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2015

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AJML UPDATE – CGT 2

Capital Gains Tax (CGT) – Part 2

There are more than 40 different types of CGT events so a brief explanation of the most common ones is noted as follows:

EVENT A1: DISPOSAL OF CGT ASSET
This is the most common CGT event. It occurs where there is a change of ownership of a CGT asset. Consequently, there would not be a change of ownership where an asset is destroyed (CGT event C1 would apply); or there is merely a change in the trustee of a trust (but no change in beneficiary ownership).
The time of event A1 is the date of contract if a contract exists or when the change of ownership occurs if there are no contracts.

EVENT C1-C3: THE END OF A CGT ASSET
C1: Loss or destruction of CGT asset, the time of event is when the taxpayer first received compensation for the loss/destruction or, if no compensation is received, when the loss is discovered or the destruction occurred.
C2: Cancellation and surrender of a CGT asset, usually related to the extinction of an intangible asset. For example:
Redeemed or cancelled share
Realized, discharged debt
Expired contract
Abandoned or forfeited lease
Exercised option

C3: End of an option to acquire shares, occurs when the option ends because it is cancelled, released/abandoned or not exercised by due date.

CAPITAL PROCEEDS
Capital proceeds from a CGT event are the total of the money the taxpayer has received, or is entitled to receive, plus the market value of any property the taxpayer received, or is entitled to receive, in respect of the CGT event occurring (s116-20(5)). If the capital proceeds are in a foreign currency, then the taxpayer is required to determine the Australian equivalent at the time of the CGT event (s960-50).
Modifications to capital proceeds
Market value substitution rule applies if the client didn’t receive arms length value of the asset. Hence the market value of the capital gains asset will be used in this case.
Apportionment rule applies if a payment relates to more than one CGT event or part of the CGT event. Hence the capital proceeds will be apportioned.
Non-receipt rule applies after reasonable steps are taken and still couldn’t pay the outstanding amount on the sale of the CGT asset.
Repaid rule applies when the capital proceeds are reduced by any non-deductible amount a taxpayer has to repay.
Assumption of liability rule applies if the purchaser of the CGT assets also has to pay a liability to the seller. The capital proceeds will then be equal to the liability and the cash received.

Misappropriation rule applies if a related party to the seller (employee or agent, for example)
misappropriates all or parts of the proceeds. Hence the proceeds will be reduced by those amounts until recovered.

COST BASE
There are five elements of the cost base of a CGT asset (s100-25):
Purchase price of the asset
Incidental costs of asset that are not deductible, example:
Agent, accountant, legal fees
Transfer costs
Stamp duty
Advertising
Borrowing expense, example loan application and mortgage discharge fees
Cost of owning the asset only if asset is acquired after 20 August 1991. For example,
Interest on loan
Cost of maintaining asset
Rates or land tax
Capital expenditure to increase or preserve the asset’s value. Does not include capital expenditure related to goodwill.
Capital expenditure incurred to establish, preserve or defend title to the asset.

AJML Accountants Update – Residency for tax purpose 2

Residency for tax purpose – Part 2

Residence – introduction
As a general principle, an Australian resident is subject to tax in Australia on income from all (worldwide) sources, whereas a person who is not an Australian resident is only subject to tax in Australia on income from Australian sources.

Definition of ‘non-resident’
If a taxpayer does not fall within the specific definition of ‘resident’, the taxpayer will automatically be regarded as a non resident. This is because a ‘non resident’ is simply defined in s6(1) as a person (which includes a company) who is not a resident of Australia.

Fundamental rules
The question of a taxpayer’s residence is to be determined on a year-by-year basis – the fact that a taxpayer is a resident of Australia in a particular year do not necessarily determine the taxpayer’s residence for future years.

As a matter of practice, while it is possible for a taxpayer to be resident in Australia in a particular year and non-resident in the next, the Commissioner is unlikely to be immediately satisfied that there

has been a change of resident of Australia until some period of time (2-3 years) has elapsed before it can be clearly established that the taxpayer has cut all ties with Australia that might otherwise have given her or him a resident status in Australia. Thus individuals who leave Australia with the intention of ensuring that they are no longer resident in Australia might well be treated in practice as resident in Australia for some time thereafter. This practice may, of course, be challenged in the courts but that is a step that many may be reluctant to take.

A person may be a resident for tax purposes of more than one country.

Individuals – introduction
Section 6(1) ITAA1936 provides four exhaustive tests of residence for individuals. In summary, an individual is a ‘resident of Australia’ for Australian domestic tax purposes if he or she satisfies any of the following tests.

The individual is a resident of Australia according to ordinary concepts – this test arises from the use of the words ‘who resides in Australia’ in the preamble portion of the definition before the three specific statutory inclusions.

The individual is domiciled in Australia unless the Commissioner is satisfied that the person’s permanent place of abode is outside of Australia

The individual has been in Australia for more than half of the income year (ie in excess of 183 days) unless the Commissioner is satisfied that the individual’s usual place of abode is outside of Australia and that he or she does not intend to take residence in Australia.

The individual is a member of certain Commonwealth Government superannuation schemes or is the spouse or child under 16 of such individual.
Consequently, an individual who does not fall within any of the three specific rules (ie 2 to 4 above) may nevertheless be treated as a resident of Australia on the basis of the common law concept of residence.

Companies
Section 6(1) also specifies three rules to determine whether a company is resident of Australia, these are:
The place of incorporation test;

The place of management and control test; and

The residence of controlling shareholders test.

AJML Accountants Update – Guide on Trust Part 5 – Terms

Guide on Trust Funds – Part 5

The trustee(s)

The trustee is the legal owner of the trust property, although not the beneficial owner, and is responsible for managing the trust fund. Being the legal owner, all of the transactions of the trust are carried out in the name of the trustee. The trustee signs all documents for and on behalf of the trust, i.e., in its capacity as trustee of the trust.

As a trust is not a separate legal entity, the trustee bears the duties and responsibilities in relation to the trust. As such, the trustee is personally liable to creditors and accountable to beneficiaries.

The trustee can limit their personal liability by making it clear that any contract or promise is supported by the trust’s assets only and not by the trustee’s own personal assets.

The trustee’s overriding duty is to obey the terms of the trust deed. The trustee also has a duty to act in the best interests of the beneficiaries. There are many other duties imposed on the

trustee by law. In summary, these are:
Trustees must carry out the terms of the trust;
Trustees must act in good faith;
Trustees must preserve the trust assets;
Trustees must exercise reasonable care in the administration of the trust;
Trustees must not benefit from their position as trustee;
Trustees must not put themselves in a position of conflict of compromise;

Trustees must keep proper accounts and records.

In addition to a trustee’s duties, which the trustee must carry out, the trustee also has the choice to use “powers”. Powers under many trust deeds include the power to buy assets, dispose of them at any time, mortgage assets for the purposes of undertaking borrowings, and so on.

Who should be the Trustee?

As the trustee is personally liable for the debts and transactions they undertake on behalf of the trust, best practice is to use a company as trustee, for the following reasons:

It is easier to effect changes of control;
A company never dies – this saves the expense of transferring assets to new trustees on the death or retirement of the existing trustees; and
The company should ideally have no significant assets of its own (if its only role is to act as corporate trustee) which could be exposed to the creditors of the trust.
Although there are circumstances in which the corporate trustee can be personally liable, a corporate trustee still generally offers greater protection than an individual being the trustee.

Therefore, it is recommended that, where possible, a company should be the trustee.

It is generally preferable to have separate trustees for the following reasons:

it avoids the need to prove which assets belong to which trust.; and
there is a risk that a creditor could get access to the assets of all trusts for which the trustee acts, i.e., creditors of one trust may access assets of the others.

AJML ACCOUNTANTS UPDATE – complete GST for online sales and purchases

GST for online sales and purchases

REGISTER FOR GST

You must register for GST if your turnover is more than $75,000 annually. If your turnover is under $75,000 then you may register voluntarily. You must register for GST regardless of your turnover if you are a taxi driver.

DOMESTIC ONLINE SALES

GST may need to be charged for online sales to domestic customers, given that the seller is registered for GST. Usually for online sales like eBay, the final price is already GST inclusive, so the seller then must pay 1/11 of the final bidding price or the sale price to the ATO as GST collected on sale. Please see sample below:

Example 1

Andy has a small online business and his annual GST turnover is $100,000 so Andy is required to register for GST (and Andy is registered for GST). Andy made an online sale to Billy, a set of Bluetooth earphones at $55 dollars. Hence the GST calculation will be as follows:

Gross sales: $55
GST on sales ($55/11): $5
Net Sales (Andy
Pockets this money) $50

Example 2

Similar to example 1, if Andy is not registered for GST, then the money that Andy pockets would be $55.

INTERNATIONAL ONLINE SALES

GST is not charged for international online sales.

International online sales are considered as export sales because the sales are moving from Australia to overseas. Goods and Services Tax Ruling GSTR 2002/6 explains in detail the GST free export sales.

Sample 3

Andy has sold an iPad cover online to Charley in England, for $44 dollars. There will be no GST on the sale because the sale is counted as export sale, from Australia to England.

DOMESTIC ONLINE PURCHASE

The sale as GST for domestic online sales, you may only be charged GST if the seller is registered for GST, and you can only get the refund on the GST you paid for your business-related expenses if you are registered for GST.

Example 4

Andy has bought some iPod covers from Donny for a total of $11,000. Both Andy and Donny are registered for GST and both are in Australia. The GST calculation would be as follows:

Gross sales (purchases): $11,000
GST on sales (purchases): $1,000
Net sales (purchases): $10,000

Example 5

Similar to example 4, but Donny is not registered for GST. In this case Andy would not have paid any GST on the purchase because he was not charged GST. Hence Andy’s gross sales would be $11,000.

INTERNATIONAL ONLINE PURCHASE

This is counted as importing goods from overseas to Australia. Under GST Ruling GSTR 2003/15, some purchases are GST free while some are not. The most controversial one being discussed nowadays is on the purchase of goods from online businesses which are under $1,000.

GSTR 2003/15, Appendix A Division 114 Item 2 stated that these goods are classified as Low value consignments by post and they are of a kind referred to in Customs Act 1901 Paragraph 68(1)(e). They are GST free imported goods.

In terms of tax planning, when a business has outsourced their products or services overseas, they do not charge GST on their sales, their price is lower than their domestic counterpart by 10%, although they are registered Australian companies, is that they have outsourced their products overseas so when the consumer purchases online the goods are then shipped from overseas into Australia. By law this counts as imported goods.

For more information please refer to GSTR 2003/15 from the Australian Taxation Office’s website.

AJML Accountants Update – Residency for tax purpose 3

Residency for tax purpose – Part 3

Residence – introduction
As a general principle, an Australian resident is subject to tax in Australia on income from all (worldwide) sources, whereas a person who is not an Australian resident is only subject to tax in Australia on income from Australian sources.

The four tests for individuals
Generally speaking, there are four tests to determine whether you are an Australian resident for tax purposes or not, you only need to pass one of the four tests and they are:

Ordinary concepts of residence
The primary test for deciding residency status is whether the individual ‘resides’ in Australia according to the ordinary meaning of that word.

This test is mainly based on how you go on with your living when you are in Australia, and the degree of continuity with how you live your life in Australia. This can be determined on factors like:
Intention or purpose of presence

Family and business and/or employment ties

Maintenance and location of assets

Social and living arrangements
TR 98/17 explains in detail what ‘resides in Australia’ means. TR 98/17 considers about people who enter Australia as:
Migrants
Academics teaching or studying in Australia
Students
Tourists, and
Those on pre-arranged employment contracts.
There is no definition of the word ‘resides’ in the Australian income tax law. The Macquarie Dictionary defines ‘reside’ as ‘to dwell permanently or for a considerable time; have one’s abode for a time’. Seeing that the ordinary meaning of the word ‘reside’ is wide enough to include in scope an individual who comes to Australia permanently (e.g. migrant) and an individual who is dwelling here for a considerable amount of time.

