Categories
Legislation Tax Policy

Announced but unenacted… a bit of clarity

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In November the government announced (see http://axs.ministers.treasury.gov.au/media-release/003-2013/) it was not going ahead with caping self education deduction (limiting section 8-1 makes no sense), limiting the tax exemption on super pensions (impossible to calculate), removing section 25-90 (let the big end of town suffer) and repealing the statutory rate (pure politics in this – this is a concession that just has to go now that we will make no cars in Australia – see https://taxrambling.com/2013/12/11/another-go-at-closing-salary-packaged-cars/). They annouced they would go ahead with phasing out the net medical expense offset (see https://taxrambling.com/2013/12/13/net-medical-expense-offset-gone-kind-of/) and but a withholding event on capital gains (see https://taxrambling.com/2013/12/10/another-ridiculous-tax-policy-supported-by-every-side/).

Well they have finalised the list of what they are and are not going to do (see http://axs.ministers.treasury.gov.au/media-release/008-2013/) and these are the highlights…

Going ahead

  • Re‑states and clarifies the “in Australia” special conditions for income tax exempt entities and deductible gift recipients to ensure that the relevant entities operate principally in Australia. Every DGR needs to review where they do their activities…
  • Treats earn out payments as part of the value of the business asset for CGT purposes. This just means earn outs work with the Division 152 Small Business CGT Concessions…
  • Treats an investor in an instalment warrant as the owner of the underlying asset for tax purposes. Everyone did it this way so there is no real change here…
  • Replaces the GST free concessions for the supply of going concerns and farm land supplied for farming with a reverse charge mechanism. This will kill all those crazy GST ideas – most of which ignore Division 135 or changes made to the margin scheme in 2007. This is a very good idea…
  • Introduces penalties for promoting schemes designed to obtain the illegal release of superannuation benefits. This also gives the ATO flexible and cost‑effective penalty options to deal with SMSFs that breach the law. These were in a Bill before the last election so should come back very soon…
  • Amend the “connected with Australia” rules in the GST Act to reduce the number of non‑residents who are “unnecessarily” drawn into Australia’s GST system… lets see what they actually do here…

Not going ahead

  • Allows the R&D refundable tax offset to be provided in quarterly instalments. Waste of breath…
  • Ensures that if a lender claims a deduction for writing off a debt, then the borrower would recognise a similar amount of income.
  • The Government will not proceed with the measure to ‘better target’ not-for-profit tax concessions at this stage, but will explore simpler alternatives to address the risks to revenue.
  • Ensures that trust deed clauses cannot be used to prevent excess amounts from being counted as contributions.
  • GST change of use, vouchers, tri partite arrangement and a series of other changes. It looks like the Board of Tax review of GST was not overly well received as it only got one main change up – Reverse charged going concerns.
  • Prescribes rules for the acquisition and disposal of certain assets between SMSFs and related parties.
  • Makes rollovers to SMSFs a ‘designated service’ under the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006, requiring super funds to introduce additional checks and safeguards.
  • Requires funds to notify members whether contributions have been received, either quarterly or six monthly (to alert members about unpaid superannuation).
  • Implements the recommendations of the Board of Taxation’s 2008 report on modifying the  taxation treatment of off‑market share buy backs.

So it looks like not much exciting is going to change. Reverse charging supplies of going concerns is a classy idea. We are already acting like the earn out and instalment warrant stuff is law. The Super penalties were already law so we were ready for them…

I hope the guys in the treasury who draft the laws have something to do in their spare time as the 92 announcements they are working on just dropped to 34 and some of these (six by my count) are already drafted…

Categories
FBT Planning Idea Tax Policy

Another go at closing salary packaged cars

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One of the arguments presented by the salary packaging companies (please note these are companies that only exist due to the combination of a tax loophole and tricky marketing – https://taxrambling.wordpress.com/2013/11/29/the-post-the-salary-packagers-do-not-wanted-you-to-see/) is that removing the statutory method for calculating car fringe benefits would hurt the local car manufacturers. But by 2017 there will be no local car manufactures (Toyota will go to). So can we just kill this concession. In 1986 when the statutory method was introduced 87% of new cars were made in Australia. Now it is 15% and by 2017 it will be 0%. It is time to get rid of this $1 billion a year car support anomaly.

Categories
Tax Policy

Unpaid present entitlements to corporate beneficiaries

In December 2009 the Commissioner changed his position on unpaid present entitlements to corporate beneficiaries – claiming they became Division 7A loans after a year.

I, like many people raised this with the Government and they said “wait for the final ruling”, “wait for the practice statement”, “wait for a NON EXISTANT test case” and then David “to busy stopping boats arriving in Western Sydney” Bradbury pushed the problem to the Board of Taxation.

But it looks like the new assistant Treasurer is just as prompt in making decisions…

In the press release on 8 November, the Assistant Treasurer announced that the Board of Taxation’s review of Division 7A, including the taxation of unpaid present entitlements will be delayed until 31 October 2014. So it looks like we will be waiting for 5 years after the Commissioner changed his position on unpaid present entitlements to corporate beneficiaries to get an answer as to whether the government will do anything to override this, and if it will, exactly what the government will do. 5 years… So helpful…

Categories
Income Tax Tax Policy

Another ridiculous tax policy… supported by every side

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When there is change in government you hope they can dump all the stupid ideas of the previous government. But with the new government still needing to find savings stupid ideas seem not so stupid.

