the High Court of Australia ruled that the Commissioner is not permitted to withhold GST refunds for any period of time in order to investigate the legitimacy of the refund it self.

This is set to change as a result of the GST self-assessment laws due to come into effect from 1 July 2012. The precise detail of this law has not yet been settled but it is likely that the Commissioner will, under the new laws, be able to withhold refunds for the purposes of investigation, with the taxpayer holding only limited rights of review in relation to the Commissioner’s decision to with hold.

In the meantime, the ATO is attempting to clear any back-log of outstanding refunds and is putting in place rapid-response teams to act in situations in which fraudulent claims are suspected.

The GST financial supply laws have always been difficult to apply.

In addition, the financial acquisitions threshold has historically been so low so as to deny input tax credits in respect of acquisitions that relate to financial supplies even for businesses for whom financial supplies constitute only a small percentage of their total business.

In recognition of the administrative burden imposed by these rules, the Government will, with effect from 1 July 2012 amend the GST financial supply laws to reduce compliance and administrative costs.

Specifically the law will be amended to:

Increase the financial acquisitions threshold input tax credit test from $50,000 to $150,000.

This will effectively triple the value of acquisitions (related to the making of financial supplies) that you can make before your input tax credits in respect of the GST on those acquisitions are considered not to be for a creditable purpose.

The measure is intended to simplify the GST treatment of financial supplies for a range of small businesses that do not make significant supplies of this nature.

Allow small businesses that account on a cash basis to access full input tax credits upfront when they enter into hire purchase arrangements.

At the moment these input tax credits are required to be apportioned over the life of the agreement.

Exclude bank deposit accounts from the current special rules for borrowings.

If you are unsure of how these changes will affect your GST compliance systems, you should consult with your tax advisor before the changes come into effect so that you can adequately plan for the changes and update your systems as necessary.

In September 2011, the High Court handed down its judgment in the appeal from Roy Morgan Research Pty Ltd v FCT [2010] FCAFC 52.

While this case was famously reported in the press as affirming the constitutional validity of the Superannuation Guarantee Charge (SGC), it has also raised a separate issue that is much more immediate for businesses – many businesses still remain confused as to the circumstances in which the business is liable to pay SGC (especially in respect of contracts for labour).

As the liability to pay SGC lies with the employer, even where the employer and individual are mutually of the view that the relationship is a contractual agreement as a result of which the individual (and not the employer) is liable to make super contributions, the liability of the employer to pay SGC is not extinguished.

This means that employers may be required to make payments of SGC outside the contractual arrangement with the individual where the nature of the relationship differs (for legal purposes) from that considered to be the case by both parties.

Should such a situation arise, the employer will be liable to pay not just the SGC, but also interest and administration charges. In addition, SGC is not deductible and there is no legislative “cut-off” date for the liability to SGC.

While the ATO has noted in a practice statement that they will typically not seek to impose liability back further than five years, this practice statement does not represent a guarantee of any sort to employers caught in this situation.

Adding further fuel to this fire, legislative amendments in a Bill currently before Parliament seek to extend the Director Penalty Regime to unpaid Superannuation Guarantee Charge, so that directors will be personally liable for this payment.

As such, the potential pitfalls of an incorrect assumption in relation to your liability to make super contributions may be significant.

This month the ATO released its final tax determination on the capital gains tax, employee share scheme and share buy-back consequences of dealing in shares in companies that are incorporated professional practices.

These determinations will affect any business that is or is going to be carried on in a company structure and provides professional services (for example medical practices, law firms or accounting firms).

By way of background, many practices of this nature were previously prevented from operating in an incorporated structure. As a result, many such practices were instead run through a partnership structure.

In order to prevent the crystallisation of capital gains and losses on the introduction or exit of partners in large practices (which would have caused significant compliance and cash flow difficulties), the Commissioner issued IT 2540 in 1989.

Broadly, this IT applied to certain partnerships that permitted the introduction of partners for nil (or nominal) consideration and permitted no capital proceeds to be paid to a retiring partner. In the IT, the ATO sets out the manner in which the Office will seek to tax such transactions.

This treatment is as follows: the ATO will treat the partnership as having no goodwill (for capital gains tax purposes). This means that when partners join or leave the partnership, no CGT gain or loss will typically be crystallised so long as the partnership holds no other assets and the partners are acting at arm’s length. TD 2011/26 is intended to mirror this outcome for:

• Such partnerships that have since incorporated (as many are now permitted to do); and
• Professional practices that have been set up in an incorporated structure.

Broadly, according to the determination, if:

• Each shareholder is an individual and an active participant in the professional practice, and holds the shares legally and beneficially;
• The shareholders are dealing with each other at arm’s length in relation to dealings in shares in the company; and
• All such dealings are undertaken for either nil consideration or nominal consideration;

The ATO will accept that the company is a “no goodwill” practice so that the market value of the shares (for capital gains tax purposes) is equal only to the relevant percentage of the market value of any other assets in the company.