Example – Migrant
A migrant who comes to Australia with the intention to reside here permanently is a resident from arrival, whereas when an individual arrives in Australia not intending to reside here, then all the facts about his or her presence must be considered in determining residency status.

The period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here.
However, an individual’s behavior over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Example – Resident
John claims that he does not intend to reside in Australia but he has bank accounts and has signed a 12 month lease agreement with his landlord. Based on the above facts John intends to stay in the country for at least one year.

Example – Non resident
Mary claims she intends to live in Australia forever but her visa only permits her to stay in Australia for 6 months and the visa forbids her from applying for permanent residency visa. Based on the above facts Mary cannot stay in Australia for more than 6 months, so Mary does not reside in Australia.

Overseas students and backpackers
As a rule, the Commissioner will treat overseas students studying in Australia as residents where the course of study extends beyond 6 months: ruling TR 98/17.
Backpackers visiting Australia on working holiday are generally not considered to be resident of Australia.

AJML Accountants Update – Guide on Trust Part 8 Tax Return

Guide on Trust Funds – Part 8

Family Trust income

One of the key benefits of a family trust is that the trustee can distribute income earned by the trust [from the trust property] in any way they see fit, provided distributions are made to people who qualify as beneficiaries. They do not have to make trust distributions in any particular proportion or in the same proportions as they did in previous years.

A trust does not have to pay income tax on income that is distributed to the beneficiaries, but does have to pay tax on undistributed income. The trustee is free to distribute trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries’ personal marginal tax rates. The beneficiaries then pay the tax on distributions made to them.

Distributions received from a trust are part of a beneficiary’s assessable income. If the beneficiary receives income from other sources in addition to distributions from the trust, all of the income will be taxed together.

Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45.00% for the 2012/2013 year and 2013/14 year, giving a strong incentive to family trusts to fully distribute the trust’s income before the end of each financial year.

Family trust elections — a word from the ATO on income distributions

One important aspect of a family trust that must be kept in mind is to whom the distributions are made.

First, all distributions must be made only to people who qualify under the terms of the trust deed to be beneficiaries of the trust.

Secondly, for trusts that have made a family trust election, the distributions may only be made to beneficiaries who are within ‘the family group’. In relation to this the ATO states on its website:

“A consequence of making a family trust election or an interposed entity election is that any distributions (broadly defined) outside the family group of the family trust by the trust will be taxed at the top marginal rate applying to individuals plus the Medicare levy.”

In other words, if a family trust makes a family trust election and

then pays out to someone not a member of the family group, they will be taxed at the maximum rate possible.

Is any tax payable by the trustee?

The trustee is generally liable to pay tax on:

that part of the net income of the trust that has not been assessed to either a presently entitled beneficiary or the trustee on behalf of a presently entitled beneficiary.

shares of the net income of a trust in respect of beneficiaries, whether or not the beneficiaries are acting in their capacity as trustee of another trust estate, who are presently entitled to a share of the income of the trust estate but are non-resident at the end of the income year.

shares of the net income of a trust in respect of beneficiaries who are presently entitled to a share of the income of the trust estate but are under a legal disability.

if the trust is a special disability trust and the ‘principal beneficiary’ is an Australian resident at the end of the income year, the whole of the net income of the trust.

AJML UPDATE – GST 1

Goods and Services Tax for SMEs – Part 1

REGISTERING FOR GST
If you carry on an enterprise, which includes a business, you must register for GST if your GST turnover is $75,000 or more ($150,000 or more for non-profit organizations). Your GST turnover, which is your gross business income, excluding any:
GST included in sale to customers
Sales not taxable and not for payment
Sales not connected with an enterprise you carry on
Input taxed sales
Sales not connected with Australia
You can choose to register for GST if your turnover is less than $75,000, but you must generally stay registered for at least 12 months. However, if you do reach the threshold, you must register within 21 days of reaching the threshold.
Regardless of your GST turnover, you must also register for GST if you provide taxi travel as part of your enterprise.
Once you are registered for GST, you are required to include GST in most goods and services you sell and you will be able to claim credits for the GST included in the price of most of your business purchases. You will need to report these transactions by completing an activity statement every month or quarter, or an annual GST return.

TAXABLE SALES
You must charge GST on taxable sales you make. You can claim GST credits for purchases you used to make these taxable sales.

You make a taxable sale if you are registered or required to be registered for GST and:
You make the sale for payment
You make the sale in the course of operating your enterprise, and
The sale is connected with Australia.
A sale is not taxable if it is GST free sale or input taxed sale.
If the sale is partially taxable and partially not, then you will separate the sale into different components.

SALES FOR PAYMENT
For a sale to be taxable, it must be made for payment. This is usually monetary but can be in another form of other payment, for example goods and services provided instead of money.

SALES CONNECTED WITH AUSTRALIA
A sale of goods is connected with Australia if the goods are:
Delivered or made available in Australia to the purchases
Removed from Australia
Brought to Australia as import or installs/assembles the goods in Australia
A sale of property is connected with Australia if the property is in Australia. For GST purposes property includes:
Land and buildings
Interest in land
Rights over land
License to occupy land
A sale of things other than goods or property is connected with Australia if any of the following apply:

The thing is done in Australia
The seller makes the sale through an enterprise they carry on in Australia
The sale is of a right or option to purchase something that would be connected with Australia.

TAX PERIODS
If the business satisfies one of the following rules, the business will have a monthly tax period, reporting on a monthly basis. If not, the business may choose to report on a monthly basis;

GST turnover is $20 million or more
Only carrying on an enterprise for less than three months
Entity has a history of failing to comply with tax obligations

An entity that uses a one-month tax period may change to quarterly tax periods, ending on 31 March, 30 June, 30 September and 31 December, if the entity’s annual turnover falls below the threshold and one-month tax period has been used for at least 12 months. Small Business Entities or non-business taxpayer with turnover of less than $2 million may elect to use the simplified GST accounting period where estimated GST instalments are paid each quarter and only an annual return is lodged.

AJML Accountants Update – Residency for tax purpose 4

Residency for tax purpose – Part 4

Residence – introduction
As a general principle, an Australian resident is subject to tax in Australia on income from all (worldwide) sources, whereas a person who is not an Australian resident is only subject to tax in Australia on income from Australian sources.

The four tests for individuals
Generally speaking, there are four tests to determine whether you are an Australian resident for tax purposes or not, you only need to pass one of the four tests and they are:

Domicile and permanent place of abode test
The first of the 3 specific tests in the definition of ‘resident’ in s6(1) requires the individual to be domiciled in Australia. There are generally 3 types of domicile that an individual can have – domicile of origin, domicile of choice and domicile of dependency.
Basically, the domicile of origin of an individual is the domicile of the individual’s father at the date of birth unless the child is illegitimate.
For an individual to acquire a domicile of choice, there must be both the act and the intention to

select a new jurisdiction as that individual’s permanent home.
A domicile of dependency normally only exists in relations to minors or individuals who are of unsound mind.
This test is usually applied when you do not satisfy the Resides test because you will be away for a long period of time. When you domicile at a place it is considered by law to be your permanent home and more than a residence. You are a resident if you domicile in Australia, unless the ATO is satisfied that your permanent place of abode (where you live with your family) is outside of Australia.
Definition of permanent place of abode:

The following meanings have been established through case law:

Permanent does not have the meaning of everlasting or forever, but is used in the sense of being contrasted to temporary or transitory, and

Your place of abode is your residence, where you live with your family and sleep at night.

Example
If your employer send you overseas to work in a subsidiary firm for 5 years in order to promote you to senior management when you return to Australia, and during the time away from Australia you only lived in the company’s apartment block, invested all of your income overseas back into Australia, bought no property overseas, and during your time away from Australia you rented out your house and bought shares within the Australian share market with your rental income, and intend to return to Australia as soon as your employer

intend you to come back to Australia, then your permanent place of abode remains Australia.
There are no hard and fast rules that can be used to determine your permanent place of abode. Tax Ruling IT 2650 outlines some relevant factors that are used by courts, tribunals and ATO in deciding such cases.

The relevant factors are:
Intended and actual length of stay overseas, including the continuity of that stay

Existence of established home overseas

Existence of residence in Australia (while overseas)

Family and financial ties
However, even if a person is Australian resident for taxation purposes don’t mean that the person cannot be a resident for another country; hence, double tax agreement exists. In most cases in relation to double tax agreements, the person is usually resident for both countries. For more information please refer to the relevant Double Tax Agreement on the ATO website.

Resident example:
John has been an Australian resident all of his life but now he is on a two-year round the world trip following his retirement.

Non-resident example:
Mary has been an Australian resident all of her life but she moved to America three months ago to live with her daughter and to look after her daughter’s children.

AJML UPDATE – GST 3

Goods and Services Tax for SMEs – Part 3

WHEN YOU CAN CLAIM GST CREDITS

You can claim GST credits for the GST included in a purchase you make if you are registered for GST and all of the following apply:

You intend to use your purchase solely or partly in carrying on your business
The price includes GST you provide, or are liable to provide, payment for the item you purchased
You have a tax invoice from your supplier
You have only included the business use percentage for purchases that relate to both business and private use.

GST AND MOTOR VEHICLES

For GST purposes, the term motor vehicle means a motor-powered road vehicle. In addition, a car is designed a load of less than one tone and fewer than nine passengers. The term car doesn’t include a motorcycle or similar vehicle.

HOW TO CLAIM FOR PURCHASING A MOTOR VEHICLE?

You’re generally entitled to claim a partial GST credit based on how much you use the motor vehicle in carrying on your business. You must include only the proportion of the cost of the motor vehicle that relates to business use and claim the GST on your Business Activity Statement.

Special rules apply for motor vehicles with a value exceeding the car limit.
The luxury car limit for the 2009–10 financial year is $57,180. This limit is reviewed each financial year and may change. For a luxury car, you cannot claim a credit for any luxury car tax.
The exceptions for the above rules:
You hold the car as trading stock
you carry out research and development for the manufacturer of the car
you export the car to where the export is GST-free
it is an emergency vehicle
it is a commercial vehicle that is not designed for the principal purpose of carrying passengers
it is motor home or campervan, or,
it is a vehicle specifically fitted out for transporting disabled people seated in wheelchairs

LEASING AND PURCHASING A SECOND-HAND MOTOR VEHCILE
If you lease a car, you may be entitled to claim a GST credit for the GST included in each lease payment, based on the amount you use the car in carrying on your business.
If you purchase a second-hand motor vehicle from someone who is not registered for GST and you are purchasing the vehicle to sell or exchange it, you may be entitled to claim a GST credit. If you don’t plan to sell or exchange the vehicle, you cannot claim a GST credit.

CANCELLATION OF GST

You must cancel GST registration if you are no longer carrying on an enterprise. This may apply where your business has:

Closed down
Been sold
Changed structure, example, sole trader to company

You must cancel your GST registration within 21 days or a fine will apply.

WHAT HAPPENED AFTER YOU DEREGISTERED FROM GST

You must complete an activity statement for the tax period your registration cancellation occurs. You must report all sales, purchases and adjustments for assets held after cancellation.

If you sell your business and assets that are part of the business, the sale of the assets must be recorded on your final BAS.

You need to lodge any outstanding activity statements and account for any outstanding GST amounts.

If you still have PAYGW, PAYGI or fringe benefit tax obligations, you must continue to report these obligations on an installment activity statement (IAS).

AJML Accountants Update – Residency for tax purpose 5

Residency for tax purpose – Part 5

Residence – introduction
As a general principle, an Australian resident is subject to tax in Australia on income from all (worldwide) sources, whereas a person who is not an Australian resident is only subject to tax in Australia on income from Australian sources.

The four tests for individuals
Generally speaking, there are four tests to determine whether you are an Australian resident for tax purposes or not, you only need to pass one of the four tests and they are:

183 Days and usual place of abode test
An individual will satisfy the second specific test in the definition of ‘resident’ in s6(1) if he or she has been in Australia for more than half of the income year, unless the Commissioner is satisfied that the individual’s usual place of abode is outside of Australia and he or she does not intend to take up residence in Australia. If this test applies, the person is treated as a resident for the entire income year. If the person intends to take up residence in Australia, the person is arguably a resident from the time of first arrival in Australia.

