Tax Update – September 2007
This information is of a general nature only and professional advice should be obtained on your situation prior to acting on these changes.
REMINDER OF BUDGET CHANGES TO GST THRESHOLDS, EFFECTIVE FROM THE 1/7/2007
a. GST Registration Threshold
This threshold has increased to $75,000 for normal businesses and $150,000 for Not for Profit Organisations
b. Requirement to keep a Tax Invoice Threshold
The threshold for which tax invoices are required to be kept to be able to substantiate input tax credit claims has increased to $75 up from $50.
OFFSHORE VOLUNTARY DISCLOSURE INITIATIVE
The ATO have announced that they are increasing their audit activities that target taxpayers who try to conceal their income and assets offshore.
They have offered taxpayers who contact them before they are the subject of an audit, and make a full and true disclosure, will have reduced shortfall penalties.
RULINGS/ATOIDS/CASES AND ATO UPDATES
ATO ID 2007/161
Assessability of income from employment aboard a ship or aircraft operated by an Australian resident in international traffic - UK employee and employer
Is a United Kingdom (UK) resident taxpayer's income from employment aboard a ship or aircraft, operated in international traffic by an Australian resident, assessable in Australia under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. The UK resident taxpayer's income from employment aboard a ship or aircraft, operated in international traffic by an Australian resident, is assessable in Australia under subsection 6-5(3) of the ITAA 1997.
The taxpayer is a non-resident of Australia and is a resident of the UK for tax purposes.
The taxpayer derives employment income from duties aboard a ship or aircraft operated in international traffic by an Australian resident company. The taxpayer is employed by a UK subsidiary of the Australian resident company. The UK subsidiary provides crew for the ship or aircraft operated by the Australian resident company.
ATO ID 2007/162
Foreign Tax Credit: New Zealand tax incorrectly paid on pension income
Is the taxpayer, an Australian resident, entitled to a foreign tax credit under section 160AF of the Income Tax Assessment Act 1936 (ITAA 1936) for tax paid in New Zealand on workers' compensation payments that are a pension for the purposes of Article 19 of Schedule 4 of the International Tax Agreements Act 1953 (Agreements Act)?
No. The taxpayer is not entitled to a foreign tax credit under section 160AF of the ITAA 1936 for tax paid in New Zealand on workers' compensation payments that are a pension for the purposes of Article 19 of Schedule 4 of the Agreements Act.
The taxpayer is an Australian resident for income tax purposes.
The taxpayer receives weekly workers' compensation payments from the Accident Compensation Corporation (ACC) in New Zealand after sustaining loss or injury while employed in New Zealand prior to becoming an Australian resident.
The taxpayer has paid tax in New Zealand on these payments.
These payments are a pension for the purposes of Article 19 of Schedule 4 of the Agreements Act.
The Tax Can Be claimed back from the taxing authority.
The New Zealand Inland Revenue has decided under New Zealand law to refund the amount of tax paid by the taxpayer in respect of these payments.
2007/2008 HELP Repayment rates
|Repayment income 2007–08||Repayment rate(% of repayment income)|
|$73,960 and above||8.00%|
Child Support Agency chasing unlodged tax returns in the building industry
The Child Support Agency and The Tax office have commenced lodgment enforcement activity amongst Child Support Cases in the Building industry, in the past month
DID YOU KNOW?
Clients who in prior years had assets allocated to a STS pool, if the assets still have a taxable use (and the client cannot make a claim in item 12 of the tax return) they should make the claim in item D15
GST Refunds and time limits
There is a 4 year limit to when GST registered entities can make a claim for the input tax credit. For example the tax period July 2003 the claim must be made by the 31 July 2007
There have been reports of clients who are in receipt of Westpac superannuation pensions who have not had indication in their yearly paperwork that stated that a 15% tax offset was claimable Westpac advised that they do not mention the offset as "everyone knows that it should be claimed".
If you have a client with such a pension you should follow it up with Westpac to see if they have an entitlement to the 15% tax offset.
Reminder of changes to claims for the Child Care Tax Rebate (CCTR)
From 1 July 2007 CCTR entitlements will be paid into your bank account rather than through the tax system. This payment will be made by the Family Assistance Office from September 2007 following the lodgment of your tax return and once your child care service(s) has reported how much out-of-pocket expense you had.
WestPoint collapse - tax return deductions and capital losses for 2006-07
- Held a promissory note issued by a company in the WestPoint group when the company was placed in
- Receivership, liquidation or administration
- Did not hold the promissory note as a trustee, and
- Held the promissory note as an investment asset, not as part of carrying on a business.
And the promissory notes had the following features
- The notes are non-transferable and non-negotiable
- The notes were issued for a period exceeding 18 months
- Interest was payable monthly in arrears at 12% per annum, and
- Upon expiry, the note holder is to be paid the principal plus 2%.