This treatment will also apply for the purposes of the employee share scheme provisions and the share buy-back provisions (when these draft TDs are finalised).

If your business provides professional services, and has either incorporated or you are thinking about incorporating the business, you should consult your tax adviser in relation to the applicable tax treatment of dealing in shares in this practice.

During the 2011-12 Budget, the government announced that a new reporting regime would be introduced requiring certain businesses in the building and construction industry to report annually to the ATO with details of payments made to contractors.

This new reporting regime will start on 1 July 2012.

The new regime is intended to “level the playing field” between the use of employees and contractors in the industry and ensure that employers correctly apply the distinction and therefore appropriate tax treatment to individuals that fall into either of these categories.

Under this regime, businesses will be required to report to the ATO any amounts paid to contractors along with each contractor’s ABN.

At this stage it is envisaged that payments for a supply made under a contract that is in whole or in part for the supply of building and construction services will need to be reported under this regime.

Only businesses will have these reporting obligations i.e. no individual that hires a contractor will be required to report payments under this regime. It is hoped that these additional reporting requirements will result in information which the ATO will use to target its compliance and education efforts.

The ATO has launched a number of new tools to assist taxpayers in the property sector, including a GST Property Tool and a Margin Scheme Eligibility product.

These tools are intended to assist taxpayers in fulfilling their compliance obligations, educate taxpayers that are uncertain of their obligations and provide a “self-help” mechanism that will allow taxpayers to assess the availability of certain options.

These tools are a great place to start if you want to learn a little more about your obligations. The tools may also assist you in getting together the right information for or asking the right questions of your tax agent in relation to your compliance obligations.

However, you should be careful to use the tools only as a guide and not as a given as the answers produced by the tools are not guaranteed in any way by the ATO. If you are not sure about any of the answers or detail provided within these tools, you should consult your tax adviser.

The government announced during Budget 2011-12 that the availability of deductions in respect of income that is Youth Allowance or other government benefits will be legislated away for the 2012 income year onwards. However, eligible taxpayers will still be entitled to claim deductions for the current and past income years.

In recognition of the fact that many taxpayers will not have retained their receipts in relation to such deductions for past income years, the ATO announced earlier this year that students in receipt of Youth Allowance would be entitled to automatic $550 deductions for the 2007, 2008, 2009 and 2010 income years. Students who have an entitlement to a deduction of a greater amount and are able to substantiate the higher entitlements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In late May 2011, the ATO announced that this treatment would be extended to recipients of Austudy and Abstudy. As with Youth Allowance recipients, taxpayers who have an entitlement to a deduction of a greater amount and are able to substantiate the higher requirements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In addition, the ATO has acknowledged that recipients of Jobstart and Newstart allowance may also be entitled to claim certain deductions. However such taxpayers will not be entitled to the automatic $550 deduction. Ordinary substantiation requirements will typically apply.

The ATO recently issued a taxpayer alert in relation to the claiming of holiday travel as work related or self-education expenses. Broadly, the ATO is looking at arrangements where taxpayers have undertaken domestic or overseas travel to a holiday destination and, have also undertaken educational or work related activities whilst on the trip.

In such circumstances, the ATO has noted that the cost of the travel will typically only be deductible to the extent that the expenses relate to the education or work related activity. Where an expense has a dual purpose, the cost needs to be apportioned on a reasonable basis as between the deductible and non-deductible components. See your tax adviser to ascertain how much of the cost is deductible for tax purposes.

The government and the ATO have implemented measures to help taxpayers in flood-affected areas to get back on their feet.

The ATO is able to assist such taxpayers in a number of ways, including by:

1. Fast-tracking refunds;
2. Giving people extra time to pay debts – without interest charges;
3. Giving more time to meet BAS and other lodgment obligations – without penalties;
4. Helping to reconstruct tax records where documents have been destroyed, and make reasonable estimates where necessary;
5. Offering visits from field officers to help reconcile lost records;
6. Helping people to claim tax hardship concessions; and
7. The ATO has also granted an automatic one-month extension for the lodgment of monthly activity statements and related payments (from the original due date of 21 January 2011 to 21 February 2011) for businesses with addresses within one of the identified flood affected postcodes.

The ATO is encouraging businesses with superannuation guarantee obligations which are not able to make their contributions for the quarter to lodge a “Superannuation Guarantee Charge Statement – Quarterly (NAT 9599)”form as soon as possible because, until this statement is lodged, nominal interest (currently at the rate of 10%) will accrue on shortfall contributions.

As this interest is paid to the employee (to compensate for lost earnings), the ATO has no discretion to waive it.

Affected people can contact the ATO directly on 1800 806 218.

The government has also announced that all “bucket” donations of $10 or less may be deducted by the donor without substantiation.

Affected taxpayers should also explore the many forms of government assistance that may be available at www.disasterassist.gov.au.