It should be noted that the time involved is more than half of the income year, ie at least 183 days. This suggests that an individual who is in Australia from February to November 2001 would not be treated, under this rule alone, as a resident of Australia for more than half of either year. The minimum 183 days period need not be a continuous period. Separate visits with in an income year will be added together in counting the number of days present in Australia for that year.
This test states that you are deemed to be a resident if you have lived in Australia for more than half a year during the financial year continuously or intermittently. Exceptions to the rules are:

Your usual place of abode (current home) is outside of Australia

You have no intention to take residence here
Resident example:
John came to Australia for seven months on student visa that lets him stay in Australia for two years.
Non-resident example:
Mary came to Australia on work holiday maker visa for eight months, and has found several casual jobs to support her holiday. Mary worked for 4 months as her main objective is to see as much as she could within Australia. Mary travelled from city to city while working.
Mary is deemed not a resident because her usual place of abode is overseas.

Commonwealth superannuation scheme test
This is the last test in relation to residency status, and is to be applied if none of the above tests are satisfied. The test states that you are a resident if you are:

A member of the superannuation scheme established under the superannuation Act 1990 or

An eligible employee for the purpose of the Superannuation Act 1976.

This test is designed to ensure that the Commonwealth government employees working abroad are treated as residents.

Resident example:
John, an officer of Department of Foreign Affairs and Trade, is posted to Ghana for a period of five years. During the five years the government paid superannuation into an Australian superannuation fund for John.

Non-resident example:
Mary, a retired public servant in receipt of superannuation pension goes to China for holiday of two years. Mary is not a resident during her holiday in China and will only be taxed on her Australian sourced income, aka, her superannuation pension, because she is no longer a contributing member of the superannuation fund.

AJML ACCOUNTANTS UPDATE – Complete GST and property

GST and Property

PROPERTY DEVELOPERS

If you are dealing with property (for example, you buy, sell, lease or develop), you may be considered to be conducting an enterprise. If your turnover from these activities is more than the GST registration threshold of $75,000 you may be required to register for GST.

WHAT IS A PROPERTY

For GST purposes, property includes any of the following:
land
land and buildings
an interest in land
rights over land
a licence to occupy land.

SELLING A PROPERTY

When you sell a property, the sale may be:

taxable – this means you are liable for GST on the sale, and you can claim GST credits for anything you purchase or import to make the sale (subject to the normal rules on GST credits)

GSTfree – this means you are not liable for GST on the sale, but you can claim GST credits for anything you purchase or import to make the sale

(subject to the normal rules on GST credits)

input taxed – this means you are not liable for GST on the sale and you cannot claim GST credits for anything you purchase or import to make the sale

mixed – this is a combination of any of the above.

OFF THE PLAN PURCHASES

An off-the-plan purchase occurs when you enter into a contract to purchase new residential premises before the construction is completed.

Generally, you pay a deposit and sign a contract with the developer. You pay the balance of the purchase price on settlement.

On settlement, you are purchasing new residential premises and the purchase price will include GST.

However, if you sell the contractual right before settlement you are not selling new residential premises, and GST may apply if the sale of the contractual right forms part of your GST registered business.

EXISTING RESIDENTIAL PREMISES

You cannot claim GST credits for anything you purchase for the sale of existing residential premises and you are not liable for GST on the sale.

If you sell residential premises, they are input taxed unless the property is new.

If you own premises and they are used for residential and commercial purposes, GST may apply.

If you purchase existing residential premises, the sale is input taxed, so you cannot claim a GST credit on the purchase.

RENT RECEIVED

If you lease residential accommodation, the following applies:
you are not liable for GST on the rent you charge
you cannot claim GST credits for anything you purchase or import to lease the premises.

For more information regarding GST and property, including commercial property, please visit www.ato.gov.au and search for 00198744 and 00797808.

AJML UPDATE – Small Business Benchmarks

Small Business Benchmarks

What is it?

Small business benchmarks are financial ratios developed to help you compare your performance against similar businesses in your industry. The benchmarks provide guidance on what figures ATO would normally expect a business in a particular industry to report.

The ATO use benchmarks to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income or over claim their tax deductions.

Benchmarks are published for businesses with different turnover ranges across more than 100 industries. The benchmarks are published as a range, to recognise the variations that occur between businesses. These ranges are representative of returns and activity statements of the industry; for example, they allow for variations between businesses in different regions and with different business circumstances.

By publishing benchmarks for small businesses ATO is making it clear as to what ATO expects from businesses in a particular industry.

Businesses reporting outside the benchmarks may attract ATO’s attention. There may be reasons for this difference, such as higher costs or lower selling prices than

others in the industry, but it may also be an indication that the business is not recording and paying tax on all transactions, especially cash transactions.

If you find you are outside the benchmarks for your industry, you should check that you have correctly recorded and reported income and deductions for your business. To do this you should review your record-keeping practices to ensure they meet the legal requirements.

How to find your business’s benchmarks

Small business benchmarks are listed by both business type (A-Z) and business industry categories based on the business industry codes or Australian and New Zealand Standard Industrial Classification (ANZSIC codes). They can be obtained from the ATO’s website. Please visit Small business benchmarks

Performance benchmarks

Performance benchmarks provide financial ratios for your industry to help you work out:

if you fall within or outside the benchmark range for your industry
why your business may differ from the benchmark range.

Performance benchmarks have been developed using information on income tax returns and activity statements.

Performance benchmarks help you to:
compare your business performance with others in your industry
check you have correctly recorded all of your income, particularly cash income.

Performance benchmarks contain several ratios to help you compare and check your own business performance. For each industry ATO
use the key benchmark ratio to identify or quantify omitted income.

Input benchmarks

Input benchmarks show an expected range of income for tradespeople based on the labour and materials they use.

Input benchmarks are developed using information provided to us by industry participants and trade associations.

Input benchmarks may help you to:
compare your business to your industry’s benchmark range
check that your records accurately reflect your income
estimate your turnover based on the labour and materials used.

Input benchmarks apply to tradespeople who undertake domestic projects and are responsible for purchasing their own materials.

AJML ACCOUNTANTS UPDATE – Helping others improve their lives

The Power of Predictability In Maintaining Business Relationships

Aim for predictability in your professional performance. It greatly enhances your value to others.

Human all prefer the familiar to the alien. One for the stunning success of the franchise concept during the second half of the twentieth century was that it offered the familiar and the predictable. Before franchises, business travelers could stop at any small town hotel, but they could not predict the reception they would get – it depended on the mood of the proprietor. Needless to say the room and the amenities the hotel offered inevitably were a bit of a gamble. Then the Holiday Inn began to make its appearance in every town. Travelers flocked to patronize the Holiday Inn. Travelers would keep driving until they arrived in a town with a Holiday Inn. Why? Because it was standardized. As a traveler, you knew in advance how everything would be precisely the same as the Holiday Inn you lodged at the previous night in a town 300 miles away. The way you were greeted on checking in, the rates, and the amenities were exactly what you anticipated. You recognized the paintings on the walls, the strip of paper affixed to the toilet bowl, and even the location of the light switches. That kind of predictability and familiarity causes comfort. The unexpected and strange causes anxiety. Thus to benefit from this principle, you should endeavor to make everyone’s interactions with

you quite predictable and familiar. Everyone has had the experience of trying to work with an unpredictable and every temperamental associate. Never knowing just what reaction you will get to a request or a suggestion can be very trying.

All kinds of interaction between people depend on predictability. Provided a better one was available, nobody would subscribe to a telephone service that connected you to the right party only half the time.

In your professional work, you can benefit from similar predictability. For instance, any business that customers visit would experience real benefit from keeping the same associates for as long as possible. A patient trying to decide whether to undergo an expensive dental procedure would find the decision easier when surrounded by familiar and trusted faces.

Similarly, in whatever enterprise you find yourself, practice predictability. Never impose your mood swings on your associates and customers. They should never be able to discover how you life is going. This is called being professional. Given two alternatives, most customers and clients would prefer working with someone who does not display an entirely new personality one each occasion.

If there is one lesson to be extracted from this chapter it is this: success in business means getting on with people. Now ask yourself what kind of people more easily makes friends – academic intellectuals of super high intelligence or more ordinary down to earth type people? Oh yes, very intelligent people can be warm and friendly, but it is very rare. Superbly intelligent Warren Buffet, chairman of Berkshire Hathaway, manages to conceal his off-the-chart intelligence behind warm bonhomie and Midwest accessibility. By and large, people may admire super intelligent people, but they neither like nor feel particularly comfortable with them. Think of expressions such as ‘too smart for his own good’ and ‘smarty pants’. They are not fond endearments.

Lessons:
Your caring and predictable culture will make your customers easier to deal with you. Success in business means getting on with people.

AJML Accountants Update – Residency for tax purpose 6

Residency for tax purpose – Part 6

Residency of Companies

A company will be regarded as a resident of Australia if:

It is incorporated in Australia

It carries on business in Australia and has its central management and control in Australia, or

It carries on business in Australia and has its voting power controlled by shareholders who are residents of Australia.

Incorporation

If a company is incorporated in Australia it will be treated as a resident for domestic Australian tax purposes, regardless of any other factors.

Central management and control

If a company carries on business in Australia and has its central management and control in Australia, it will be treated as a resident of Australia. Whether a business is being carried on a question of fact: Malayan Shipping Co Ltd vs FCT (1946), the ATO seems to consider that simply holding some board meetings in Australia and the occasional

presence in Australia of senior executives are of themselves insufficient to conclude that a business is being carried on in Australia: see ATO ID 2002/46.

Central management and control is, generally speaking, the place where the directors of the company meet to conduct the business of the company: Koitaki Para Rubber Estates Ltd vs FCT (1940)

Control of voting power

A company is also treated as a resident of Australia of it carries on business in Australia and has its voting power controlled by Australian resident shareholders.

The presence of controlling shareholders who are residents of Australia creates a clear link between the test of residence for companies and that which applies for individuals.

Taxation

Note that both Australian companies and non-Australian companies are taxed on the same rate of 30%, with the difference being resident companies are taxed on all sources of income whereas non-residents are only taxed on Australian sourced income.

Residency of trusts

Generally, a trust estate other than unit trust will be regarded as an Australia resident if:

Any of the trustees were Australian residents at any time during the income year, or

The central management and control of the trust estate was in Australia at any time during the income year.

Unit trusts (other than corporate unit trusts or public trading trusts) will be considered Australian residents in any given year if:

A trustee of the trust estate was a resident at any time during the year, or

The central management and control of the trust estate was in Australia at any time during the income year, and if they also meet one of the following:

Any property of the trust is situated in Australia.

The trust carries on a business in Australia.

Australian residents held more than 50% of the beneficial interests in the income or property of the trust

Generally, the trusts don’t pay any tax, but beneficiaries of the trust pays tax on the trust net income that is given to them by the trustee of the trust. Then the beneficiaries and the trustee are taxed on the trust depending on their own circumstances.

AJML ACCOUNTANTS UPDATE – Rental Property detailed part 5

Investment properties – part 5

Repairs and maintenance

Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.

However, the following expenses are capital, or of a capital nature, and are not deductible:

replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)

improvements, renovations, extensions and alterations, and

initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

You may be able to claim capital works deductions for these expenses.

Example 1

Sue owns a rental property and during the year the paint of the wall starts falling off.

If Sue decides to buy the same paint as before and repaint the rental property over with, this is repair and will be fully deductible in
the same year that Sue re-painted the rental property.

However, if Sue bought a different type of paint 10 times more expensive and better than the old paint, this will be replacement and the cost for the painting will be capital in nature and deducted in line with the rental property itself.

Travelling expense

If you travel to inspect or maintain your property or collect the rent, you may be able to claim the costs of travelling as a deduction. You are allowed a full deduction where the sole purpose of the trip relates to the rental property.

However, in other circumstances you may not be able to claim a deduction or you may be entitled to only a partial deduction.

