Same sex marriage for tax avoidance

Two heterosexual Irish men marry to avoid inheritance tax on property…

Perhaps in Australia we could see two heterosexual same sex “mates” getting married just before the death of one of them to avoid tax payable on a super death benefit by becoming a dependent as they are a spouse of the deceased, even if there is not a dependent relationship between them.


FBT and exempt vehicles

Forget salary packaging a car… may tradies just don’t need to worry about FBT at all due to the type of car they drive.

Exempt Vehicles Rules

To be exempt from FBT, all of the following conditions are satisfied:

  • the vehicle is a panel van, utility (ute) or other commercial vehicle (that is, one not designed principally to carry passengers)
  • the employee’s private use of such a vehicle is limited to
    • travel between home and work
    • travel that is incidental to travel in the course of duties of employment
    • non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish).

The exemption will also apply to the private use of a taxi if the taxi is owned or leased (eg: not let on hire), if the employee’s private use is limited to:

  • travel between home and work
  • travel that is incidental to travel in the course of duties of employment
  • non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish).

What Vehicles are covered…

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How the Commissioner will apply this law…

In Practical Compliance Guideline PCG 2017/D14, titled “Exempt car and residual benefits: compliance approach to determining private use of vehicles” the Commissioner states that if this Guideline applies:

you do not need to keep records about your employee’s use of the vehicle that demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular and… the Commissioner will not devote compliance resources to review that you can access the car-related exemptions for that employee.

Establishing minor infrequent and irregular use is the hardest part, so what types of cars and arrangements does this Guideline apply to?

5. You may choose to rely on this draft Guideline if:

(a) you provide an eligible vehicle to a current employee

(b) the vehicle is provided to the employee to perform their work duties

(c) you take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use

(d) the vehicle has no non-business accessories

(e) the vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired

(f) the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle, and

(g) your employee uses the vehicle to travel

i. between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip

ii. no more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and

iii. no single, return journey for a wholly private purpose exceeds 200 kilometres.

No non business accessories, like fishing rod holders or bike racks. No salary packaging or extra cash arrangements. No more than 2km on the way to work or home (going to footy training is an example and thesis guidelines will not apply if the employee does this each week). No more than 200km private travel in one trip and no more than 750kms in a year… If so, then no FBT




Pick any ABN…

The federal government’s Black Economy Taskforce claims 40 per cent of ABNs quoted in the Northern Territory were the Bunnings ABN…

You have to love the Northern Territory…


Rental properties and electricity data matching

From the Commissioner…

His newest weapon is the data-matching of utility records, like electricity and gas meters, against properties that are claimed to be unoccupied, to test if landlords are telling the truth.

“There’s going to be a whole lot of new things,” he said. “So when people say their place wasn’t rented, well, we’ll look at the electricity records and (see) they went up. And we’ll say (to landlords): ‘Hey, you said the place wasn’t rented, so why are your electricity records going up?’

“So once you can start to use all these matching tools, you start to be able to say ‘Someone was there, so was that you using it, or (was it) a rental? And if you were using it, why weren’t you apportioning some of your deductions?’”

The ATO was particularly interested to see figures in the latest national census suggesting 11 per cent of properties in Australia — or 1.1 million dwellings — are reported as unoccupied.

There are going to be a lot of questions asked of rental property owners… why is your rent down substantially this year? Because I did not have a tenant. Then why is your electricity bill up this year? Because I lived in it? So why are you claiming all your costs and not apportioning????


The Worst Tax Cheats Are… Salary and Wage Earners by Far!

The Commissioner has started to release “Tax Gaps”. He says a “Tax Gap” is:

The tax gap is an estimate of the difference between the amounts the ATO collects and what we would have collected if every taxpayer was fully compliant. Tax gaps exist in all countries to some extent. The gaps are driven by cultural and human factors, global forces, complexity in business and legal systems, those who take aggressive tax positions, and genuine errors.

In the Australian today (behind a paywall) the Commissioner announces that the tax gap from salary and wage earners is much higher than the tax gap for the large corporate sector. Actually he says it is multiples of the $2.5 billion tax gap in the large corporate sector.

Next year he will release the tax gap for salary and wage earners and to get this number the commissioner randomly did full audits on 900 salary and wage returns. Most of these were done by tax agents, and the tax agents return were worse than the returns done by the taxpayer themselves.

The worst returns were done by tax agents who specialise in certain industries like nurses, teachers or police officers. So what are these tax agents doing wrong. Two things:

  1. Claiming deductions for things the taxpayers did not buy. “Teachers can claim the cost of sunglasses each year because they work outside”… BUT ONLY IF THEY ACTUALLY BUY A PAIR OF SUNGLASSES IN THE YEAR. “Nurses can claim the cost of the equipment they use”… BUT NOT IF THEIR EMPLOYER GIVES IT TO THEM. I can’t believe I have to say this…
  2. Claiming standard deductions. See following…

Let me be clear – there are no standard deductions at all in the Australian Tax Law.

  • There is no $300 standard deduction, rather, if you have work related expenses under $300 then you don’t have to meet the detailed record keeping requirements BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
  • There is no standard deduction of $150 for laundry, rather, if you have compulsory, safety or registered uniforms you can only claim the laundry cost you actually incur but if the amount is less than $150 you don’t need to hold receipts BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
  • There is no standard deduction of 5,000km x 66 cents for work related travel, rather, you need to have undertaken work related travel and record the kilometres.
  • There is no standard deduction for work travel costs, rather, if you travel for work and your costs are not paid or reimbursed by your employer but you are paid a travel allowance, you don’t need to hold a tax invoice for every cost BUT YOU STILL HAVE TO HAVE SPENT THE AMOUNTS TO GET A DEDUCTION.