While this levy has been announced by the government, it needs to pass both Houses of Parliament before it can be imposed.

Generally, GST is levied on all goods and services consumed in Australia. This means that, while exports are generally GST-free, all goods imported into Australia are subject to GST at the rate of 10%.

As a result, businesses that import goods into Australia in the course of that business are required to remit 1/10th of the taxable value of the goods to the ATO on importation.

However where the value of such imports is AUD$1,000 or less, no GST is required to be remitted.

The current debate about the GST threshold has received a great deal of publicity of late, and is certainly worthy of consideration if you import goods as part of your business.

The broader issue in this debate is online sales and the shifting landscape of the retail sector.

The government has announced a Productivity Commission review into this sector, and is also hosting an online retail forum in early 2011 to “encourage and support Australian retailers to explore online options”. People interested in participating in this online forum should register their interest at onlineretail@dbcde.gov.au.

You should also explore the Small Business Online Program if your business could benefit from guidance in this area.

The Federal Court recently handed down its decision in the case of Colonial First State Investments in relation to the interests of unit holders, and the ability of the trust to stream capital gains to different unit holders.

This case may affect taxpayers who use a trust where any beneficiaries under the trust have a “fixed” entitlement pursuant to which the trust has been streaming tax attributes (such as capital gains and franking credits).

This finding may have significant consequences for taxpayers who use trusts and have determined their tax obligations on the basis of beneficiaries fixed entitlements under the trust.

The ATO has recently issued a fact sheet setting out its revised approach to debt collection titled “Firmer action approach to debt collection”.

This fact sheet sets out when the ATO will take “firmer action” to recover tax debts.

The fact sheet is part of a broader ATO push to wind back some of the concessions offered to taxpayers during the global financial crisis.

If you have trouble settling your tax liabilities, you should contact your tax adviser as soon as possible to discuss the issue as you may be able to avoid firmer action and negotiate a payment arrangement that you are able to comply with.

As set out in the fact sheet, firmer action involves:

• Issuing a notice to a third party (for example, a bank) who owes you money or holds money on your behalf requiring them to pay all or part of that money to the ATO
• Initiating bankruptcy or wind-up proceedings, beginning with the issuing of a summons/statutory demand
• Pursuing company directors personally for the PAYG withholding component of the debt (director penalties)
• Issuing a writ/warrant of execution authorising the seizure and sale of your property to pay a judgment debt plus costs
• In rare circumstances, requiring you to pay a bond or provide security in respect of any tax-related liability that the ATO think may be at risk of not being paid.

The ATO will generally take firmer action when:

• The ATO has unsuccessfully tried to contact you multiple times
• You repeatedly default on your payment arrangements
• Your debt is escalating and the ATO considers that there is no evidence that you will be able to meet your ongoing tax obligations
• You have been subject to an audit where deliberate avoidance was detected and payment avoidance is continuing
• There is evidence that liquidation is being used to avoid financial obligations, without risking assets and with the full intention of resuming business operations through a new entity (ie “phoenix” activity).

If you have been subject to firmer action of this nature, you should contact your tax adviser to resolve the situation.

If you are able, it is advisable to pay the debt in full as soon as possible.

Otherwise, the ATO will consider deferring firmer action if you make an agreed lump sum payment towards your outstanding tax debt and enter into a direct debit payment arrangement for the balance of the debt.

If you have a debt of greater than $100,000, you will need to demonstrate that your business is viable before the ATO will defer the firmer action.

The new employee share scheme rules have now come into effect, and will affect the taxation of all employee share scheme interests provided on or after 1 July 2009.

These rules broadly require any discount on issue to be assessed upfront unless there is a real risk that the employee may forfeit the interest.

Where there is a real risk of forfeiture, the market value of the interest (less any consideration paid) is generally included in the employee’s assessable income at the time that this risk falls away.

Under the new rules, employers that provide employee share scheme interests are required to provide information to the Commissioner and to the relevant employee about the interests provided, and in some cases withhold and remit withholding tax from amounts paid to an employee that has not quoted his/her TFN to the employer.

This information, in the form of an ESS Statement, is required to be provided to employees by July 14 and the Commissioner by August 14 (for taxpayers with a June 30 year end).

Information required to be provided includes:

• Details about the provider of the interests (such as ABN and address);
• Details about the employee (such as name and TFN); and
• Details about the employee share scheme interests, such as amount and market value on issue/acquisition (where the interests are taxed up-front) or market value at the time that the taxing point occurs (if taxing point was deferred but occurred during the income year.)

The ESS Statement containing this information may be amended once lodged with the ATO and can be found at www.ato.gov.au.

Employers should also consider whether they have any employees who have acquired employee share scheme interests but not quoted their tax file number, as the employer may be required to withhold and remit withholding tax from amounts paid to such employees.

The ATO has finalised its draft ruling on the impact of unpaid present entitlements in favour of private companies in the form of TR 2010/3 and has released a draft practice statement on the application of its position, in the form of PSLA 3362.