If you fly to inspect your rental property, stay overnight, and return home on the following day, all of the airfare and accommodation expenses would generally be allowed as a deduction provided the sole purpose of your trip was to inspect your rental property.

Example 2

Sue lives in Sydney and has a rental property in Perth. Sue travelled to Perth for 2 nights to inspect the rental property. During her time in Perth Sue spent the entire time on the rental property.

In this case she can claim all the travel and accommodation costs related to her rental property.

Tip: If you no longer rent the property, the cost of repairs may still be deductible provided:

the need for the repairs is related to the period in which the property was used by you to produce income, and

the property was income-producing during the income year in which you incurred the cost of repairs.

For more information, please see the Guide to capital gains tax
2011 on www.ato.gov.au

AJML UPDATE – shares general info part 1

Shares – Part 1
Introduction

A company issues shares to raise the money it needs to finance its operations. In doing so, it grants shareholders (investors) various entitlements – for example, the right to receive dividends or the right to share in the capital of the company upon winding up. A company may issue different classes of shares, so these entitlements may vary between different shareholders, there are also different rules applicable to listed vs unlisted shares, i.e. public companies vs private companies.

Obtaining shares

You usually obtain shares by buying them, but there are other ways – for example, you might receive shares if you have a policy in an insurance company that demutualises. Regardless of how you get them, it’s important to keep track of your share transactions from the beginning so you can claim everything you’re entitled to and work out your tax accurately.

You can obtain shares:

  • by buying them
  • by inheriting them
  • by being given them (receiving them as a gift)
  • by them being transferred to you as the result of a marriage or relationship breakdown
  • through an employee share scheme
  • through a conversion of notes to shares
  • through bonus share schemes of companies in which you hold shares
  • through dividend reinvestment plans of companies in which you hold shares
  • through mergers, takeovers and demergers of companies in which you hold shares.

Dividends and imputation credits

Dividends (income from shares) are income for tax purposes. There are also other tax aspects to obtaining, owning and disposing of shares, including shares in employee share schemes. You can claim deductions for costs related to the dividend income, such as management fees and interest on money you borrowed to buy the shares. Imputation credits, sometimes referred to as franking credits sometimes associated with the dividend depending on the franking percentage, i.e. fully franked, partly franked or unfranked.

AJML ACCOUNTANTS UPDATE – Investment properties general Part 1

Investment properties – part 1

Investment real estate includes rental properties, vacant land, holiday houses and hobby farms, but not your own home.

You need to include rental income in your tax return each year.

Any profit (capital gain) you make when you sell an investment property is also income that you need to include in your tax return, although you can offset it against a capital loss if you have one.

You can claim deductions for many of the expenses associated with obtaining, owning and disposing of a rental property, although some you can only include when you sell the property. You use these to decrease the amount of capital gain you may make.

Your home (referred to as your ‘main residence’ for CGT purposes) is subject to CGT only if you rent it out or use it for a business at any time while you own it.

Obtaining an investment property

When you obtain an investment property, it’s important to start keeping records straight away. You’ll want proof of your expenses from the beginning so you can claim everything you’re entitled to. You’ll also need records of the date and costs of buying the property when you go to work out any capital gain (or capital loss) when you dispose of it.

You can obtain an investment property by:

  1. buying it
  2. inheriting it
  3. receiving it as a prize 
  4. receiving it as a gift 

having it transferred to you as a result of a marriage or relationship breakdown.

The key tax issues you need to be aware of at this stage are:

Generally, your name must be on the title deed for you to declare the income from the property and claim the related expenses.
You may be able to claim a tax deduction for costs related to purchasing your property – if not, you may be able to include them in the cost base (cost of ownership), which you deduct from what you receive when you sell the property to work out your capital gain (or capital loss).
You need to keep your building costs separate to the decline in value of any depreciating assets – this will help you claim your deductions correctly and work out your capital gain accurately when you sell the property.
For capital gains tax purposes your date of purchase is the date you enter into the contract, not the settlement date.

You can also set up an asset register. It’s easy to do and once you’ve entered your information into your register you may be able to throw away some of the old records you’ve been keeping.

Example 1:

Addy passed away on 30 June 2010 and in his last will Addy left his investment property (which is post CGT) to his two sons, Eddy and Iddy. The contract for the property, which dated 30 October 2010, wasn’t settled until 30 November 2010.

For CGT purposes Eddy and Iddy are deemed to have received the property

from Addy on 30 October 2010 (date of entering the contract) and the cost
base that Eddy and Iddy are to record in their individual income tax returns when they sell the inherited property is the cost base that is to be recorded on Addy’s income tax return at the date of his death.

Example 2:

Sally and Billy are divorced after 10 years of marriage by order of the Family Court and the court ordered Billy’s investment property (purchased on 30 June 2008) is to be transferred to Sally. The transfer is completed on 30 December 2010.

If Sally decides to sell the investment property upon receiving it and not using the investment property as her main residence, then she will use the cost base of the investment property at the date that Billy purchased the investment property (which is 30 June 2008) because the rollover provision of section 118.75 of Income Tax Assessment Act 1997 applies.

For more information about receiving property through inheritance or a relationship breakdown, refer to the following ATO publications:

Guide to deceased estates
Marriage or relationship breakdown and transferring of assets.

AJML Accountants Update – Money is Intangible

Money is Intangible: It Depends on Reputation

Another reminder that money is really quite intangible, a mere symbol for something else, is the $9 billion that then-head of Ford Motor Company, Jacques Nasser, paid for two utter intangibles, the names “Jaguar” and “Volvo”. Two brand names are worth $9 billion? That is correct. No factories were moved from England or Sweden to Detroit. No accumulated inventory of cars was shipped across the Atlantic. The owners of those two brands, Jaguar and Volvo, simply said the magic words, “The brand is now yours; send the check to my office.” If three-quarters of the world’s population were afflicted with amnesia on the day before the transaction closed, would the transaction have gone through? No, because the value of the brand name lies in the reputation built up over the years. If most customers have forgotten that Jaguar means “performance” and Volvo means “safety”, then the names have lost their value.

Consider another example. Why do stocks like Coca-Cola sometimes sell for more than 40 times earnings and a huge premium to book value? Because people have come to understand that money is spiritual rather than

tangible. Coca-Cola’s value is not just in its factories and bottling plants. It is also in the company’s management integrity and brand recognition, which are so much harder to quantify. That is why money is so often misunderstood.

Here’s another case in point. In December 1994, after some political intrigue, the board of directors of the advertising agency Saatchi & Saatchi fired the founder of the company, Maurice Saatchi. According to standard accounting rules, the dismissal of one of the Saatchi brothers was irrelevant to the balance sheet. Nevertheless, the stock, which had been trading on the New York Stock Exchange at about $9, immediately fell to $4.

The market realized that without the brilliant mind and the compelling business connections of Maurice Saatchi, all that Saatchi & Saatchi shareholders owned
were desks, chairs, and a soda machine.

These examples are intended to help you understand that money does not exist without a framework of intangible connectivity.

Money is a numeric analog for you run your life and what you have done for others. Money is a metaphor for the strength of your human relationships. Unlike a swamp or a forest, money ceases to exist in the absence of people. Money is a combination of a claim and a promise. Money is intangible. It is only as good as the

invisible network of trust that links vast numbers of humans into a loose kind of unity. It is a claim against other people for the goods and services you need, and it is a promise on their part to supply those goods and services to you.

Leadership requires mastery of both faith and facts

Some people master facts. If the facts they master pertain to the elasticity of polymers or the electrical resistance characteristics of semiconductors, those people tend to do well working as engineers. If the facts they master are legal precedents, they tend to succeed working for a law firm or for a law school. Other people who master the area of faith might find their niche as theologians.

Those destined to succeed in leadership when the circumstance presents itself are those who have mastered both faith and facts. The latter is the easier to dispense with.

Clearly my confidence in my leader will be badly shaken if I find out that he or she is unaware of important and germane facts. This does not mean that my sergeant or my president must necessarily be an encyclopedia of facts. It does mean that the leader should be drawing on those who are in possession of the needed facts.

He or she cannot risk appearing indifferent to facts relevant to the operation. For example, if an invasion is planned, I expect to be reassured by the leader’s focus on intelligence. I want to

see the leader assigning someone the job of finding out exactly what defensive capacity will be confronted.

Similarity, if a new marketing campaign is being launched, I will more eagerly throw my efforts into the task if I know that the leader is aware of the competition.

It is clear that your efforts to become a leader will be thwarted if you cannot master the relevant facts. Mastery of facts is an indispensable accompaniment to leadership, but it is only half the story. If facts are all you master, then you will always be valuable to the leaders, but you are not destined to become a leader yourself.

The other necessary element is that of faith. Does this mean only religious people can become leaders? No, of course not. When I use the word Faith with a capital “F,” I mean a specific kind of faith, faith in Almighty God. However, when I use the word faith, I mean the ability to work as comfortably with something yet invisible as if it were already a present reality.

Whether you are leading yourself or are already leading others, you are distinguished by something very important. You alone see the desired outcome in front of your very eyes, as plainly as if it were already a reality.

These five obligations rest on business leaders, too. As a leader:

You must induct your employees into the culture of your organization. Without undergoing that acculturating experience, employees will never participate fully as members of a team. Without it, they will also fail to develop internal guidelines that will allow them to use their initiative in the absence of specific direction.
You must also be crystal clear on exactly what you expect from those who look to you for leadership.
You must also regard it as part of your mandate to ensure that no employee languished in loneliness.
You must provide skill training that will allow each employee to contribute to the bottom line.
And finally, you must equip all your employees with the ability to remain afloat in turbulent waters.

AJML ACCOUNTANTS UPDATE – Investment properties general Part 2

Investment properties – part 2

Owning an investment property

While you own the property you need to keep track of any income and expenses related to it. You also need to keep track of any significant changes – for example, if you carry out repairs or improvements or subdivide and sell some or all of the property. Rental income, and profit when you sell, is taxable – some costs are tax deductible the year you incur them, others can be used to reduce your profit (capital gain) when you sell.

When you own an investment property, the following can affect your tax:

renting out part or all of the property
improving or repairing the property
selling some or all of it after you have subdivided
operating an office or business from it.

The key tax issues you need to be aware of at this stage are:

you need to include all your rental income each year in your annual tax return

you can claim a tax deduction for the following expenses relating to your rental property:

  1. rates and taxes
  2. interest
  3. insurance
  4. Management fees
  5. depreciation

you may be able to include expenses you can’t claim immediately in the cost base (costs of ownership), which you use to work out your capital gain or capital loss when you sell the property

you need to know the market value of your property if you start to use it as a rental property

whether work done to a property is a repair or an improvement – repair costs are deductible in the year they occur; the cost of improvements (capital costs) become part of the cost base

Example 1:

Candy’s investment property has been hit by hailstorm and the windows have shattered. Candy has repaired the windows by using the same type of glass and other materials and stored the windows to its original state prior to the hailstorm. Candy can claim the related expenses paid for the repairing of the windows in the financial year incurred.

Example 2:

Similar to example 1 but instead of repairing the windows Candy has upgraded all windows of the investment property to a higher-level material so they are not as easily to be shattered. This time Candy has made an improvement on the investment property and the expenses are to be capitalized and become part of the cost base.

Disposing of an investment property

When you dispose of an investment property you pay tax on any capital gain, which is the difference between what it cost you to get, maintain and

improve the property and what you receive when you dispose of it.

You can dispose of your property:

  1. by selling it
  2. by giving it away
  3. by transferring it to your spouse as the result of a marriage or relationship breakdown
  4. involuntarily, through compulsory acquisition.

When you dispose of your investment property (including transferring it into someone else’s name) you have to pay tax on any capital gain you make. You do this by including your capital gain in your tax return for the year.

If you transfer the property into someone else’s name, you may still have to pay CGT unless it was your home (‘main residence’ for CGT purposes).

If you own the property for more than 12 months before you dispose of it, you are entitled to the CGT discount, which allows you to reduce your capital gain by 50% before tax is applied.