In the May 2013 Budget the Labor (one day they might learn how to spell their party’s name) stead they would introduce a withholding tax arrangement where non-residents sell certain properties and make a capital gain from 1 July 2016. So if you buy, yes buy, not sell, a commercial property or a residential premise valued at greater than $2.5 million, you need to establish if the seller is a non resident for tax. For if they are you only give them 90% of the price and send 10% to the Commissioner.

About once a month the AAT is called on to decide if a taxpayer is a resident or not. And now that job falls on property purchasers. Ridiculous.

Of course everyone says that you just put it in the contract. But this won’t work. The reason the law is being introduced is that these non residents take the money and run without paying tax. So now they just claim in the contract they are residents and tax the money and run.

And then the Commissioner come to the buyer and says where is the cash… This will only just penalise buyers…

Well done policy wonks… one day you might actually be involved in a real commercial transaction.

Categories
FBT Planning Stuff Tax Policy

The post the salary packagers do not wanted you to see…

Go to any salary packager’s website and they will have a calculator. After you complete or the details the calculator will tell you how much you will save in tax by salary packaging a car. THIS NUMBER IS ABSOLUTELY RUBBISH. I don’t mean the calculation is wrong in any way at all. What I mean is that the calculator compares apples and oranges to get the tax saving.

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What these calculators do is compare the after tax outcome of leasing the car in your own name with leasing the car under a salary packaging arrangement. The tax saving is right based on this comparison. BUT NOBOBY LEASES A CAR IN THEIR OWN NAME SO THE COMPARISON IS WORTHLESS. Outside of salary packaging, almost everyone who wants a car buys it with either cash they have saved or by using the equity in their home. The interest rate on cash you already have is 0%, but lets call it 3% as you could have invested it in a very secure investment. Your home loan interest rates is about 5-6% and does not look like moving much for some time.

The implicit interest rates in leases for cars are from 8-11%.

So if you were to do a real comparison it would be comparing salary packaging a leased car with using the equity in your home. There may be a tax saving between leasing you car in your own name and salary packaging it BUT that tax saving will be reduced by the extra funding costs of the interest rate in the lease when compared to the interest rate on your home loan.

Don’t compare leasing under salary packaging with leasing in own name. Compare leasing under salary packaging with borrowing from your bank using the equity on your home loan. And I dare you to ask the packaging companies to do this calculation for you… And watch them sweat…

Categories
Tax Policy

Finding extra revenue in the tax system? Where?

I think I have a right to say this as I gave up a high paid job as a tax advisor and spent three years working in the Treasury, on the Henry Review and in the office of the Assistant Treasurer and most of the time I tried to convince people to remove tax give aways to raise revenue (What happened to your packaged laptops??? He he he…)

All based on the 2011 Tax Statistics from the ATO…

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So we need another $20 billion a year for changes to education funding and disability funding (since writing this the 2013 MYEFO now suggests we have a structural deficit of around $30 billion) .Rather then digging into portfolio budget statement to find savings, commentators are going to the revenue system. They say remove negative gearing, which would see a massive decrease in capital gains tax and stamp duties. They say increase company taxes, which would just decrease income tax as most company tax is claimed back by shareholders as imputation credits. They say raise the GST (rate or base? who cares) which, forgetting it is a state tax, would tax the most vulnerable as well as the most affluent and that it would probably be linked to a massive reduction in individual tax rates as was done when the GST was introduced.

Lets get real and admit if you really want to raise taxes by $20 billion a year the place to do it is in the individual tax system. And lets raise it on the richest Australians – to steal from the Occupy movement – the 1%. If you are earning more than $280,000, you are in the top 1% of tax paying individuals and you and your fellow 1%ers are paying $23 billion in income taxes, at an effective tax rate of 41%, making up 18% of all the individual taxes paid. But we want another $20 billion from you. To raise the additional $20 billion we just need to have an effective tax rate on these 1%ers of around 76%. That’s not the marginal rate, that is the average rate on every dollar they earn. Someone earning $300k with be left with about $73k after tax…

OK. We cannot get close to raising $20 billion by only going after the 1%ers. What about just those on the highest marginal tax bracket – earning more than $180,000? Unfortunately, that only includes under 3% of tax paying individuals. And we would need to increase their effective tax rate from 38% to 60% – a more than 50% tax increase – a hundred times more than the 0.5% levy the government is proposing from 1 July 2014.

OK. Still not going to get there with taxing just the $180kers. Lets try the top 10% of tax paying individuals – or anyone earning more $105,000. The effective tax rate these 10% of tax paying individuals are paying is currently 34%. To get our extra $20 billion we need to raise this to 44%. That’s a very big jump…

Lets be honest… Can we just admit we can’t get an extra $20 billion (or the $30 billion now needed) just by increasing revenue? We can’t fund these new expenditures without cutting expenditures… so lets stop pretending we can and lets tell our leaders to stop spending our money on things we don’t NEED… not things we don’t want but things we don’t NEED… please.