This ruling constitutes a significant shift in the way a lot of taxpayers had been treating unpaid present entitlements prior to the release of the ATO’s draft ruling. As sections of the ruling apply both before and after the date of its release, taxpayers should carefully consider the application of the ruling in relation to all income years in respect of which income tax returns remain open for amendment.

This ruling relates to when an unpaid present entitlement in favour of a private company will be treated as a “loan” for the purposes of Division 7A, and therefore treated as a deemed dividend to the shareholder of the company, where the trust is a related entity of the shareholder. The ruling broadly applies in the following situation:

• A private company has a present entitlement to an amount from a related trust (i.e. it can call for immediate payment of the amount by the trust);
• The amount remains in the trust rather then being distributed to the private company (i.e. there is an unpaid present entitlement); and
• The amount is used by the trust for its own purposes or intermingled with other trust funds (as opposed to being held by the trust on a sub-trust for the company).

The ruling concludes that a Division 7A loan will arise where:

• A private company beneficiary lends (by agreement, authorisation or ratification) money in satisfaction of an unpaid present entitlement;
• The trustee creates a loan for the benefit of the private company beneficiary pursuant to the trust deed instead of creating an unpaid present entitlement;
• There is a subsisting unpaid present entitlement and the private company has in substance effected a loan or provided financial accommodation in respect of that unpaid present entitlement; or
• An unpaid present entitlement has been allowed to remain outstanding for use by the trust generally (as opposed to being used or invested or lent for the absolute benefit of the corporate beneficiary).

The draft practice statement sets out practical guidance to assist in the application of the Commissioner’s position, including guidance in relation to:

• When a loan agreement may be considered “express” or “implied”
• When a “loan” may be taken to have been made
• The resulting tax consequences if a loan is taken to have been made
• The review period that will apply in relation to such loans (generally the ATO will not review the tax consequences of such loans outside the standard amendment period applicable)
• How to determine whether funds representing the unpaid present entitlement are being used for the company’s sole benefit (as opposed to trust purposes) and the evidence that may be used to substantiate the position taken
• How to determine if there is a sub-trust in place
• Application of the Commissioner’s discretion under Division 7A to deemed loans as per the ruling

The Commissioner has released his Decision Impact Statement in respect of the High Court’s decision in Bamford v FCT [2010] HCA 10 and a practice statement setting out guidance on the application of the current law (PSLA 2010/1).

The DIS acknowledges the High Court’s decision in this case i.e. that

• “income of the trust estate” is to be determined with reference to the general law of trusts rather than taxation law;
• The general law of trusts defines income with reference to a governing set of principles;
• However, these principles are merely presumptions that may be displaced by express provision in the trust instrument.
• As such, where the trust deed deems an amount to be “income” of the trust, the amount will constitute “income of the trust estate” for the purposes of applying section 97.

The DIS also reaffirms the view that the proportionate approach (as opposed to the quantum approach) is to be applied when calculating the percentage of the net income of the trust on which a beneficiary is taxable.

The Commissioner has also released PSLA 2010/1 which affirms that the Commissioner will apply the law as set out in the High Court’ s decision in Bamford on a go-forward basis.

Under PSLA 2010/1, taxpayers who relied on either:

• The Commissioner’s view; or
• Any other view that was reasonably open having regard to other relevant authorities

for the 2010 income year or earlier, will have taken a reasonably arguable position. As a result, such taxpayers will not be liable for administrative penalties on any resulting shortfall amount.

The ATO has released its Decision Impact Statement in relation to Luxottica Retail Australia Pty Ltd v Commissioner of Taxation [2010] AATA 22. This case involves consideration of the GST treatment of frames and lenses in spectacles.

The DIS sets out a particularly narrow view of the circumstances in which a taxpayer will be entitled to a refund of any overpaid GST. Specifically, the Commissioner has noted that a taxpayer may only be entitled to a refund of overpaid GST where that GST will subsequently be refunded to the actual customer.

As such, taxpayers that have inadvertently overpaid GST will need to consider whether a refund will be available for the amount.

For businesses that are experiencing continuing financial distress, the ATO is offering services including flexible payment arrangements, interest-free deferrals of activity statement liabilities, cash flow relief through reduced uplift factor for PAYG and GST instalments and PAYG instalment variations.

Businesses in hardship should contact the ATO as early as possible to explore available options, otherwise the ATO may seek to take firmer action with businesses that default on payment arrangements, or do not have the capacity to pay.

The scope for registering as a tax agent under the transitional provisions (under the new regime) closed on 31 August 2010.

If you are required to be registered as a tax agent, you will now need to apply based on the standard rules.

From 1 July 2010: The Low Income Tax Offset (LITO) will increase to $1500 per annum (compared with $1350 in the previous year) giving a tax free income threshold of $16 000 for taxpayers with incomes up to $30 000 per annum in 2010–11 (compared with $15 000 in the previous year).