AJML Accountants Update – SuperStream 1

SuperStream – 1

What is SuperStream?
From 1 July 2014, employers, Australian Prudential Regulation Authority (APRA) regulated funds and trustees of self-managed super funds (SMSFs) have certain obligations they must meet under the SuperStream standard (the standard) for contributions.
SuperStream introduces a new standard for all employers which involve making super contributions electronically with linked data and payments. All super contributions are treated in the same way – whether sent to a default or choice fund, an APRA fund or self-managed superannuation fund (SMSF).

What you Need to Know?
Small employers (19 or less employees) – and SMSFs receiving contributions from these employers – have an obligation to start using the standard from 1 July 2015. The ATO will provide flexibility until 30 June 2016 for you to complete your transition-in, provided you have put in place firm implementation plans, including a proposed start date. Small employers and SMSFs do not have to wait for these dates and

may begin using the standard at an earlier date of their choosing.
Medium to large employers (20 or more employees) – and SMSFs receiving contributions from these employers – should start preparing now to implement the standard. Early trials and on-boarding begin from 1 July 2014, although many APRA funds are not expected to be ready to receive contributions under the new standard until 3 November 2014. You have until 30 June 2015 to complete your transition-in to the standard, provided you have put in place firm implementation plans, including a proposed start date.

How SuperStream affects the way you make contributions?
Under SuperStream, employers must make super contributions electronically. The contribution data is sent electronically in a message format to the fund, and the contribution payment is sent electronically through the banking system.
The data message and payment are linked by a payment reference number which enables reconciliation by the receiving fund.
Many of the key components required for this change, including e-commerce infrastructure and software solutions, are already in

use in the marketplace. Others are currently undergoing development and trials before being implemented.

What you need to do?
Employers have options for meeting SuperStream – either using a:
software solution that conforms to SuperStream;
service provider who can arrange SuperStream compliance on your behalf.
Your options may include:
upgrading your payroll software
using an outsourced payroll or other service provider
using a commercial clearing house or, for employers with 19 or fewer employers, using the free Small Business Superannuation Clearing House
your default fund. They may also have an electronic channel they manage or can make transitional arrangements for you.
https://www.ato.gov.au/Super/SuperStream/In-detail/What-you-need-to-know/Employers/SuperStream–simplifying-employer-contributions/

AJML UPDATE – Foreign Loss

Foreign Loss Rules

There have been some dramatic changes in the treatment of foreign losses during the last financial year. This newsletter will explain all the main changes.
Treatment of foreign loss
Old Rule
Previously, there were four classes of income. They are:
Passive income (foreign investment income)
Offshore banking income (foreign interest)
Amount included in assessable income under s305-70 under the ITAA97 Act (superannuation lump sum received from foreign superannuation fund)
Other income
The deductions (other than debt deductions, for example interest paid on the loan of your foreign property) incurred while deriving foreign income can only be used against the assessable foreign income of the same class.
When the deductions exceed the assessable foreign income of the same class, the excess foreign loss will be quarantined from the domestic income and can only be applied against future income of the same class.
New Rule
There will be no more groups of foreign income, but instead they will be treated as one.
When the deductions exceed the assessable foreign income, or, when losses occur, the losses will be used to offset domestic income. There will be no difference between foreign loss and domestic loss. All losses will be equal from here on given that the taxpayer is Australian resident and the funding used to incur the foreign loss is Australian sourced.
Transitional Rule to Convert Losses from Old Rule to New Rule
A transitional rule applies to existing foreign losses.
A taxpayer is entitled to convert certain pre-existing overall foreign losses (the most recent ten income years ending before the start of the commencement year, with the foreign loss from 1/07/1998 to 30/06/2001 halved) into ordinary tax losses and deduct them from assessable income in the commencement year (current year) and later years, subject to certain restrictions. There is an annual limit on the utilization of the remaining losses for the first four years of the measure. The taxpayer may disregard the deduction limit in these years if they have $10,000 or less in pre-existing foreign losses or choose to utilize only $10,000 of the losses. For example, a taxpayer has foreign losses from the previous ten years of $20,000 and in the commencement year 2008-09 the taxpayer has assessable income of $5,000, and then taxpayer could then only claim $5,000 of the $20,000 as deductions, leaving a balance of $15,000. In the second year, the taxpayer has assessable income of $12,000, and the taxpayer will be able to apply $12,000 of the foreign loss against this income because the taxpayer still has $5,000 foreign loss remaining from the previous year. In the third year the taxpayer would be able to apply the remaining $3,000 against their assessable income if their assessable income is $3,000 or more.
CFC (Controlled Foreign Company) Changes
Old Rule
There were four classes of income and the expenses are applied to the same classes of income with the losses being quarantined for later income years to be applied against the same classes of income.
New Rule
There will be no more classes of income but the losses will still be quarantined for later years.
Foreign Tax Credit
Old Rule
Foreign tax credit is available if the assessable income of a resident taxpayer includes foreign income and has paid foreign income tax on that income. Foreign residents are only entitled to a foreign tax credit in respect of certain foreign film income.
If a taxpayer is an Australian Company, it must be related to the foreign company.
The offset is determined on a class-of-income basis.
New rule
Both Australian and foreign resident taxpayers may claim a tax offset for an amount included in the taxpayer’s assessable income on which they have paid foreign income tax.
If the taxpayer is an Australian company, it must attribute to 10 percent or more of the foreign company.
The offset is determined on the whole-of-income basis.

AJML ACCOUNTANTS UPDATE – Rental Property detailed part 1

Investment properties – part 3

Dividing income and expenses

Co-owners who are not carrying on a rental property business must divide the income and expenses for the rental property in line with their legal interest in the property.

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise.

You will also need to apportion your income and expenses if any of the following apply to you:

Your property is available for rent for only part of the year – apportion by days rented out.
Only part of your property is used to earn rent – apportion by floor area of total rooms rented out.
you rent your property at non-commercial rates – only claim deductions up to amount of actual rent received

Example 1

For business purpose, Will rented a rental property for $100 a week although the market price was $200/wk. Will could only claim rental property deductions up to $52,000 every year ($100 x 52 weeks).

Example 2

Bill rented 50m/100m floor area or 1/2 of his property to Billy, and has incurred $20,000 in expenses. Bill can only claim $10,000 (1/2 x $20,000) of his expenses against his rental income.

Example 3

Chris rented his entire property to Christopher for 73 days in a year, and incurred $5,000 in expenses. Chris can only claim $1,000 (73/365 x $5,000) of his expense against rental income.

Rental Income

This is the full amount of rent and associated payments that you receive, or become entitled to, when you rent out your property, whether it is paid to you or your agent. You must include your share of the full amount of rent you earn in your tax return.

You must also include the following in your rental income:

Rental bond money, only if you become entitled to retain it, because a tenant defaulted on the rent, or because damage to your rental property required repairs or maintenance.

Insurance payout

Reimbursement or recoupment for deductible expenditure. For example, if you received an amount from a tenant to cover the cost of repairing damage to

some part of your rental property and you can claim a deduction for the cost of the repairs. you need to include the whole amount in your income

A government rebate for the purchase of a depreciating asset, such as a solar hot-water system.

Rental Deductions

You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent.

However, you cannot claim expenses of a capital nature or private nature (although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure or include certain capital costs in the cost base of the property for CGT purposes).

For more information regarding rental property, please refer to the ATO website on www.ato.gov.au and search 00270214.

AJML Accountants Update – SuperStream 2

SuperStream – 2

What is SuperStream?
From 1 July 2014, employers, Australian Prudential Regulation Authority (APRA) regulated funds and trustees of self-managed super funds (SMSFs) have certain obligations they must meet under the SuperStream standard (the standard) for contributions.
SuperStream introduces a new standard for all employers which involve making super contributions electronically with linked data and payments. All super contributions are treated in the same way – whether sent to a default or choice fund, an APRA fund or self-managed superannuation fund (SMSF).

Small Business Superannuation Clearing House (SBSCH)
You can use this service if you are a small business with 19 or fewer employees. An employee is defined as an individual who is employed on a full-time, part-time or casual basis.

The ATO will monitor your eligibility for the Clearing House each time you use the service.
When you register for the Clearing House you will need to provide your business’s details as well as those of your employees.
You can find out more or register for the service:
https://www.ato.gov.au/Business/Employers-super/In-detail/Small-Business-Superannuation-Clearing-House/Using-the-small-business-superannuation-clearing-house/
https://sbsch.gov.au/poext/super/public/registration/employerRegistration.jsf
Once registered, the SBSCH enables you to lodge and pay all of your employee’s superannuation guarantee obligations through a single, easy to use log in.
Alternatively, you have the option of using other clearing houses or your payroll software provider. You will need to contact them directly to ensure you are ready for the change.

MYOB users
The compliance update for AccountRight, available from late June 2014, includes a Pay Super feature that enables your business to be SuperStream compliant when required by the ATO. Please follow the link below to get the latest update.
http://myob.com.au/myob/business/upgrade-accountright-1257832550845#productFeature1831
http://help.myob.com.au/ar2014/setup_paysuper_signup.htm#1355170
Xero Users
Xero released a number of changes to further enhance Auto-Super in payroll including: Changes to ensure your compliance with the SuperStream data requirements.
For more information, please go to http://www.xero.com/blog/2013/11/superstream-means-business/

AJML UPDATE – CGT 3

Capital Gains Tax Part 3
 
Indexed Cost Base
If the asset was purchased before 11:45a.m, on 21 September 1999, the taxpayer might be able to use the indexation method. The indexation process is illustrated in s114-1.

Capital Losses
A capital loss arises from a CGT event if the capital proceeds are less than the asset’s reduced cost base.
Net capital loss incurred when the taxpayer incurred a capital loss in the year and did not offset the capital loss.
A capital loss cannot be claimed as a deduction against assessable income. It can be used to offset capital gains and the balance to be carried forward indefinitely. Two exceptions are:
Collectable capital loss can only offset collectable gains
Capital losses of a company are subject to continuity of ownership and control test, or same business test.

CGT 12 Months Rule
To qualify for the CGT discount, taxpayer must possess the asset for at least 12 months, excluding day of acquisition and day of CGT event.
The CGT discount for individuals is 50%, for complying superannuation funds is 33.33% and for trusts is 50%. There are no CGT discounts available for companies.
Maintaining records
Where a taxpayer elects to maintain records of the CGT assets, the taxpayer must keep in English:
Date of acquisition and all related costs
Date CGT event occurred and all related costs
Capital proceeds received or deemed to be received

Asset register
The taxpayer can also transfer the information they are required to retain for CGT purposes into an asset register and have the entries in the registered certified correct by a tax agent, or other person approved by the Commissioner. Entries must be kept in English. Tax ruling TR 2002/10 outlines the minimum requirements for keeping a CGT asset register.
Rollover Relief
Rollover relief is available where an individual, trustee or all partners in a partnership transfer CGT asset/s into a wholly-owned company. It is also available if the taxpayer receives money or other CGT asset as compensation for the involuntary disposal of a CGT asset owned by the taxpayer that is:
Compulsorily acquired by Australian government
Wholly or partly lost or destroyed
Disposed of to an entity under threat of compulsory acquisition
Land compulsorily subject to mining lease and disposed of to the lessee
Expired lease granted by Australian government agency that is not renewed
Same Asset Rollover Events
This is available where:
CGT asset transferred to spouse or former spouse due to court order or maintenance agreement approved by court resulting from marriage breakdown after 13 December 2006.
Changes to trust deed of complying approved deposit fund, superannuation fund or from 1 April 2003, a fund that accepts workers entitlement contribution.