You may deduct, at item D7 of your 2006-07 tax return, interest you have paid in 2006-07 on money you borrowed to invest in the promissory note.
Loss on promissory note
On 12 June 2007, the liquidator of the following companies within the WestPoint group made a declaration in writing that they have reasonable grounds to believe that all promissory notes issued by the companies will have no value or have only negligible value. The companies affected are:
- Market Street Mezzanine Ltd (in Liquidation)
- Market Street Mezzanine No.2 Pty Ltd (in Liquidation)
- Bayview Heritage Mezzanine Pty Ltd (in Liquidation), and
- Bayshore Mezzanine Pty Ltd (in Liquidation).
Effect of a written declaration by a Liquidator
The Liquidator’s declaration on 12 June 2007 means promissory note holders can claim a capital loss in their 2006-07 tax returns.
Holders of promissory notes in other companies in the WestPoint group
You will not be able to claim a capital loss on your promissory notes in your 2006-07 tax returns because:
- The administrator or liquidator has not declared in writing that the promissory notes in the company have no value or have negligible value.
- You cannot dispose of your promissory notes as the notes are non transferable and non negotiable.
- The administrator, liquidator or receiver has not redeemed the notes.
- The notes have not ceased to exist (for example, on dissolution of the company).
Return of capital: Ramelius Resources (RMS) Limited CR 2007/79
Distribution is not a dividend
As the return of capital has been debited to RMS' untainted share capital account, it will not be a dividend as defined in subsection 6(1).
Distribution will not be deemed a dividend under section 45C
The Commissioner will not make a determination under either subsection 45A(2) or subsection 45B(3) that section 45C applies to the return of capital. Accordingly, no part of this return of capital will be taken to be a dividend for income tax purposes.
Capital gains tax
CGT event G1 will happen when RMS pays the return of capital to an RMS shareholder in respect of an RMS share that they own at the time of the payment (section 104-135 of the ITAA 1997).
CGT event C2 will happen when RMS pays the return of capital to an RMS shareholder in respect of an RMS share they owned at the Record Date but which they ceased to own before the time of the payment (section 104-25 of the ITAA 1997).
Foreign resident shareholders
For a foreign resident shareholder, the payment of the return of capital will only have CGT consequences if their RMS shares are 'taxable Australian property' (s 855-10 of the ITAA 1997).
Off Market Share Buy Back GOTALK Limited CR2007/61
Section 159GZZZP of the ITAA 1936 will not apply to treat any part of the buy-back purchase price as a dividend paid to participating shareholders on the day of the buy-back.
Participating shareholders are taken to have received $0.25 as consideration in respect of the sale of each of their shares on 31 May 2007 pursuant to section 159GZZZQ of the ITAA 1936.
The treatment of the consideration amount for tax purposes will depend on whether the sale is on capital account (where the shares are held for investment) or on revenue account.
Shares held on capital account
The Sale Consideration of $0.25 represents the capital proceeds for capital gains tax purposes pursuant to section 116-20 of the ITAA 1997. A shareholder will make a capital gain on a share if the Sale Consideration per share exceeds the cost base of that share. The capital gain is the amount of the excess.
Similarly, a shareholder will make a capital loss if the Sale Consideration is less than the reduced cost base of a share.
The shares are taken to have been disposed of for capital gains tax purposes on 31 May 2007 pursuant to section 104-10 of the ITAA 1997.
Shares held on revenue account
Where the shares are held as trading stock, the Sale Consideration of $0.25 per share is included in assessable income under section 6-5 of the ITAA 1997. Where the shares are held as revenue assets, the amount by which the Sale Consideration of $0.25 per share exceeds the cost of each share is included in the shareholder's assessable income. Correspondingly, if the cost exceeds the Sale Consideration of $0.25 per share the difference is an allowable deduction.
Foreign resident shareholders
A foreign resident shareholder that participates in the Buy-Back can disregard any capital gain or capital loss made in respect of a share bought back under the Buy-Back if the share is not taxable Australian property under the tests in section 855-15 of the ITAA 1997. Generally, a Gotalk share that is disposed into the Buy-Back will only be taxable Australian property if:
- It is an indirect Australian real property interest (see item 2 of the table in section 855-15 of the ITAA 1997).
- It has been used at any time by a foreign resident in carrying on a business through a permanent establishment in Australia (item 3 of the table in section 855-15 of the ITAA 1997).
A Gotalk share that is disposed into the Buy-Back will only be an indirect Australian real property interest at the time that the share is disposed into the Buy-Back if the share passes both the principal asset test (see section 855-30 of the ITAA 1997), and the non portfolio interest test (see section 960-195 of the ITAA 1997). Gotalk haveadvised that Gotalk's foreign shareholders all hold less than 10% of Gotalk's shares. Therefore, none of the Gotalk shares disposed into the Buy-Back pass the non-portfolio interest test.