The LITO is no longer available once the taxpayer’sincome reaches $67 500 in 2010–11.

With effect from 1 July 2009, the Government proposes to increase the low income Medicare levy threshold to:

• $18 488 for a single person (up from $17 794 for 2008–09);
• $31 196 for a family (up from $30 025 for 2008–09); and
• $27 697 (up from $25 299 for 2008–09) for pensioners below Age Pension Age (65 but increasing to 67 over the next 13 years).

In addition to the key changes outlined above, the following changes were also announced as part of the Federal Budget.

From 1 July 2012 the Government will provide individual taxpayers with an optional standard deduction of $500 in lieu of claiming work-related expenses and the cost of managing their tax affairs. The standard deduction will be increased to $1,000 from 1 July 2013.

No taxpayers will be disadvantaged. Taxpayers with expenses above the standard deduction will be able to continue to claim those expenses when lodging their tax return under the existing rules.

From 1 July 2011, the Government will provide individuals with a tax discount equal to 50% on up to $1,000 of interest earned, including on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products.

This means that for a person earning an average pre-tax interest rate of 6%, the discount would apply up to a savings balance of just over $16,500.

This change will result in some individuals and families becoming eligible for transfer payments oreligible for a larger transfer payment, such as Family Tax Benefit, Baby Bonus, Child Care Benefit, Education Tax Refund, Commonwealth Seniors Health Card (CSHC) and the Pensioner Supplement (which is linked to eligibility for the CSHC).

The Government will make a number of minor amendments to improve the operation of the superannuation legislation, with intended effect from the 2010-11 income year.

The amendments will include:

• Permanently allowing a claim for a deduction for eligible contributions to be made to successor superannuation funds;
• Increasing the time-limit for deductible employer contributions made for former employees;
• Clarifying the due date of the shortfall interest charge for the purposes of excess contributions tax;
• Allowing the Commissioner of Taxation to exercise discretion for the purposes of excess contributions tax before an assessment is issued; and
• Providing new arrangements for public sector defined benefit schemes which fund benefits through “last minute contributions”.

The Government will freeze for 2010-11 and 2011-12 the indexation applied on the income threshold above which the maximum superannuation co-contribution begins to phase down.

Under the superannuation co-contribution scheme, the Government provides a matching contribution for contributions made into superannuation out of after-tax income. The matching contribution is up to $1,000 for people with incomes of up to $31,920 in 2009-10(with the amount available phasing down for incomesup to $61,920). This measure will freeze these thresholds at $31,920 and $61,920 for two years.

The Government will permanently retain the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions at $1,000.

The following are the highlights of the Government’s response.

• A Resource Super Profits Tax (RSPT) will be introduced on 1 July 2012 at a rate of 40% on profits made from the exploitation of Australia’s non-renewable resources;
• The States and Territories will be provided with new, ongoing infrastructure funding, with an initial total amount of $700m in 2012/13;
• A refundable resource exploration rebate will be provided to companies, set at the prevailing company tax rate, for exploration expenditure carried out in Australia from 2011/12;
• The company tax rate will be reduced to 29% from 2013/14, and to 28% from 2014/15;
• The company tax rate for “eligible small business companies” will be reduced to 28% from 2012/13;
• The immediate write-off for assets of small businesses will be extended to assets valued at less than $5,000 from 1 July 2012;
• The superannuation guarantee charge will be increased by annual increments until it reaches the plateau level of 12% by 2019/20;
• The entitlement to the SGC will be broadened by lifting the maximum age threshold from 70 to 75 years of age;
• The concessional contributions cap will be raised to $50,000 per year for workers who are 50 and over and who have superannuation balances of under $500,000; and
• A new Government superannuation contribution will be created which will pay up to $500 for workers with adjusted taxable incomes of up to $37,000.

The measures that the Government has announced that it will implement that may affect individuals are discussed in more detail below.

The Government has decided to implement four changes to superannuation.

The first two changes apply to superannuation concessional contributions. The Government will introduce a new concessional contribution thresholdfor low superannuation balance workers aged 50 and over and it will also create a new Government contribution for workers who earn less than $37,000 a year.

The second group of measures impact on the superannuation guarantee charge scheme (SGC). The SGC will be increased up to a target level of 12% and it will now apply to workers below 75 years of age.

These changes are outlined in further detail below.

In December 2009, the ATO released a draft ruling (TR 2009/D8) outlining how Division 7A should apply to private companies with an unpaid present entitlement from a trust.

Given the extensive consultations between the professional bodies and the ATO on this issue last year, the professional bodies were surprised by the content of the draft ruling released by the ATO in December. The professional bodies are currently preparing submissions in relation to the draft ruling.

The draft ruling outlines when the ATO considers that an unpaid present entitlement should be treated as a loan. A consequence of treating an unpaid present entitlement as a loan under Division 7A is that, unless the loan satisfies certain requirements, the loan will be treated as a deemed dividend for tax purposes.