Small Business Relief
To help small business, Division 152 provides four concessions that may reduce CGT where special conditions are met.
The basic conditions are:
Capital gain would have resulted from CGT event occurring in relation to a post-CGT acquired asset owned or created by the entity
Entity is a small business entity for the income year of the events
The asset has to be an active asset which is one that the entity owns and uses, or holds ready for use, in carrying on a business. It includes intangible assets like goodwill.
To satisfy the active assets test, the CGT asset must have been an active asset for half the relevant period.
The four available small business concessions are:
15 year exemption – if the small business has been owned at least 15 years prior to the CGT event, disregard capital gains
50 percent reduction – after applying capital losses and CGT discount, deduct another 50 percent off capital gains
Retirement exemption – if the proceed of the sale is used for retirement, taxpayer may claim maximum of $500,000 lifetime limit of exempt CGT after applying small business 50 percent reduction
Small business rollover – to satisfy, taxpayer must replace /improve active asset equal to the amount of the capital gain within the replacement period, and the replacement/improved asset must be active asset at the end of the replacement period (s152-410).

AJML ACCOUNTANTS UPDATE – Rental Property detailed part 2

Investment properties – part 4

Prepaid expenses

If you prepay a rental property expense, such as insurance or interest on money borrowed, that covers a period of 12 months or less and the period ends on or before the end of the financial year, you can claim an immediate deduction.

Example 1

Nadia has a rental property and on the 30th June 2011 she paid $800 of landlord’s insurance on her rental property covering the period 1 July 2010 to 30 June 2011. She can claim the total amount as rental expense in the 2010-2011 year.

Types of rental deductions

There are three categories of rental expenses, those for which you:
cannot claim deductions
can claim an immediate deduction in the income year you incur the expense
can claim deductions over a number of income years.

The cannot claim deductions

Expenses for which you are not able to claim deductions include:

acquisition and disposal costs of the property

expenses not actually incurred by you, such as water or electricity charges borne by your tenants

expenses that are not related to the rental of a property, such as expenses connected to your own use of a holiday home that you rent out for part of the year.

Acquisition and disposal costs

You cannot claim a deduction for the costs of acquiring or disposing of your rental property. Those expenses are capital in nature and will be used to increase your cost base when you sell your rental property.

Examples of expenses of this kind include the purchase cost of the property conveyancing costs, advertising expenses and stamp duty on the transfer of the property

The claim immediate deductions

Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:

  1. advertising for tenants
  2. bank charges
  3. body corporate fees
  4. cleaning
  5. council rates
  6. electricity and gas
  7. gardening and lawn mowing
  8. in-house audio and video service charges
  9. insurance
  10. building
  11. contents
  12. public liability
  13. interest on loans
  14. land tax
  15. legal expenses (excluding acquisition costs and borrowing costs)
  16. pest control
  17. property agents fees
  18. quantity surveyor’s fees
  19. repairs and maintenance
  20. Admin, printing and stationery
  21. security patrol fees
  22. servicing costs
  23. tax-related expenses
  24. travelling
  25. water charges

You can claim a deduction for these expenses only if you actually incur them and they are not paid by the tenant.

However, if you incur the expenses but the tenant reimburses you then you should include the same amount in both income and expenses.

For more information about common mistakes made when claiming rental property expenses, see Rental Properties – avoiding common mistakes (NAT 71820)

AJML Accountants Update – Guide on Trust Part 9 Tax Return

Guide on Trust Funds – Part 9

The franked dividend streaming rules

The trust deed must allow for streaming

The franked dividend must be distributed in its character as a franked dividend

The distribution purporting to stream the franked dividend MUST BE IN WRITING no later than the financial year end (s. 207-58(1)(c))

The franked dividend is taken to be streamed to a beneficiary to the extent they are entitled to the ‘net financial benefit’ attributable to the franked dividend, which is the case dividend less directly relevant expenses such as interest

Each beneficiary to whom a franked dividend is streamed will be entitled to portion of the franking credits based on their percentage share of the total franked dividends. (s. 207-57)

If the directly relevant expenses exceed the cash amount of the franked dividend, there is no

amount of franked dividend that can be streamed.

If some shares are negatively geared and other are not then, as long as there is a ‘net’ amount when all the franked dividends are taken into account, that ‘net’ amount can be streamed (s.207-59)

If the net franked dividends exceed the net (taxable) income of the trust (due to other losses in the trust), to ensure all the franking credits are passed out to the beneficiaries, the trustee should not attempt to stream any of the franked dividends.

Net franked dividends (whether streamed or not), together with franking credits are extracted from the net taxable income and disclosed separately in the Statement of Distribution, and also in the beneficiary’s return.

The capital gain streaming rules

The trust deed must allow for streaming

The capital gain must be distributed in its character as a capital gain

The distribution purporting to stream the franked dividend MUST BE IN WRITING no later

than the 31 August 2013 (s. 115-228(1) (c))

The capital gain is taken to be streamed to a beneficiary to the extent they are entitled to the ‘net financial benefit’ attributable to the capital gain, which is the ‘gross’ capital gain less any capital losses.

If the net (taxable) capital gain exceeds the net (taxable) income of the trust (due to other losses in the trust), to ensure all the capital gain is distributed to the beneficiaries, the trustee should not attempt to stream any of the franked dividends.

If the capital losses exceed the capital gain, there is no capital gain available for streaming as there will be no net (taxable) capital gain.

Net capital gains (whether streamed or not) are extracted from the net (taxable) income and are disclosed separately in the Statement of Distribution and in the beneficiary’s return.

The beneficiary includes their share of the net (taxable) capital gain in their assessable income after it has been grossed-up as has been reduced by any capital losses and/or the 50% discount and 50% active asset reduction.

AJML UPDATE – CGT 1

Capital Gains Tax Part 1

Capital Gains Tax (CGT)
CGT is a general tax applied on capital gains on sale of land, shares, etc. it is introduced on 19 September, 1985 and effective under Part IIIA ITAA36, from 20 September, 1985. Any purchase of CGT assets prior to this day is exempt to CGT no matter how much gains/losses are made from the sale of the assets.
Under Part 3-1 ITAA97, which replaced Part IIIA ITAA36, a capital gain will arise where a CGT event occurs on or after 20 September 1985 to a CGT asset and the capital amount that you receive(or are entitled to receive) from the CGT event exceeds the total costs associated with that event (S100-35). The net capital gain made by a taxpayer during an income year is included as assessable income in the taxpayer’s return for that income year (s102-5).
Classification of CGT Assets
CGT assets are classified into different classes, each explained briefly below:
Collectables
A collectable is:
Artwork, jewellery, antique (object of artistic and historical significance over 100 years old TD 1999/40), coin or medallion
Rare portfolio, manuscript or book
Postage stamp or first day cover
Collectables are used or kept mainly for your personal use or enjoyment (s108-10(2)).
Any capital gain is ignored if the acquisition of the collectable was $500 or less (s118-10(1)).
A set of collectables is taken to be a single collectable, and the $500 threshold applied to the set, not individual items. However, capital loss incurred from collectables can only offset gains in other collectables in current year or later income years (s108-10(1) or (4)).

Personal Use Assets (PUA)
A PUA is a non-collectable asset, other than land or buildings, used or kept mainly for personal use or enjoyment (s108-20(2) (3)).
Any capital gain is ignored if the acquisition of the PUA was less than $10,000 (s118-10(3)). For example, your car or yacht will be PUA whereas your clothes or kitchenware won’t be PUA.

Other Assets
Other assets are assets other than collectables or PUA. The ordinary CGT rules apply to this class of assets.

Separate CGT Assets
A building, structure or any other improvements you made on land you purchased after 20 September 1985 will be treated as Separate CGT Assets for CGT purposes and if you purchased the land prior to 20 September 1985, the improvement on the land will also be Separate CGT Assets unless you entered into the contract or construction began before this day. If you made an improvement to other assets you purchased before 20 September 1985, and the amount you spent on the improvement is more than the threshold of $124,258 for the 2009-10 year, or more than 5% of the amount and property you received from the event, then the improvement will also be treated as Separate CGT Assets.

CGT Exemptions
Motor vehicle designed to carry less than one tone and fewer than 9 passengers
CGT asset used solely to produce exempt income
Compensation or damages received for wrong, injury or illness received by taxpayer
Gambling winnings or prizes
Main residence up to the extent of fully rented out for six years
Rights, annuities and allowances payable under insurance policy
Decoration awarded for valor or brave conduct, unless purchased by taxpayer
Superannuation or employer termination payment, depreciation assets used for business purpose, film copyright or research and development pools

Taxpayers subject to CGT Tax
Australian residents are liable for CGT on gains arising from CGT event occurring to CGT asset acquired after 19 September 1985 regardless of location of the asset and irrespective of whether the residents are individuals, partnerships, trust or companies.
Foreign/temporary residents are only liable for CGT where the CGT asset is a taxable Australian Property and the event occurred after 12 December 2006. Taxable Australian Property is:
Taxable Australian real property
Indirect Australian real property interest
Business asset of an Australia permanent establishment
Option or a right over above items
Asset in respect to which an individual taxpayer has made an election under s104-165(2) to disregard a capital gain or capital loss on ceasing to be a resident of Australia (s855-15).

AJML ACCOUNTANTS UPDATE – Main residence CGT exemption part 4

Capital Gains Tax Exemption for main residence – Part 3

Your main residence (your home) is generally exempt from capital gains tax (CGT). However, you cannot usually obtain the full main residence exemption if you:

acquired your dwelling on or after 20 September 1985 and used it as your main residence, and

used any part of it to produce income during all or part of the period you owned it, and

would be allowed a deduction for interest had you incurred it on money borrowed to acquire the dwelling (interest deductibility test).

The interest deductibility test

The interest deductibility test applies regardless of whether you actually borrowed money to acquire your dwelling. You must apply it on the assumption that you did borrow money to acquire the dwelling.

If you rent out part of your home, you would be entitled to deduct part of the interest if you had borrowed money to acquire the dwelling.

If you run a business or professional practice in part of your home, you would be entitled to deduct part of the interest on

money you borrowed to acquire the dwelling if:

part of the dwelling is set aside exclusively as a place of business and is clearly identifiable as such, and

that part of the home is not readily adaptable for private use – for example, a doctor’s surgery located within the doctor’s home.

You would not be entitled to deduct any interest expenses if, for convenience, you use a home study to undertake work usually done at your place of work. Similarly, you would not be entitled to deduct interest expenses if you do paid child-minding at home (unless a special part of the home was set aside exclusively for that purpose). In these situations, you could still get a full main residence exemption.

Example

Sue runs a dentist business from her house. She set a room aside that accounts for 25% for her business. She has claimed the interest paid on her house as deductions. When she sells her house, Sue needs to pay CGT on 25% of the profit she makes.

Compulsory acquisition

Capital gains tax (CGT) law now extends the main residence exemption to the compulsory acquisition of part of your main residence, without the actual dwelling being acquired.

These changes became law on 29 June 2011 and apply to CGT events that happen from this date. You can also choose to apply the new rules to CGT events that happened at any time between the
start of the 2004-05 income year and 29 June 2011.

What’s changed?

Prior to the changes, if part of your main residence but not your dwelling was compulsorily acquired, you may have been liable to pay tax on the whole or part of the capital gain and the loss would have been available to offset against other gains.

The changes extend the CGT main residence exemption to compulsory acquisitions, or similar arrangements, which are associated with your main residence but not with your dwelling. For example, if the council compulsorily acquires part of your backyard for a public purpose.

This may allow you to disregard all or part of the capital gain or loss, where part of your main residence is compulsorily acquired by or on behalf of a government entity. To be eligible you need to meet criteria similar to the main residence exemption.

You will be entitled to the same full or partial exemption for your compulsory acquisition of a part of your main residence that you would have been entitled to if you had disposed of your dwelling.

AJML Accountants Update – Guide on Trust Part 6 – Terms

Guide on Trust Funds – Part 6

The appointor(s)

The appointors (or appointor) of a trust have the real power and control of the assets of a trust, since the appointors have the power to appoint and remove trustees. In many cases, the original appointors include the one or more of the parties for whose benefit the trust is established.

If there is no appointor named in the trust deed, the trust deed may allow the trustee to exercise the powers of the appointor.

Who should be the appointor?

As the real control of a trust lies with the appointor, extreme care should be taken in choosing the appointor.

Consideration needs to be given to the following points when deciding on an appointor:

what happens on death, divorce and bankruptcy.

