Taxation

September Newsletter 2017

September Newsletter 2017 1352 900 Lanteri Partners

The small business CGT concessions can be extremely valuable, but sometimes the complexity of the details can be confusing. We clear up some of the more obscure factors.

The rules around LRBAs for SMSF trustees have been fiddled with again, and necessitate (again) a look at the fine print. There is also a new statistical report on SMSFs that trustees should be glad to read.

Also dealt with are the differences between investment returns being on revenue or capital account, and what to do if you need to lodge your next tax return early.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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August Newsletter 2017

August Newsletter 2017 1350 900 Lanteri Partners

Making claims for travel allowances is a handy deduction for many employees, especially as the ATO has seen fit to make an exception to substantiate these claims in many circumstances. However this consideration comes with a warning — get it right, or lose that exception. We run over the particulars.

Did you know that there are deductions that are specific to SMSFs? As usual however, there are conditions. We also look at deductions available for financing rental properties, the interaction between the new super transfer balance cap and child recipients of death benefits, and a tax break available for life policy bonuses held for a certain time.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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July Newsletter 2017

July Newsletter 2017 719 860 Lanteri Partners

The ATO is on the warpath over incorrect deductions that many taxpayers try to claim for holiday rental properties, so we take a look at the issues that have been grinding the taxman’s gears.

And if you’re going to soon make an appointment to complete your tax return, we’ve made a general checklist of things to prepare. By the way, you might also be able to claim the travel costs for travelling to see us — we share the particulars for eligibility.

Mobile, home phone and internet costs may be claimed under some circumstances, so we run over the substantiation that the ATO will accept to successfully make these deductions. We also present an overview of streaming trust capital gains and franked distributions.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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May Newsletter – Budget Update

May Newsletter – Budget Update 701 876 Lanteri Partners

The budget announcements contain a suite of tax and superannuation measures aimed at increasing housing stock and improving housing affordability. While the government has not gone close to clamping down on the political and social hot potato of negative gearing, it has taken some steps to restrict the travel expense and depreciation tax breaks enjoyed by investors.

Last year, many individual taxpayers received small “cake and coffee” tax cuts (so called because they averaged around $6) which were touted as an important first step to addressing bracket creep; but one year later, the government announces that the Medicare Levy will increase by 0.5% to 2.5%, which will surely eat into those tax cuts (for those lucky enough to have received them).

Last year’s budget was one for small businesses. This year, the small gift is a one year extension of the $20,000 instant asset write-off for 2017-18. Unfortunately, the government will tighten access to the small business CGT concessions.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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May Newsletter 2017

May Newsletter 2017 Lanteri Partners

There can be capital gains conundrums when sub-dividing the family property, so we run through the typical scenarios to dissect the likely tax outcomes. And another perennial head-scratcher is the deductibility of the interest payable on borrowed funds.

A GST exemption is available when a “going concern” business is involved, so we look at the conditions that must be met. And while the recent tax cut for some companies is welcome, thought needs to be given to the change in tax rates when dealing with dividend credits.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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April Newsletter 2017

April Newsletter 2017 Lanteri Partners

There’s nothing wrong with sourcing certain business assets through peer-to-peer websites like Gumtree or even a Facebook group. It’s when it comes to substantiating a tax claim that these sorts of transactions can end up being difficult.

The ATO’s rules regarding deductions claimed for work clothing, or for laundering clothes, are fairly straight-forward, but there are a few grey areas that crop up now and then.

We cast an eye over how simplified depreciation works for small business pools, and also look at the new “total superannuation balance” and what it means for your fund.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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March Newsletter 2017

March Newsletter 2017 Lanteri Partners

FBT and the provision of cars to employees continues to cause potholes in the road to smooth tax compliance for businesses. We run over the usual FBT return problem areas. Also, as the “sharing economy” is becoming more prevalent, the ATO has found it necessary to issue some guidance.