The Commissioner says that these tax agents say that they can get better tax refunds for those who are in either the nurse, police or teaching profession. I can get an even better tax refund for these taxpayers than other tax agents if I can claim tax deductions for amounts a taxpayer did not spend.

Next year the Commissioner could be coming for tax agents who have work papers that say “standard deduction” or that have all their clients claiming these standard amounts (all your client have compulsory work uniforms and spend $150 on laundry and all your clients have more than 5,000 work related kilometres… Amazing!)




Capital Loss Rental Property Schedules

I keep getting asked by Tax Depreciation providers if they should do Capital Loss Rental Property Schedules. The answer is almost always no and this is why…

Capital Loss Rules

Some Tax Depreciation preparers have told me that they are going to provide full tax depreciation schedules for every client, even if they can’t claim any depreciation, as they will assist their clients in claiming capital losses. What do they mean by this…

Where the depreciation deductions are denied, if the depreciable asset is sold or scrapped for a loss, this will create a capital loss.

For example, if I buy a rental property for $500,000 and I get a tax depreciation schedule that says the building and land is worth $480,000 and the depreciable assets are worth $20,000, if in three years time I scrap all the depreciable assets I get a $20,000 capital loss if I was unable to depreciate these assets because of the new rules…

But before you get too excited… remember that a capital loss can only be applied against capital gains so if you don’t have any capital gains the loss is worthless.

But before you get too excited… remember that the way you got the $20,000 capital loss was by reducing the cost base of the building and land by $20,000. So when you sell the land and building you will have increased the capital gain by $20,000. You are increasing the gain on the land and building by the same amount as the loss you are creating…

For example:

Tom buys a rental property and under the new rules he cannot claim any Division 40 deductions.

He is told to get a tax depreciation schedule to work out what will be the capital loss on the depreciable assets when he sells the rental property and the report comes back and says of the $500,000 he spent on buying the rental property, $20,000 related to depreciable assets.

Tom therefore treats the cost of the building as $480,000, and from the depreciation schedule says he spent $20,000 on depreciable assets.

Tom sells the rental property for $600,000 two years later and states he sold the land and building for $600,000 and the depreciable assets for $0. Tom therefore makes a $20,000 capital loss on the depreciable assets. But he also makes a $120,000 ($600,000 less $480,000) capital gain on the land and building. The net effect is a capital gain of $100,000.

Tom then realises that if he had not have paid for the depreciation schedule he would have treated the $500,000 he paid when he bought the land and buildings and when he sold the land and buildings for $600,000 he would make a $100,000 capital gain.

Exactly the same outcome. Tom now wants a refund of the fee he paid for the schedule.

Many owners of rental properties will just decide to treat the entire purchase price as the price for the land and buildings as capital gains will only arise when they sell the property.

The only possible potential benefit in getting a schedule is if you scrap the depreciable assets years before you sell the property as the capital loss arises in the year you scrap. But as capital losses can only be offset against capital gains you only get to use the capital losses when you sell something else that has a capital gain… and in many cases this will be the sale of the rental property in a few years time. Once again, no benefit in getting the schedule. And even if there is a benefit, it is merely using the capital loss in an earlier year, so not much of a benefit.

And there could be a loss if you sell the property and keep the depreciable asset. You have increase the capital gain on the land and buildings and will only get the capital loss when you finally scrap the assets.


The next idea to avoid Div 7A gets messy

From the ATO website

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Lots of people have asked me for years if they can “fix” a UPE from a unit trust to a company that is subject to Div 7A by converting the UPE to an equity investment in the trust by having the UPE replaced with units in the unit trust.

What do you think?


When does the new GST withholding on new residential property start…

I have already written about the changes to GST for property developers from 1 July 2018. But everyone is already asking me about the transitional rules. So here is the summary…

First, the requirement for the purchaser to withhold 1/11th of the consideration and send it to the ATO directly applies in relation to supplies for which any of the consideration is first provided (other than consideration provided as a deposit) on or after 1 July 2018.

Second, there is an exception to this general rule. This is where the contract was entered into before 1 July 2018, and consideration for the supply is provided before 1 July 2020.

Here is an example from the draft Explanatory Materials.

On 11 May 2018, Cindy and Maurice enter into a contract for a new home unit with BaileyHomeCo, a developer, for $650,000. Settlement occurred when the unit development was completed on 31 May 2020. Since this is within the transitional period, Cindy and Maurice pay the entire purchase price to BaileyHomeCo that will remit the GST to the ATO when their next BAS is due in July 2020.

If settlement occurred on 28 September 2020, the transitional period would not apply and Cindy and Maurice would pay $59,090 (being the GST component of the purchase) directly to the ATO. Cindy and Maurice would pay $590,910 directly to BaileyHomeCo as the purchase price.

There is one more transitional rule. This applies where there is an arrangement:

  • That was entered into before 1 July 2018, between the entity that makes the taxable supply and one or more other entities, and deal with the distribution between the parties of the consideration for the taxable supply; and
  • The arrangement provides for the distribution of the GST liability to the supplier, for the payment of the supplier’s liability to GST for the taxable supply; and
  • Were the distribution to occur, they must result in the parties not being in the same position as they would be if the withholding amount was not paid.

If such an arrangement was entered into before 1 July 2018, the transitional rules provide that a distribution that would result in a windfall gain should not be performed, and that parties to the arrangement are discharged from all liability to pay the GST liability amount to the supplier.

There are also transitional arrangements in relation to the requirement that the supplier has to notify the vendor of whether residential premises are new residential premises. Where a contract is entered into before 1 July 2018, but a supply is made after that day, the supplier will not be required to comply with these notification requirements.