Month: February 2014

Categories
Funny Stuff

Working on the other end of the phone…

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I have worked in accounting firms, as the tax manager for a corporate or two, in the Treasury writing tax law, as a tax lobbyist and trainer for the Chartered Accountants and in parliament house advising the Treasurer on tax…  So I only have one last thing to ad to my tax CV – I have to work at the ATO.

But maybe I should just skip this one. Recently the ATO asked if anyone was happy to take a redundancy and close to 10% of the work force put their hand up. Over 2,100 of the ATO’s 24,000 employees are ready to leave. Leave at a time when there are no new job in other government departments (the normal next job for an ATO employee from my experience).

Therefore, is it that working at the ATO is so bad that getting out sound s good? I don’t think so. People I know who work there like the work they do. And I have work for the current Commissioner before and the staff enjoyed working for him.

Or is it that the redundancy payouts (tax free for the first ~$7,000 plus ~$4,000 for every year worked) is just too tempting.

So I should go and work for the ATO – but only so I can take a redundancy.

Categories
Funny Stuff Income Tax

Adam, Eve and Family Trust Elections

In ATOID 2014/3 the Commissioner states that the individual specified in the Family Trust Election must be alive at the time the trustee of the trust makes the election.

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He comes to this conclusion after finding the term “individual” is not defined and takes a very loose analysis of the various dictionary definitions. So why is the Commissioner so desperate to conclude the name on a family trust election is a LIVING person???

If you take the biblical view of the world we are all descendant of one man and one women. So if the person on the election could be deceased at the time of the election we should all put Adam or Eve down. Then the family group would cover all of humanity and every entity humanity has ever controlled. The trust loss rules would disappear immediately and distributions could be made to anyone without worrying about Family Trusts Distribution Tax.

I would love to challenge the Commissioners position on whether the person has to be “living” and then whether we are all descendants of “Adam” or “Eve”…

Categories
Income Tax Planning Idea

Cash to accruals gets taxed

In ATOID 2014/1 (http://law.ato.gov.au/atolaw/view.htm?docid=%22AID%2FAID20141%2F00001%22) the Commissioner considers the following facts…

“The taxpayer carries on a business of providing services to clients.

The taxpayer had previously accounted for the income of the business on a cash basis.

Due to the nature and growth of the taxpayer’s business, the taxpayer decides it is more appropriate for the business to convert to an accruals basis of accounting and render its income tax return on that basis.

Accordingly, the taxpayer lodges a return on an accruals basis in the current income year.

There are outstanding debts owing to the taxpayer in relation to services rendered in the previous income year. The taxpayer receives these amounts in the current income year. These amounts were not included in the taxpayer’s assessable income in the previous income year because of the chosen method of accounting”.

So it is just the classic Henderson Case and the income is tax free right? Maybe not.

This ATOID states that a debt owed to the taxpayer is a CGT asset. When the debt is satisfied it disappears and so event C2 applies.

The capital proceeds from discharging the debt are the amounts paid to the taxpayer by the debtor.

As the cost base is zero, the entirety of the income avoid from the income tax rules by the change from cash to accruals, is now subject the CGT rules.

So tax is payable… Oh well!

Categories
GST Legislation

Let us have a moment of silence for the GST advisors…

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Since the introduction of the GST they (GST Advisors) have always been looking for a way to recover GST paid incorrectly.

And the Holy Grail of this advice has always been how can we turn a supply of new residential premises into existing residential premises as this would increase the margin for the developer by the 10% GST.

Well, the Government has released an exposure draft the new Division 142 of the GST Act. These provisions will ensure that any mistakenly paid excess GST is treated as always  payable and in relation to a taxable supply where that excess has been passed on to another entity.

That’s right. Even if it is a GST export, if it was treated as a taxable supply, until the customer is refunded it IS A TAXABLE SUPPLY.

Because a GST amount is considered as always payable, no refund arises as the GST is taken to have been correctly payable. If an amount of excess GST that has been passed on is reimbursed, the excess amount stops being treated as payable on a taxable supply.

So even if you think you have a great GST refund idea, even the Holy Grail idea, don’t go and sell it to a property developer as they will get no benefit from it.

The only person who gets a benefit is their customers – as before the developer can get the GST back they have to refund it to the customer. Actually, the developer has to finance the refund.

So spend a moment thinking of the pain of our GST brothers…  http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2014/Refunding-excess-GST

Categories
Tax Policy

Australia as a family budget

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When you are talking about billions of dollars of taxes, expenditures, debt and deficits it all gets a bit confusing.

So using the 2013/14 MYEFO updated estimate this is what Australia would be like if it was the average Australian family.

To start, according to the 2011 Census the median household income after tax is $64,168 (don’t believe it is really that low? I would think the Census is more scientific that your gut feel – http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0).