Division 7A is designed to ensure that private companies are not able to distribute profits to shareholders by way of non-arm’s length payments or loans rather than as taxable dividends.

Where Division 7A applies, such payments and loans are treated as dividends in the hands of the shareholders.

The draft ruling is concerned about when a private company will be taken to have made a “loan” to a shareholder for the purposes of Division 7A.

More specifically, the draft ruling is concerned about the situation where:

• A private company has a present entitlement to an amount from a related trust (ie it can call for immediate payment of the amount by the trust);
• The amount remains in the trust rather then being distributed to the private company (ie there is an unpaid present entitlement); and
• The amount is used by the trust for its own purposes or intermingled with other trust funds (as opposed to being held by the trust on a sub-trust for the company).

The draft ruling provides that there will be a Division 7A loan where:

• A private company beneficiary lends (by agreement, authorisation or ratification) money in satisfaction of an unpaid present entitlement;
• The trustee creates a loan for the benefit of the private company beneficiary pursuant to the trust deed instead of creating an unpaid present entitlement;
• There is a subsisting unpaid present entitlement and the private company has in substance effected a loan or provided financial accommodation in respect of that unpaid present entitlement; or
• An unpaid present entitlement has been allowed to remain outstanding for use by the trust generally (as opposed to being used or invested or lent for the absolute benefit of the corporate beneficiary).

Based on some of the examples in the draft ruling, it is important to note that an unpaid present entitlement can be converted into a loan as a result of acquiescence.

In this regard, the draft ruling states that there may be a loan (by way of financial accommodation) where a private company authorises (including by acquiescence with knowledge) the continued use by the trust of funds representing the company’s unpaid present entitlement by not calling for:

• The payment of that unpaid present entitlement; or
• The investment of the funds representing the unpaid present entitlement for the company’s absolute benefit (as opposed to the funds being intermingled with the trust’s other funds).

In the 2009/10 Federal Budget, the Government announced its intention to tighten the rules relating to the taxation of benefits provided by a private company to its shareholders or their associates through the use of “lifestyle” assets (ie cars, boats, holiday houses, hobby farms).

Exposure draft legislation has now been introduced to implement the proposed changes to Division 7A. The professional bodies are currently preparing submissions in relation to the exposure draft legislation.

The draft legislation removes the scope for private companies to allow company assets –such as real estate, cars and boats – to be used for free, or at less than their arm’s length value without paying tax.

Under the current Division 7A, certain payments and loans by private companies to their shareholders are treated as deemed dividends.

Under the new legislation the definition of “payment” has been expanded so that it includes a lease, licence or right to use company assets.

This means that all of the following scenarios could fall foul of Division 7A (subject to any exemptions being applicable):

• Farmhouses used by farmers where the farmhouse is owned by the farming company and the company (rather than the farmer) is carrying on the farming business;
• Any use of a company car, holiday house, boat or other asset by shareholders of the company; and
• The right to use part of a shop or medical practice to live in where the relevant dwelling is owned by a company and the living space is more than 10% of the dwelling.

The new Tax Agent Services Regime will commence on 1 March 2010.

This regime will affect all tax and BAS agents providing tax agent or BAS services. This includes, but is not limited to persons providing tax advice, ascertaining tax liabilities, entitlements or obligations and representing clients in dealings with the Commissioner. This will affect accountants, bookkeepers and some lawyers.

The new regime is intended to ensure that tax agent services and BAS services provided to taxpayers are of an appropriate standard.

Some of the key legislative elements of the new regulatory regime are summarised below.

The Tax Agent Services Act 2009 provides for:

• The establishment of the new national Tax Practitioners Board;
• A legislated Code of Professional Conduct to govern the provision of tax agent and BAS services;
• A wider range of disciplinary sanctions which may be imposed by the Board;
• Registration and regulation of tax agents and BAS agents; and
• A “safe harbour” for taxpayers from penalties who use tax agents or BAS agents in certain circumstances.

The Tax Agent Services Regulations 2009 provide:

• Requirements for registration as a tax agent and a BAS agent;
• Definitions and requirements for recognition as a recognised tax agent association and recognised BAS agent association; and
• Fees for registration.

It is essential that all tax practitioners and BAS agents understand the new regime and the impact it will have on them.

For tax agents, the answer to this question will depend on whether they are providing “tax agent services”.

A “tax agent service” includes, but is not limited to:

• Preparing or lodging a return, notice, statement, application or other document about a taxpayer’s liabilities, obligations or entitlements under a taxation law;
• Preparing or lodging on behalf of a taxpayer an objection against an assessment, determination, notice or decision under a taxation law;
• Applying to the Commissioner for a review of, or instituting an appeal against, a decision on an objection;
• Giving a taxpayer advice about a taxation law that the taxpayer can reasonably be expected to rely upon to satisfy their taxation obligations; and
• Dealing with the Commissioner on behalf of a taxpayer.