A not-uncommon conundrum for many SMSF trustees is what to do when the fund is found to have breached the in-house asset rules. There are also some common misconceptions about these regulations that keep resurfacing.

We also look at tax and dividend income, and run over the options for salary sacrifice arrangements.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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Trusts 101: What are they, and how do they work?

Trusts 101: What are they, and how do they work? Lanteri Partners

One of the big motivations for considering using a trust is to protect assets. Property and other assets can be moved into a trust for protection from creditors, to maintain an estate until a beneficiary becomes old enough to have legal possession, or isolate valuable assets from a trading company that may be more exposed to litigation, for example.

Trusts, if set up in the right way, can help you legally minimise some tax liabilities. But it is a tricky area, and the taxman is always on the lookout to close perceived loopholes or an over-enthusiastic stretching of the scope for reducing tax. Specialised advice will go a long way.

The word used to name these types of arrangements – “trust” – is appropriate. A trust is a structure that separates control and legal ownership from beneficial ownership; so that at least one person and/or company agrees to hold and manage assets or property in a way that will benefit someone else (the beneficiary). A trust therefore is a formal structure for an obligation, where “beneficiaries” place their trust (in the sense of “confidence”) in the controller or holder of assets (called the “trustee”; again appropriate, as the receiver of their trust) to manage those assets for their eventual benefit.

You could almost liken a trust to a private jet. The jet is put under the control of a pilot, who is also the owner (the trustee) to fly the jet while carrying the passengers (beneficiaries) to a destination (when the trust ends, or is “vested”) where the cargo or luggage (assets and property) is unloaded and given to the passengers again. During the flight, the luggage and cargo is maintained in the best condition possible and the passengers may occasionally be offered food and drinks if the ticket contract allows it (the beneficiaries may be paid distributions from the trust). The pilot may also off-load some cargo at stopovers along the way.

Separate control from beneficial ownership

The structure of a trust allows a business or asset to be put into the hands of a third party (trustee) who is given legal control and has a duty to operate that business or manage these assets to benefit someone else (beneficiaries). This is known as a “fiduciary duty”.

There are various types of trusts. You can have a fixed trust, discretionary trust, hybrid trust, unit trust and many more, each with unique characteristics. A deceased estate is also a trust, being property and assets that are held and managed by the executor (the trustee) for those who will inherit them.

Trusts can exist even without explicit intention by the parties to create a trust – it is the existence of the necessary relationship (like the deceased estate example) that forms a trust, not formalities. Having said that, modern trusts are generally governed by written trust deeds that spell out how it is set up and the rules for its maintenance, the rights and obligations of all parties, and also how income from the trust’s assets is “distributed”.

Distributions and tax

A trust calculates its annual taxable income under the usual tax laws and then the trustee distributes and/or retains the income. Income that is distributed to beneficiaries will be treated as though the beneficiaries earned it directly and will be taxable at their own marginal rates. On the flip side, the trustee has to pay tax (on behalf of the trust) on any taxable income that is not distributed. Undistributed income is taxed at the top rate (including Medicare levy) of 47%. There are some cases where the trustee pays tax on behalf of a beneficiary, such as a child or a foreign resident.

When the trustee decides whether and how much to distribute to each beneficiary, the trustee should take into account each beneficiary’s financial, taxation and personal circumstances and distribute income in the way that best serves everyone. Of course, the trustee is restricted by the terms of the trust deed.

“Ownership” conundrums

Another spur for trust use may occur if means or asset tests for government benefits are likely to figure in your financial future. Trusts can help here with the re-allocation of legal ownership without completely letting go of enjoying the benefits of the asset.

The other side of asset protection is a consideration for inheritance. If a prime asset is “owned” by a trust, like for instance a house with pristine beach front, and the trust deed is specific in terms of selling and/or maintaining the beach house, future generations of the family will be able to enjoy the same asset and not have it sold off by some initial inheriting spendthrift relative.