So this is the family budget for Australia…

– Income from all sources for the year after tax – $64,168 (actual $374 billion)
– Expenses for the year – $70,688 (actual $412 billion)
– Assets that can be sold – $66,287 (actual $386 billion)
– Debt that have to be repaid – $96,896 (actual $563 billion)

Now before you start on the “but look at Europe” argument, if your financial advisor set you up to have better financial outcomes than most foolhardy and nothing more than that you wouldn’t use them. You don’t compare your finances to others but ask is this sustainable and will allow you to meet your goals.

So what financial advice would you give to a family like this? If this was your family what would you do?

Cutting all expenses by 10% (read cut funding for everything the government does by 10%) or increase work hours by 10% (read increase ALL taxes by 10%) might stop the debt growing but wont pay off the debt the family already has.

So, to pay off the debt in 20 years you need no new spending items for 20 years, no tax cuts for 20 years AND EITHER an 17% cut in current expenses or a 17% increase in all taxes.

Why 20 years? The average worker work for 40 years. So in 20 years, half of the workers paying off the debt will never have benefited from what the borrowings were used for. So unless you like the idea of your kids paying off your debt you can’t justify going more than 20 years.

You could sell off all the assets to clear 2/3rds of the debt but some of these assets generate income so it may not help much.

So how much financial security does this family, this country, have?

Remember, there are no bankruptcy available to this family as the banks are legally allowed to pass the debt onto the children. So sort this out or my two wonderful children will have to.

Why is this on a tax blog? Make a choice. Higher taxes, less services or stuff the next generation. If you love your kids and don’t want to pay more taxes then don’t complain about hospitals/highways/schools… You made your choice…

PS… This only covers the Federal debt… I don’t really want to think about what this means if the State debts are included…

Categories
Income Tax Tax Policy

The Commissioner and the good Samaritan

I am one of those Jesus freaks so when i hear about “good samaritan laws” – being those that compel a person to help or be penalised – i think they missed the whole idea of what made him good. That he was not compelled but did it out of love.

Do you love the Commissioner?

Well if you are a tax agent and you don’t help him you are going to be penalised.

Back in 2003 I was lobbying for the Chartered Accountants and we threatened to lodge every return by paper if the Commissioner did not pick his game up. The threat scared him into giving us great tools like the various portals. He knew how helpful to the ATO electronic lodgement is – no costly and mistake ridden manual entry. He could not have most returns on paper.

But from now, if you lodge by paper and you are a tax agent you will be penalised.

If you lodge any 13/14 return by paper the tax agent extension does not apply – end of October or your client will be penalised for each paper return.

If you don’t lodge 85% of your client returns electronically, in the next year ALL returns, whether on paper or not, will need to be lodged by October. There will be no tax agent extension.

So why is the Commissioner so against paper? Environmental reasons? No. It just makes his processing easier.

So he decides if you don’t help him do his job the easiest way for him he will penalise you – with rules that in the worst case could destroy the business of a tax agent.

The Commissioner says do it the way that helps me the most or there will be consequences… Do you love the Commissioner?

Categories
Income Tax

Avoid a trust audit

The Commissioner has told you how to get you trust audited (http://www.ato.gov.au/Forms/Labels-53A-and-54W-in-the-2013-trust-tax-return/).

Either don’t complete labels 53A and 54W or make these two labels as different as you can.

One of these labels is trust income and one is tax income (section 95 net income). If they are different the Commissioner states he is looking at “contrived differences”.

Most of these times these labels will be the same as the trust deed has a tax equalisation clause stating trust income equals tax income.

But if they don’t… Be warned…

Categories
Funny Stuff Income Tax Tax Policy

The coffee is just awful!

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Why are there no posts recently??? Disneyworld, Legoland and the Kennedy Space Centre… But the worst thing about being in Florida according to my wife is the coffee.

And then she saw the answer – Starbucks. Due to tax, Starbucks should be good coffee. Why? Starbuck pays almost no tax in the US or Australia. And the reason is that they claim that they don’t sell just coffee. They sell the same coffee with the same process and the same taste. It is the intellectually property that is valuable, not the actual coffee and as the intellectual property is owned in Ireland, Cayman Island, insert various tax haven that is where the profits end up.

The US and Australian subsidiaries pay squillions for the use of the intellectual property and so make almost no profit.

So how does Florida Starbucks taste according to my barista wife??? RUBBISH! It is totally different to Aussie Starbucks coffee.

So this is how the Commissioner should raise millions of additional tax. If Starbucks coffee is not the same all over the world, the intellectual property is not worth what they are paying and they should hit Starbuck with one massive transfer pricing adjustment!

I would love to see the High Court tasting Starbucks from around the world, taking advice from Edmundo the expert barista and taxing coffee.

Back to the Alligator Farm…