For ultimate asset protection, it is recommended to have joint appointors with at least one

independent appointor. For example, three joint appointors, being the husband, wife and an independent appointor, such as the family solicitor or accountant.

To be effective, the appointors’ decisions must be unanimous (thus two could not act against one). This would prevent a trustee in bankruptcy, for example, removing the current trustee without the consent of the independent appointor.

Alternatively, a company could be made the appointor (although succession issues in relation the directors and shareholders of that company must then be considered, amongst other matters).

The trust fund

The trust fund is all the property of the trust including the settled sum, income accumulated and any other money and property held by the trustee pursuant to the terms of the trust.

The beneficiaries

The beneficiaries are the people (including other entities, such as companies) for whose benefit the trustee holds the property. As mentioned previously, a person to

whom the trustee can distribute income or corpus (capital) is a potential beneficiary. A potential beneficiary becomes a beneficiary on the distribution of (i.e., on the exercise of the trustee’s discretion to distribute) the income or capital of the trust.

There are different types of beneficiaries, including:

Primary beneficiaries, who will usually be entitled to undistributed capital and income on winding up of the trust and, in most discretionary trusts, will include the immediate family of those for whom the trust is being set up; and

General beneficiaries, who usually include the primary beneficiaries as well as other people set out in the trust deed (including related companies and trusts).
Care should be taken when a major restructure of the beneficiaries is proposed. The risk is that such a change could mean the trust becomes a whole new trust – triggering capital gains tax (CGT) and/or stamp duty consequences.

AJML UPDATE – GST 2

Goods and Services Tax Part 2
 
GST Free Supplies
You don’t include GST in the price of things you sell that are GST free, but you can still claim credits for the GST
included in the price of your taxable purchases that you use to make GST free sales.
Things that are GST free include:
Most basic food
Some education courses
Some medical and health services
Some exports
Some childcare
Some religious services and charitable activities
Cars for disabled people to use
Water, sewerage and drainage
Sale of business as going concern
International transport
Precious metals

Input taxed supplies
Input taxed supplies are not subject to GST but, unlike GST free supplies, no input tax credit can be claimed for anything acquired or imported to produce such supplies.
There are three main categories of input taxed supplies:
Financial supplies, which includes:
Lending or borrowing money
Granting credit on which interest is due
Guarantees and indemnities
Conducting superannuation and life insurance business
Supplies that are NOT Financial supplies
General insurance
Legal, accounting and tax agency services (including advisory services)
Brokerage services
Debt collection services
Management services
Residential premises
Residential premises include houses, units and flats they do not include vacant land. Properties are residential premises if they are occupied.

Generally, if you buy a property with intention to sell it you may be considered to carry an enterprise. If you are considered to be carrying on an enterprise and your GST turnover meets or exceeds the registration turnover threshold, you will be required to register for GST.

The GST treatment on the sale of residential premises depends on whether they are new, existing residential premises or commercial residential premises. If your residential premise is new, you can claim any GST credits and you are liable for GST on the sale. If you sell existing residential premises, you can’t claim GST credits and you are not liable for GST on the sale. If you sell commercial residential premises (hotels, inns, boarding houses) you are generally making a taxable sale. You can claim GST credits and must pay GST on the sale.
If you rent out residential premises (other than commercial) for residential accommodation, you don’t include GST in the price of the rent and you can’t claim GST credits.
In contrast, renting out commercial premises such as a shop is taxable. If you are registered for GST, you must include GST in the rent you charge.

Input Tax Credits
GST is borne by the consumer of the goods and services but is collected at each stage of supply. To prevent tax from accumulating, an input tax credit is given to registered entities at each stage of the supply chain. This means that the supplier of the taxable goods and services receives a refund of the GST paid on the inputs used in their supply process.

Creditable Acquisition
An entity is entitled to claim an input tax credit on creditable acquisition where:
The entity acquires or buys anything solely or partly for a creditable purpose, which means it is bought for the use of the entity.
The thing supplied is a taxable supply
The entity provides, or is liable to provide, consideration for the supply, and
The entity is registered or required to be registered

Tax Periods
If the business satisfies one of the following rules, the business will have a monthly tax period, reporting on a monthly basis. If not, the business may choose to report on a monthly basis;
GST turnover is $20 million or more
Only carrying on an enterprise for less than three months
Entity has a history of failing to comply with tax obligations
An entity that uses a one-month tax period may change to quarterly tax periods, ending on 31 March, 30 June, 30 September and 31 December, if the entity’s annual turnover falls below the threshold and one-month tax period has been used for at least 12 months. Small Business Entities or non-business taxpayer with turnover of less than $2million may elect to use the simplified GST accounting period where estimated HSY instalments are paid each quarter and only an annual return is lodged.

AJML ACCOUNTANTS UPDATE – Rental Property detailed part 3

Investment properties – part 5

Repairs and maintenance

Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.

However, the following expenses are capital, or of a capital nature, and are not deductible:

replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)

improvements, renovations, extensions and alterations, and

initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

You may be able to claim capital works deductions for these expenses.

Example 1

Sue owns a rental property and during the year the paint of the wall starts falling off.

If Sue decides to buy the same paint as before and repaint the rental property over with, this is repair and will be fully deductible in
the same year that Sue re-painted the rental property.

However, if Sue bought a different type of paint 10 times more expensive and better than the old paint, this will be replacement and the cost for the painting will be capital in nature and deducted in line with the rental property itself.

Travelling expense

If you travel to inspect or maintain your property or collect the rent, you may be able to claim the costs of travelling as a deduction. You are allowed a full deduction where the sole purpose of the trip relates to the rental property.

However, in other circumstances you may not be able to claim a deduction or you may be entitled to only a partial deduction.

If you fly to inspect your rental property, stay overnight, and return home on the following day, all of the airfare and accommodation expenses would generally be allowed as a deduction provided the sole purpose of your trip was to inspect your rental property.

Example 2

Sue lives in Sydney and has a rental property in Perth. Sue travelled to Perth for 2 nights to inspect the rental property. During her time in Perth Sue spent the entire time on the rental property.

In this case she can claim all the travel and accommodation costs related to her rental property.

Tip: If you no longer rent the property, the cost of repairs may still be deductible provided:

the need for the repairs is related to the period in which the property was used by you to produce income, and

the property was income-producing during the income year in which you incurred the cost of repairs.

For more information, please see the Guide to capital gains tax
2011 on www.ato.gov.au

AJML Accountants Update – Guide on Trust Part 2 – Types

Guide on Trust Funds – Part 2

The most common types of trust:

Discretionary Trusts
Unit trusts

Discretionary family trusts

A family trust (also known as a discretionary trust) is the most common trust used by small to medium size business owners, investors and medical professionals in Australia. They are generally set up to hold a family’s assets and/or business for the benefit of providing asset protection and tax planning for family members.

Sometimes Discretionary Family Trusts are established to ‘vest’ on the day of a specific event, such as the death of a named person – usually the person at whose initiative the Trust was established.

From a tax perspective the main advantage is that any income generated by the trust from business activities and investments, including capital gains can be distributed to beneficiaries in low tax brackets to

significantly reduce taxes. And the distribution is discretionary, which
means, no beneficiary is entitled to receive income or capital, so in the example where one beneficiary was sued, the trustee can decide not to distribute income of capital to that beneficiary. 

Streaming income allows trustees to stream interest and dividends from the trust to a company beneficiary, which then pays tax at the company tax rate of 30 per cent, and to stream capital gains to individuals so they can enjoy the individual capital gains tax (CGT) discount.

In most cases, from an asset protection perspective, assets held in a family trust cannot be attacked by creditors or lawsuits, since no single beneficiary has any claim to any assets of the trust (apart from any unpaid distributions they remain entitled to).

Other types of discretionary trusts are testamentary trusts, child maintenance trusts, property trusts, special disability trusts and charitable trusts.

Unit trusts

A unit trust is like a company where the trusts property (business or investments) are divided into a number of shares

called units. The number of units you hold will determine your entitlement to your share of income, capital gains and voting power.

Units in a unit trust can also be categorised. For example you can have income units and capital units. Also unit holders can be individuals, companies or discretionary trusts.

The taxation benefits are generally not as flexible as a discretionary trust in that any income distributions must be distributed to unit holders as per their share of units. However if a discretionary trust was a unit holder you can achieve the same flow through tax benefits.

From an asset protection point of view, unit trusts don’t provide the same kind of asset protection as a discretionary trust. If a unit holder is made bankrupt, then that persons units will be treated like any other assets and sold to raise funds to pay creditors.

Minutes/Resolution for annual income distribution

As well as maintaining records it is important that the trustee holds a meeting (or otherwise resolves) on or before 30 June each year to allocate the income of the trust among the beneficiaries.

AJML UPDATE – GST AND Export of goods

GST and Export of Goods
 
What does the export of goods mean?

The export of goods means selling goods or services to another country.
 
Are they taxable or not?

In general terms, the income derived from the sale of goods from Australia to anywhere in the world by GST registered entities are subject to income tax, and GST applies to the sale of most goods and services because Australian entities are assessed on income gained from all over the world. But the export of goods by Australian registered entities that are registered for GST are GST free if the goods are exported from Australia before, or within 60 days of, one of the two followings:

  1. The day the supplier receives any money related to the supply
  2. If an invoice was given on an earlier day, the day that the supplier gives the invoice.

For example, if John Doe exported the goods from Australia to Japan, and the goods are paid on the 30 June 2010, then if John Doe shipped out the goods from before 30 June 2010 to 29 August 2010, then the export of the goods is GST free. However, if John Doe sent out an invoice dated the 15 June 2010, and then John Doe must ship out the goods before 13 August 2010 to satisfy the condition. The Commissioner of Taxation may extend this amount of time if requested.

If the payment is made by instalments, the export of the goods are GST free if the goods are exported from Australia before, or within 60 days after, one of the two following:

  1. The day the supplier receives any money related to the final installment of the supply
  2. If an invoice was given on an earlier day in relation to the final installment, the day that the supplier gives the invoice.

Using the above example, if John Doe received any money related to the first installment on the 30 January 2010 but received the last installment of the goods on 30 June 2010, and then John Doe must ship out the goods by 29 August 2010 to qualify for the GST free export of goods. If the invoice related to the first installment of the export of the goods on 15 January 2010, but the invoice in regards to the last installment is issued out dating the 15 June 2010, then the shipping of the goods must be made before the 13 August 2010. As above, the Commissioner of Taxation may extend this amount of time if requested.

GST Act 1999 subsection 38-185 (3) clearly stated that there are no limits on the above two matters. Any exported supplies are assumed as exported goods from Australia if:

  1. The entity that receives the goods are not registered or required to be registered for GST in Australia. The supplier will also satisfy this condition if at the time of supply, the supplier has reasonable grounds to believe that the customer is not required to be registered.
  2. The entity exports the goods from Australia.
  3. The goods have been entered export are within the meaning of export in section 113 of the Customs Act 1901, which stated that if the goods are not being carried onboard as hand luggage by person, they are mostly exported goods, excluding ship or aircraft goods.
  4. The goods have not been altered in any way apart from changes related to packaging for exporting, after supplying the goods for export.
    There are sufficient documentary evidence to show that the goods are exported
  5. However, if the goods are to be re-imported into Australia, then they are not GST free.

What are the suitable documentary evidences of export?

The following are suitable documentary evidence of export as obtained from the ATO website:

The supplier must maintain sufficient documentary evidence of the exportation of the goods by the entity/exporter of the supply. Sufficient documentary evidence may include a combination of the following:

A copy of the bill of lading, which is evidence of a contract of carriage as well as proof of delivery of the goods on board a vessel
A copy of the airway bill
Evidence from the Australian Customs Service that the goods were exported, and
Evidence from the customs authority of the country to which the goods were exported that the goods arrived in that country from Australia.

Claiming back GST on purchases

Please note that even if you can’t charge GST on the goods you sell because they are GST free, you can still claim the tax you paid on the goods when you purchased the goods, proven you kept sufficient evidence, for example tax invoice or receipts.

