Month: August 2014

Categories
Funny Stuff Tax Policy

Economists advising us on tax again…

Peter Martin, the economics editor at the Age writes… “The finance minister is two-thirds right. He says if the government can’t balance its books by cutting spending, “the only alternative to balance the books is to increase taxes. There’s only one other option. It’s neither an increase in tax nor a cut in spending. It’s an attack on tax expenditures.”

Let me get this straight… an economist states that raising the super contribution rate (the tax expenditure he is suggesting we attack first) from 15% to marginal rates as high as 49% IS NOT AN INCREASE IN TAX. He states that removing the 50% CGT discount, thereby doubling the Capital Gains Tax paid, IS NOT AN INCREASE IN TAX…. Huh

Don’t get me wrong. I think the contributions and earnings tax on super needs to be increased but I am not mislead/dishonest/… enough to claim it is anything other than an increase it tax.

Peter, I suggest we don’t decrease government spending but rather we just give every government program and department less money… What is the difference I hear you say… About as much difference as increasing the individual tax rates (a increase in tax according to Martin) and increasing the super contributions tax (not a tax increase according to Martin).

If you don’t want to fix the budget by cutting spending Peter, then be honest and admit you have to increase taxes… And these are the tax increases I would do.

Categories
Income Tax Legislation Rulings

Divorce and Division 7A

In Taxation Ruling TR 2014/5 the Commissioner confirms one of the most overlooked tax issues in marriage breakdowns.

For example, if money or property is paid or transferred to a shareholder, if these payments are paid out of the private company profits, it will generally be an assessable dividend.

In addition, money or property transferred to an associate of a shareholder will be a deemed dividend under Division 7A. As the obligation to ensure the payment is made is on the divorced person and not the company, the exemption in section 109J of the 1936 Act will not apply.

While both these dividends are frankable, it is worth remembering that in many matrimonial proceedings one party gives up their interest and control of the company. As such, if there was not an agreement to frank these dividends before the proceedings are finalised, the remaining directors may not want to frank the dividend later.

Now why do I say it is one of the most overlooked tax issues??? Once it is released accountants “claim” it is a change of position….

But since 2004 the ATO has had a clear position that is exactly as is the Ruling – http://law.ato.gov.au/atolaw/view.htm?DocID=AID/AID2004461/00001&PiT=99991231235958. And this is much more “authoritative” than the unnamed “private rulings” that the accountants are claiming exists (I was too lazy to over the register of private rulings and start searching…)

So please don’t blame the Commissioner for not considering all the tax issues that arise from a transactions – rather thank him he has not been auditing the clients you have been ignoring Division 7A for since 2004…