Client Information Bulletin
January 2003
- New Gifting Rules
- GST & Motor Vehicles
- Time to Review Your Will
- ATO Expands Cash Economy
- ProgramSalary Sacrifice Arrangement
- Property & GST Compliance
- Audits Non-Resident for Tax Purposes
- Checklist for Shareholders
New Gifting Rules
Recently Centrelink changed the rules on gifting, preventing recipients benefiting from what it considers to be excessive gifts.
The old rules allowed single pensioners and pensioner couples to give away up to $10,000 worth of cash or other assets per pension year without penalty.
The pension year was a 12-month period from the anniversary of the date the pension was granted.
Gifts in excess of the annual limit continued to be assessed as an asset for 5 years and were subject to the deemed income rules.
From July 1 2002 single pensioners and pensioner couples can still gift up to $10,000 per year. However, there is now a limit of $30,000 in any rolling 5-year period, and the measurement of a year is now the financial year ending 30 June.
GST & Motor Vehicles - Luxury Car Limit
If you use a motor vehicle solely in carrying on your enterprise,
you will generally be entitled to claim an input tax credit for
GST included in the price of the vehicle.
GST included in the price of the vehicle.
If you use a motor vehicle partly in carrying on your enterprise, you are generally entitled to a partial input tax credit based on the extent of use of the motor vehicle in carrying on your enterprise.
If you purchase a car and the price of that car exceeds the car limit, generally the maximum amount of input tax credit that you can claim is equal to 1/11th of that limit. The car limit for the financial year 2002-2003 is $57,009.
There are some exceptions e.g. the car is trading stock, you carry out research and development for the manufacturer, it is an emergency vehicle, it is a commercial vehicle that is not designed for the principal purpose of carrying passengers, it is a motor home or campervan or it is specifically fitted out for transporting disabled people in wheelchairs.
For these purposes a 'car' is a motor vehicle, except a motorcycle,
designed to carry a load of less than one tonne and fewer than nine
passengers.
Time to review your will?
How long is it since you reviewed your Will? Circumstances may have
changed and caused your Will to be out-of-date and not in accordance
with your wishes.
For example: -
1. Changed Circumstances
- Has there been a marital breakdown/separation/divorce? (If your
spouse/partner is still named in the Will, even a divorce does
not revoke the Will).
- Have you been married/re-married/entered into another relationship, which needs to be considered?
A marriage will revoke the previous Will and therefore new arrangements may need to be re-considered. E.g. making provision for children of a previous marriage.
- Has a person who was to receive a gift or an asset under the
Will (beneficiary) died? If so, do you want to make provision
for any children of the beneficiary or to make other arrangements
concerning the disposal of that portion of the estate, which was
given to the beneficiary?
- Have any gifts or assets been made in the Will which have been sold or changed in value?
If a specified house is left to a beneficiary but that house has been sold then the provision fails: the beneficiary does not have rights to the new house.
Is any beneficiary involved in:
- high-risk endeavours;
- or is likely to be involved in litigation;
- or has given guarantees to third parties to support the business activities of a related company, which could mean that any monies received under the Will are available to a third party (e.g. a plaintiff)?
In these circumstances, if the Testator dies, the beneficiary has been made bankrupt or been required to pay monies by a court; the beneficiary may not receive any real benefit from his or her entitlement under the Will.
- Have you provided a gift or made a loan to a person who is a
beneficiary and you wish this matter or those matters to be taken
into account under the terms of the Will? (e.g. forgiveness of
the loan)
- Are the previous arrangements made for your spouse/partner adequate?
(e.g. will a life interest in assets provide sufficiently for
your spouse/partner?)
- Have you decided on any funeral arrangements, which are not presently included in your Will?
2. Disability
- Is any beneficiary/potential beneficiary subject to a particular disability for which particular provision should be made? (e.g. beneficiary suffers from an actual or potential physical or mental disability).
If a beneficiary is subject to a particular disability then special provisions may need to be made (e.g. setting up a trust to support the beneficiary).
3. Family Trust or Family Company
- Are substantial assets held in a Family Trust or Family Company? Can the Will operate to transfer your rights to those Family Trust assets or the Family Company to a beneficiary?
If you have a family trust or family company and you have always treated it as "yours" then you need to ensure that your wishes in relation to the beneficiaries applies to those assets.
Have the reasons for the Family (or other) Trust ceased? Should
new arrangements be made?
Are there any tax or other liabilities, which need to be considered?
4. Disputes between Beneficiaries and their Partners.
- Do any beneficiaries have an actual or potential dispute with their spouses/partners, which may mean that the monies paid to the beneficiary are available to those spouses/partners upon a break-up of the marriage or partnership?
5. Children
- Are any of the beneficiaries under 18 and do you want to make special provision for them? Has a guardian been appointed to those children?