To be eligible to register, an entity must satisfy:

• A fit and proper person test; and
• Prescribed qualification and education requirements.

The following case studies illustrate the registration requirements.

Two years ago, Bill was convicted of a drink driving charge. He received a suspended prison sentence.

This is a matter that would need to be disclosed to the Board for their consideration when determining whether Bill is a fit and proper person.

Bill has an accounting degree and has been working as an accountant for the last 12 months.

Unless the transitional rules are applicable, Bill will need to complete an approved course in Australian taxation law and commercial law to be eligible to register.

Bill has an accounting diploma. He has been working as a tax lawyer for the last 2 years.

Unless the transitional rules are applicable, Bill will need to complete an approved course in Australian taxation law and commercial law to be eligible to register.

Bill has a law degree and is admitted as an Australian legal practitioner. He has been working as a tax lawyer for the last 12 months.

Unless the transitional rules are applicable, Bill will need to complete an approved course in basic accountancy and Australian taxation law to be eligible to register.

Bill does not have any tertiary qualifications. However, he has worked as an accountant for the last 8 years.

Unless the transitional rules are applicable, Bill will need to complete an approved course in basic accountancy, Australian taxation law and commercial law to be eligible to register.

In this case, Bill would only be eligible to register if he is a voting member of a recognised professional association (such as the Taxation Institute) and he has at least 8 years of relevant work experience.

With the end of the fringe benefits tax (FBT) year only a matter of weeks away – 31 March 2010 – it’s that time of year to make sure you are on top of your FBT obligations. To get prepared, we suggest you:

• Check whether you have provided any fringe benefits to your employees in respect of their employment that are taxable; and
• Make sure you are ready to lodge your FBT return and pay any FBT liability on time.

Your FBT basics checklist for 2010

• The current FBT year runs from 1 April 2009 to 31 March 2010
• As an employer, you are responsible for calculating your FBT liability, if there is one, and paying any FBT liability.
• If you have an FBT liability, you must lodge your FBT return and pay your FBT liability by 21 May 2010 (or 28 May if you are on the tax agent’s lodgment program).
• FBT is separate from income tax and is levied at the top personal marginal rate of income tax, including the Medicare levy (ie currently 46.5%).
• You can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT you pay.
• Where the total taxable value of reportable fringe benefits for an employee is more than $2,000 for the current FBT year, you will have to disclose this value (grossed-up) on the employee’s payment summary.

From 1 July 2009, the concessional contributions cap has been reduced from $50,000 to $25,000 per person. Further, the transitional concessionalcontributions cap until 30 June 2012 for persons aged 50 or over has been reduced from $100,000 to $50,000.

This is likely to have an adverse impact on the ability of many Australians saving for their retirement.

Under the current taxation regime, concessional contributions are initially subject to 15% tax and non-concessional contributions 0% tax when received by a complying superannuation fund.

If the level of contributions exceeds either the concessional cap, non-concessional cap or both, then the relevant fund member is subject to excess contributions tax as follows:

• The amount of concessional contributions in excess of the concessional contributions cap is subject to penalty tax at the rate of 31.5%. This excess then also counts towards the non-concessional contributions cap.
• The amount of non-concessional contributions in excess of the non-concessional contributions cap is subject to penalty tax at the rate of 46.5%.

The first area of concern is where a member is already close to both the concessional contributions cap and also the non-concessional contributions cap.

This could occur, where the person has more than one position of employment and has salary sacrificed to the $25,000 limit with one position and then is subject to compulsory superannuation guarantee contributions with one or more other positions.

The person may have also contributed close to the non-concessional cap amount (being currently $150,000 p.a. or $450,000 if the person is 65 years or younger and the three year average rule is utilised). This might be a result of contributing funds available from an inheritance or sale of a business or investment.

The additional superannuation guarantee amounts may be subject to a total tax of 93% (ie the initial 15% tax on contributions at the superannuation fund level, plus a personal excess concessional contributions tax of 31.5%, plus a personal excess non-concessional contributions tax of 46.5%).

The second area of concern is simply where the new concessional contributions cap of $25,000 is inadvertently exceeded as a result of a person having employer contributions in excess of this amount.

This could occur if there are two or more unrelated employers meeting their respective superannuation guarantee responsibilities in respect of the person, pre existing salary sacrifice arrangements and/or fixed contribution arrangements to meet the cost of ancillary benefits such as death and permanent disablement insurance.

As a result the member might be subject to penalty tax of 31.5% as a result of matters largely outside their control.

The ATO recently released its compliance program for 2009/10.

In relation to tax compliance for individuals, the ATO will be focusing on a variety of issues, including the following issues:

Information matching – the ATO will be expanding their information matching capabilities. They will be looking to use such information to mitigate risks in relation to incorrect reporting in relation to employee share schemes, health insurance policies, eligibility fortax offsets and the Medicare levy exemption.

