Categories
Budget Tax Policy

What is coming in the budget? Budget lotto 2015

After failing so badly guessing what was in the budget last year it is time to have another go.

So what is coming in next Tuesdays budget:

1. No changes to super at all. To differentiate them from the opposition.

2. A 2% reduction in the company tax rate for small business (>$5 million taxable income). Yes I am picking 2% rather than 1.5%.

3. 40-880 five year black hole deductions becomes one year deductions.

4. A change to the small business CGT rollover that “you” don’t need to buy a new CGT asset in the two years after sale but an entity in your group has to. This will let you change your business structure (including rolling assets into a discretionary trust… Wow…).

5. A change to apply GST to intangible imports – just call it the Joe hated Netflix tax…

6. A change to GST such that an intermediary arranging crowd source funding does not need to remit GST (likely input taxed).

Yes I know they are pretty boring but I think it will be pretty boring…

And now to sit up on Tuesday night reading budget paper 2.

Categories
Super

Using super for tax planning is getting dangerous…

The super system has a legislated sole purpose, and it is not there fpr the purpose of minimising tax or achieving business succession or …

It is just to provide retirement income.

And everytime you think about using a super fund, with all its tax benefits, for anything other than providing for retirement be aware that the Commissioner is looking.

Example 1: ATOID 2015/10

Two brothers run a business. So what happens if one passes away? The spouse of the deceased brother will inherit half the business but she wants nothing to do with the business. She will want to sell it to the still living brother but where will he find the money to buy it?

In this ATOID the brothers solution was to require (in a contract between the brothers) the SMSFs of each brother to hold life insurance equal to their half share of the business. If a brother was to die, the spouse would get the life insurance payout and, again under the contract, the spouse had to give the 50% interest in the business to the living brother.

Why buy the insurance in the SMSF? You can pay for the insurance premiums out of amounts that have been less taxed.

What is the sole purpose of the SMSF buying this insurance in super? The member will never get to use the payout as they are dead and while his spouse will get the insurance payout she has to give up an asset equal to the same value when she gets it.

So it is not for anyones retirement. Rather, it is all for the benefit of the living brother as it effectively funds him buying the other 50% of the business. And so the trustee of the SMSF has now breached section 62 (sole purpose test) and paragraph 65(1)(b) (assisting a member or their associates).

Now remember all this is in a contract so it was obvious why the trustee purchased the life insurance – obvious it had nothing to do with retirement.

Taxpayer Alert 2015/1

Yes it is only a Taxpayer Alert so we wait for a final ruling but…

What do you do if you have lots of profits and franking credits in a private company and shareholders head to 60? Transfer the shares to the SMSF, wait till it is in pension phase and then pay a big franked dividend to the SMSF. The SMSF gets all the franking creits refunded.

The Commissioner states that that he might apply the dividend streaming rules in Subdivision 204D, 177E and 177EA as the purpose is to stream the franking credits to a tax preferred entity. These provisions will deny the SMSF access to the franking credits.

Summary

I have seen these set ups more than once. I have heard people at conferences sell both theae ideas.

And I have thought about if anyone has thought about the sole purpose of a super.