6. Special Assets
- Have you acquired any assets, which require special provision or which should not be disposed of for a particular period? (e.g. until a site has been developed).
There may be special assets, which should not be sold immediately, or you may not wish assets to be sold at all but to be kept for succeeding generations. A trust may be required.
7. Change of Executors and Trustees or their Powers.
- Do you need to change your executors and trustees?
Are the powers granted to the executors or trustees sufficiently
wide to enable them to adequately fulfill their functions?
Has the executor or trustee died?
Is he or she still prepared to take on that role?
8. Asset Protection Strategy
- Have you an asset protection strategy, which needs to be considered to ensure that your wishes in relation to the assets are capable of being met?
9. Succession Planning
- If you operate a business or a company, what arrangements need to be made to ensure a smooth succession of the business or company?
A dispute between beneficiaries on who should operate the business or the company may substantially affect their value. This needs to be considered.
10. Disgruntled Beneficiaries
- Will there be any beneficiaries who will feel aggrieved at not being named in the Will or who will seek a larger proportion of the estate?
11. Superannuation
Is the beneficiary or beneficiaries under your superannuation policy appropriate and has the fact that that beneficiary or those beneficiaries will obtain a benefit under the superannuation fund been taken into account in relation to the assets being left to beneficiaries under the Will?
Monies paid under a superannuation plan or policy are not assets
of the Testator and therefore this matter needs to be taken into
account when making provision under the Will.
ATO Expands cash economy program
The Australian Taxation Office has announced it will contact around
85,000 businesses over the coming year, as part of its expanded
cash economy program to investigate undeclared income. The ATO expects
to visit 20,000 of these businesses with tax officers who specialize
in detecting undeclared income and identifying businesses operating
outside the tax system.
The ATO will also broaden its focus to other potentially high-risk
industries of clothing and textiles, pubs, clubs and taverns and
the security industry, in addition to investigations already underway
in noted high-risk industries including building and construction,
road freight services, taxis, cafes, restaurant and takeaway food
outlets, hairdressing and beauty salons and cleaning services.
Salary Sacrifice Arrangements
A recent tax ruling has clarified the effectiveness of salary sacrifice arrangements as it relates to leave entitlements. An effective arrangement involves an employee agreeing to receive part of his or her total amount of remuneration before earning the entitlement to receive that amount as salary or wages. An ineffective arrangement involves an employee directing that an entitlement to receive salary or wages that has already been earned be paid in a form other than as salary or wages.
Where an entitlement to take leave has already accrued, dealing
with this entitlement will be an ineffective salary sacrifice arrangement
and would be treated as ordinary income for tax purposes.
Property and GST compliance audits
Given the complexity surrounding GST compliance for property related
businesses, property owners may increasingly find themselves under
Tax Office scrutiny.
Property owners should take care when applying GST rules to their
business transactions for the following reasons:
- The application of GST rules to property transactions such as subdivisions and developments are very complex.
- Property transactions are generally significant in value and
are rarely identical, calling for the application of complex GST
rules in a broad range of circumstances.
- The property sector was greatly affected by the transitional rules for GST. Many long-term arrangements spanned the GST start date and disputes are arising as to when the tax becomes payable and by whom.
Please note that one out of every two GST audits appears to be targeting a property related issue. Please contact us for further details or planning opportunities.
Non-Resident for tax purposes
In a recent Administrative Appeals Tribunal (AAT) decision, a teacher who took three years leave from her Australian employment to accompany her husband to Fiji, was held to be a non-resident of Australia for tax purposes.
Whilst overseas, the taxpayer received accrued long service leave
payments, maintained an Australian bank account and returned to
Australia on several occasions for holidays. The taxpayer's home
was sold and the family's furniture and effects were put into storage.
The tribunal found that the taxpayer had made a home overseas and
was not an Australian resident despite her intention to return to
Australia in due course.
Caution:
When departing Australia for an extended period of time, you may be treated as a non-resident for tax purposes. This may result in your foreign income being non-taxable in Australia, but any Australian income you derive during that period would be taxed at higher (non-resident) rates. Various capital gains tax issues may also arise.
Checklist for shareholders
Shareholders should check that they have: -
- Declared all dividends for the income year;
- Claimed all deductions they are entitled to in relation to their
shares;
- Declared all capital gains or losses;
- Claimed all imputation (franking) credits;
Kept comprehensive records of all share transactions, (including
retaining records for at least after the date of disposal of the
shares)
You are advised that deductions can be claimed against dividend income if it can be shown that the expenses were incurred whilst earning that income.
Examples are as follows: -
- Accounting keeping fees or management fees; Government duties;
- Interest on money borrowed to purchase shares and other investments;
and
- Money paid for advice relating to changes in the mix of investments.
Disclaimer: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein without first consulting us.