Executives and directors – the ATO will be focusing on income splitting arrangements used by directors and executives.

Refund fraud – the ATO will be increasing their usual checks to assist in identifying and eliminating refund fraud.

Foreign income – the ATO will be focusing on the correct reporting of foreign income (including bank interest, dividends, pensions, salary and wages).

Work expense claims – the ATO will be focussing on occupations with a pattern of large or increasing claims and returns that are not typical for particular occupations. Specifically, the ATO will be focusing on:

• Truck drivers;
• Sales and marketing managers;
• Sales representatives; and
• Electricians.

CGT record keeping requirements – the ATO will be focusing on attempts to offset capital losses against other income. There will be a focus on checking property transactions to ensure correct reporting for capital gains.

Self managed superannuation funds (SMSFs) – as discussed in detail below, the ATO will be focussing on loans, in house assets, borrowing and non-arm’s length transactions in relation to SMSFs.

Retail investment products – the ATO will be focusing on retail investment products (including managed investment schemes) to ensure that all claims are properly available under the law.

Superannuation – the ATO will be focusing on illegal early release of superannuation.

The ATO will be conducting audits of SMSFs in 2009/10.

Recently, the ATO has released various material regarding SMSFs. Taxpayers should be aware of this material and the possible implications for their SMSF.

The hot topics on the ATO’s radar at the moment include:

• PAYG obligations – where a benefit is paid, SMSFs may have PAYG withholding obligations. SMSFs do not have to withhold from all payments. However, if the SMSF fails to withhold where it is required to do so, penalties may be imposed.
• Related party agreements – SMSFs need to be aware of the “in-house assets” rule which may be breached where SMSFs enter into arrangements (eg investments or loans) with
• Related parties. If the SMSF breaches the in house assets rule, the fund may become non-complying.
• Use of negotiable instruments (eg promissory notes, cheques to pay contributions) – the ATO is targeting the non-commercial use of negotiable instruments in transactions involving SMSFs (eg using a promissory note or cheque without intending to exchange money or assets). The ATO is concerned that SMSFs may be using such instruments to avoid liquidating assets, to change the timing of transactions or obtain tax advantages.
• Unpaid trust distributions – the ATO has issued a ruling in relation to whether an SMSF breaches the superannuation laws where it is entitled to distributions from a related trust but it has not received the payments. The ATO’s ruling examines whether the in-house assets rule, arm’s length rule and / or sole purpose test will be breached by such arrangements.
• Enduring powers of attorney – the ATO has issued a draft ruling in relation to the requirements to remain an SMSF if an enduring power of attorney is entered.

Many people may not be aware that the ATO is proposing to undertake a systems upgrade. This will involve a shut down of all the ATO systems.

Many people might not have considered what impact this may have on them or their businesses.

Some things to think about are:

• Refunds will not generally be able to be obtained during the shut down or for some time afterwards due to system back logs;
• Taxpayers will not be able to ring the ATO to obtain information;
• Although tax agents will still be able to lodge documents (such as returns, BASs, activity statements etc) none of these documents will be able to be processed.

Although the Government’s paid parental leave (PPL) scheme will not apply until 1 January 2011, employees should be aware of the scheme as eligibility may play a part in their future decisions.

The PPL scheme is designed to assist new parents of children born or adopted after 1 January 2011. An eligible person will receive PPL payments at the Federal minimum wage level (which is currently $543.78 per week) for a maximum period of 18 weeks.

To be eligible for the PPL scheme, a person must be in paid work and have:

• Been engaged in work continuously for at least 10 of the 13 months prior to the expected birth or adoption of the child; and
• Have undertaken at least 330 hours of paid work in the 10 month period.

The scheme will cover employees including casual employees, self employed persons and contractors.

The PPL scheme will be income tested. To be eligible the person’s adjusted taxable income in the previous financial year can not exceed $150,000.

As tax time approaches, it is time to think about whether your family trust is in order. A trust can make a family trust election provided it passes the family control test. A family trust election makes a trust a family trust for tax purposes.

Broadly, the family control test will be satisfied if the trust is controlled by the family of the person named in the election.

In this context, family includes (but is not limited to) spouses, parents, grandparents, siblings, children, nephews or nieces. In some circumstances, companies, partnerships and trusts can also be considered to be members of the family.

The benefits of making a family trust election may include:

• Access to franking credits;
• Ability to utilise prior year losses and bad debt deductions;
• Simplification of the continuity of ownership test; and
• Simpler trustee beneficiary reporting rules.

A family trust election is usually lodged with the trust’s income tax return in the year from which the election is to take effect. The election will then apply for all future years. However, in limited circumstances the election can be revoked.

Each year the Commissioner of Taxation releases an approved form which can be used to make the election. The election does not have to be made on the approved form. However, where it is not, it must contain all the information requested on that form.