There are many more variations not covered here, and much more regulation and considerations than can be covered in this newsletter. The area of trusts is a complex one, and anyone considering setting up their own trust is well advised to seek expert advice.

CGT exemption for two homes

CGT exemption for two homes Lanteri Partners

It is generally accepted that an exemption to capital gains tax (CGT) applies to the family home, or “main residence”, and the exemption usually applies for only one home at any given time. But there is a rule that allows for a taxpayer to have two main residences and still maintain that CGT-free status for both premises for a temporary period.

Known as the “six month rule”, this states that two properties can be claimed as a main residence at the same time where a taxpayer acquires a dwelling that becomes their new main residence before they dispose of the original. This is a sensible allowance for an overlap of periods in which a taxpayer can claim exemption from CGT for two properties — one newly acquired and one that is to be sold. Selling the old house may take longer than six months, but the CGT exemption only holds for that long. The Tax Office cannot extend this concession.

It is available for the earlier of; six months after taking ownership of the new house, or when you transfer ownership of the old house. However there are two prerequisites to qualify — the old house must have been your main residence for at least a continuous three months in the 12 months before transfer; and if it was not your main residence for any of that time it can’t have been used to produce income.

Small business news

Small business news Lanteri Partners

Here’s an overview of the some of the regulatory changes that could impact your business and some warnings from the Tax Office.

Rethink your business tax return strategy with the ‘debt levy’

The new ‘debt levy’ will directly hit many small businesses, particularly those that are unincorporated – which comprise up to 70% of small businesses – according to tax experts. The new tax kicks in at an annual income threshold of $180,000 but the impact of an increased tax for small businesses represents something of a double whammy for owners as many of them are unincorporated, not subject to the planned reduced company tax rate and still exposed to personal tax rates – and subsequently, the debt levy. Taxpayers Australia’s head of tax, Mark Chapman, advised small businesses to delay paying bills as long as possible and move as many tax deductions as possible into the new financial year in order to maximise relief at the new higher tax rates.

Businesses welcome Small Business Ombudsman

Businesses are applauding the transformation of the Australian Small Business Commissioner into a Small Business and Family Enterprise Ombudsman. The Ombudsman will mainly function as a:

  • mediator for small business dispute resolution
  • national advocate for small business and family enterprises
  • contributor to the development of small business-friendly laws and regulations, and
  • single entry-point agency through which national assistance and information regarding small business can be accessed.

Tax Office homes in on businesses in the cash and hidden economy

The Tax Office has warned errant businesses and individuals that its data-matching program is becoming increasingly sophisticated, as it collects information from banks, government agencies and industry suppliers on purchases of major items such as cars and real estate. “We compare this information with the income and expenditure that businesses and individuals have reported to us. These comparisons allow us to identify businesses that are potentially skimming some or all of their cash takings, running part of their business off the books, or in other ways are not reporting all their income,” the Tax Office said.

Common BAS errors revealed

The Tax Office said businesses could avoid some common errors on business activity statements (BAS) by:

  • reviewing activity statements before lodging
  • checking that all tax invoices are valid
  • checking that expenses and sales are for the current tax period, and
  • checking that invoices are only entered once.

ACCC takes action against businesses that made false carbon tax representations

The Australian Competition and Consumer Commission’s (ACCC) proceedings against Actrol Parts should serve as a cautionary tale to businesses overinflating the effect of the carbon tax on their prices. ACCC contended that the refrigerant gas wholesaler made false or misleading representations and engaged in misleading or deceptive conduct when it implemented significant increases in the price of certain types of hyrdofluorocarbon (HFC) refrigerant gas from July 1, 2012. ACCC chairman Rod Sims said he believes Actrol was simply amassing a stockpile of HFC refrigerant gas prior to the introduction of the carbon tax, and that the price increases were implemented to increase margins and achieve a significant one-off benefit to earnings.

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