AJML ACCOUNTANTS UPDATE – Main residence CGT exemption part 1

Capital Gains Tax Exemption for main residence – Part 1

Generally, if you are an individual (not a company or trust) you can ignore a capital gain or capital loss from a capital gains tax (CGT) event that happens to a dwelling that is your main residence (also referred to as ‘your home’).

What is a dwelling?

A dwelling is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are:

  • a home or cottage
  • an apartment or flat
  • a strata title unit
  • a unit in a retirement village
  • a caravan, houseboat or other mobile home.

When is a dwelling a main residence?

The following factors may be relevant in working out whether a dwelling is your main residence:

the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence

whether your family lives there
whether you have moved your personal belongings into the home
the address to which your mail is delivered
your address on the electoral roll
the connection of services (for example, phone, gas or electricity)
your intention in occupying the dwelling.

A mere intention to construct or occupy a dwelling as your main residence – without actually doing so – is not sufficient to obtain the exemption.

Full exemption

To obtain full exemption from CGT:

the dwelling must have been your home for the whole period you owned it
the dwelling must not have been used to produce assessable income, and
any land on which the dwelling is situated must be two hectares or less.

If you inherited a dwelling or a share of a dwelling and it was not the deceased’s main residence, you may not get full exemption.

If you are not fully exempt, you may be partially exempt if:

the dwelling was your main residence during part of the period you owned it

you used the dwelling to produce assessable income, or
the land on which the dwelling is situated is more than two hectares.

Short absences from your home (for example, annual holidays) do not affect your exemption.

Part exemption

If a dwelling was not your main residence for the whole time you owned it, some special rules may entitle you to a full exemption or extend the part exemption you would otherwise get. These rules can apply to land or a dwelling if:

you choose to treat the dwelling as your main residence, even though you no longer live in it
you moved into the dwelling as soon as practicable after its purchase
you are changing main residences
you are yet to live in the dwelling but will do so as soon as practicable after it is constructed, repaired or renovated and you will continue to live in it for at least three months
you sell vacant land after your main residence is accidentally destroyed

Please refer to below link for details: http://www.ato.gov.au/content/78951.htm

AJML Accountants Update – Guide on Trust Part 7

Guide on Trust Funds – Part 7

Why can’t a sole trustee be a sole beneficiary?

The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries.

If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances.

However, a trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.

Can an estate be named as a beneficiary?

No. A person’s estate does not exist until a person dies. So an estate cannot be named as a beneficiary as an estate is not a person.

Can I name a charitable entity as a beneficiary?

Yes, you can name a charitable entity as a beneficiary – but you must be specific (or else the trust might be void for uncertainty). You need to decide exactly who you

wish to benefit and in what capacity they are acting (eg: company, trustee etc.) so you can
specifically name the body that will benefit from the trust.

For example, you can’t just name ‘the green movement’ as the beneficiary. You need to name the entity precisely, for example: “World Wide Fund for Nature Australia”.

Can a trust be a beneficiary under the discretionary trust?

No (but see next 2 questions). A trust cannot be a beneficiary under a discretionary trust because the law says a trust is not a separate legal person. For example, the ‘John Smith Family Trust’ cannot be named as a beneficiary of another trust.

Even so, the trustee of a trust, in his, her or its capacity as trustee, is capable of being a beneficiary of a trust – see next question.

Can a trustee be a beneficiary under a discretionary trust?

Yes, the law allows a trustee to be a beneficiary of a trust – as long as you include the trustee’s name and their capacity. For example:

‘John Smith in his capacity as the trustee of the John Smith Family Trust’

In this case, the trustee is effectively a beneficiary of the

discretionary trust for the beneficiaries of the trustee’s own trust.

(The trust itself cannot be named as a beneficiary as it is not a legal entity.).

Does the settled sum have to be transferred into a bank account or can it be settled with cash?
It is preferable to transfer the settled sum into a bank account. However, the settled sum does not have to be transferred into a bank account.
As long as the settled sum is kept separate from the other property of the trustee.

Why can’t a beneficiary transfer their “interest” under a discretionary trust to someone else?

A beneficiary can’t transfer their “interest” under a discretionary trust to someone else because until the trustee resolves to make a distribution in favour of that beneficiary, (or any beneficiary) that beneficiary’s “interest” isn’t a real “interest” or “right”. Instead, it is what the law calls a “mere expectancy” – which can’t be transferred.

AJML UPDATE – Import of goods

GST and Import of Goods

What does the import of goods mean?

The import of goods means buying goods or services from another country to Australia.

Are they taxable or not?

GST is payable on most goods imported into Australia. However, if you are a GST-registered business or organization and you import goods in carrying on your enterprise, you may be able to claim a GST credit for any GST you pay on the importation.

The Australia Customs Service (Customer) collects GST on taxable importations. GST is 10% of the value of a taxable importation.

The value of a taxable importation is the sum of:

the customs value of the goods
any customs duty payable
the amount paid or payable to transport the goods to Australia
the insurance cost for that transport, and
Any wine equalization tax payable.

An example of the above calculation is as follows:
Jane Doe imported $100,000 worth of I phone accessories from America, and was charged the following:
Customs Duty $20,000
Freight $1,000
Insurance $800

So the total cost of payment on the importation of the goods for Jane Doe would be:

Customs Duty: $20,000
Freight: $1,000
Insurance: $800
I phone accessories: $100,000
Subtotal: $121,800
GST on purchases: $12,180
Total purchases: $133,980
If I have to pay GST on my imported goods, how and where do I pay for them?

Generally, the GST on the goods is paid to the customs before the goods are released from the Customs.

The good news is, some imported goods are GST free, and they are:

goods that are GST free or input-taxed within Australia
goods that qualify for certain customs duty concessions, which includes but are not limited to the following:
Goods imported by overseas travelers not in excess of the duty free allowance, which are the amount of goods you are allowed to carried onboard onto a plane or ship in hand luggage, including tobacco and alcohol.
goods returned to Australia in an unaltered condition
goods returned after repair or replacement under warranty
global product safety recall goods
goods imported for repair or industrial processing, then exported
certain bequeathed goods (passed on goods in will), including goods donated by person, company or organization established outside Australia to a company established inside Australia for performing humanitarian natured work
trophies, medals etc
low value goods which has a customs duty and taxes of $50 or less and has a customs value of less than $1,000

Some examples for the above GST free goods are:
2.275 litres of alcohol carried onboard a plane
Frozen vegetables
Returned plasma television bought on eBay Australia
When can I claim the GST back?

You can claim GST credits if all the following three rules apply:

you imported the goods solely to carry on your business
the importation is a taxable importation, that means, it’s not a tax-free importation as discussed above, and
You are registered for GST.

You can only claim the GST credits after you paid the GST for the goods to the customs as discussed above, and then claim the GST credits in your BAS. You claim the GST in the quarter or period that you paid the GST on importation.

You will need evidence of importation before you can claim a GST credit, otherwise you cannot claim GST credit on the importation of the goods.

What kind of documentation would be regarded as evidence of importation?

The documentation must show that the goods have been imported and entered for home consumption. Goods are entered for home consumption when Customs releases them for use in Australia.

AJML ACCOUNTANTS UPDATE – Main residence CGT exemption part 2

Capital Gains Tax Exemption for main residence – Part 2

If a CGT event happens to a dwelling you acquired on or after 20 September 1985, and that dwelling was not your main residence for the whole time you owned it, you might get only a part exemption.

Full exemption vs part exemption

If a dwelling was not your main residence for the whole time you owned it, some special rules may entitle you to a full exemption or to extend the part exemption you would otherwise obtain. These rules apply to land or a dwelling if:

you choose to treat the dwelling as your main residence, even though you no longer live in it
you moved into the dwelling as soon as practicable after its purchase
you are changing main residences
you are yet to live in the dwelling but will do so as soon as practicable after it is constructed, repaired or renovated and you will continue to live in it for at least three months
you sell vacant land after your main residence is accidentally destroyed

part of your main residence, such as adjacent land or structures, are compulsorily acquired.

As a general rule, a dwelling is no longer your main residence once

you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

If you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it.

Example 1

Bill buys a unit and lives in it for three years. He then moves out to live with a friend, while his son occupies the unit rent free. He does not treat any other dwelling as his main residence. 12 years later, he sells the unit and claims the main residence exemption from CGT.

If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. If, as a result of you making this choice, the dwelling is fully exempt, the home first used to produce income rule does not apply.

Example 2

Sandy’s main residence house was available for rent from 2002-2005 but tenants rented the house only from 2005 to 2010. Sandy sold the house in 2010. The house would be free from CGT because although it was available for rent for 8 years but it was rented out for 5 years, under the 6 years rule.

If you rent out the dwelling for more than six years, the ‘home first used to produce income’ rule may apply, which means you are taken to have acquired the dwelling at its market value at the time you first used it to produce income.

Example 3

Similar to example 2 but this time the house was rented out for 7 years instead of 5. This time Sandy would need to pay CGT because it was over 6 years.

If you are absent more than once during the period you own the home, the six year maximum period that you can treat it as your main residence while you use it to produce income applies separately to each period of absence.

Example 4

Sandy bought a house in 1990, lived in the house until 1995, rented the house from 1995-2000, moved back to the house from 2000-2004, rented the house again from 2004-2008 and sold the house in 2008. Sandy does not need to pay CGT because every time the house has been rented out, it has not been over 6 years.

AJML Accountants Update – Guide on Trust Part 3 – Set Up

Guide on Trust Funds – Part 3

Bank account

After the deed is executed, the trustee should arrange for a bank account to be set up as soon as possible. The name on the bank account should be along the lines of the following:

“XXX Pty Ltd as Trustee for the XXX Discretionary Trust”

The bank account used by the trust should not be used as a personal bank account. This is because adverse tax consequences may arise where beneficiaries draw money for their own use.

Investments

Trustees generally have unlimited powers in deciding in what to invest. The trustee’s powers are set out in the trust deed, but the trustee has a responsibility to exercise skill and care in making their investment decisions. This rule basically says that the trustee should ensure they take the same degree of care that a prudent person would take in making

investment decisions, given their skills and knowledge.

When does a discretionary trust start?

A discretionary trust is created when a person known as the “settlor” gives the trustee money or property for the benefit of the beneficiaries. This “settled sum” is the original trust fund. The settlor is normally a family friend and should not be a beneficiary of the trust, or anyone similar if they could be seen to benefit or receive money from the trust (e.g., if it could be argued the settled sum has been refunded to the settlor). No other legal obligations arise for the settlor, who is not responsible in any way for the trustee’s actions.

It is often a good idea for the trustee to open a bank account to deposit the settled sum shortly after the deed has been executed – this can provide further evidence regarding the date the trust was settled.

A trust deed may be subject to stamp duty. The stamp duty (if any) can vary from one State or Territory to another, and the deed normally needs to be stamped within a limited time period after being executed.

Traps for the unwary

Listed below are some common traps which may be exposed on an ATO audit or to other dangers:

No dated and stamped trust deeds;
Shares in a corporate beneficiary are held by the primary beneficiaries – asset protection may not be achieved if this is done;
The trust bank account was opened some months after the date shown on the trust deed (which then looks like the deed has been back-dated);
No evidence of the settled sum ever being paid;
If the trustee is a company, no evidence that the board of directors resolved to accept the position of trustee in accordance with its constitution;
The terms of the trust deed have not been followed;
No written minutes showing distribution of income or capital; and
Trustees or beneficiaries using the account as their own – which exposes them to tax or other consequences for breaches.

AJML UPDATE – National Rental Affordability Scheme

National Rental Affordability Scheme (NRAS)

What is it?

NRAS started on the 1 July 2008 and is the designed to encourage large-scale investment in affordable housing. The NRAS offers tax and cash incentives to providers of new dwellings on the condition that they are rented to low and moderate income households at 20% below market rates.

The Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) is responsible for administering and implementing the scheme.

What are the incentives?

The NRAS offers annual incentives for a period of ten years. The incentive compromises:
A Federal Government contribution in the form of a refundable tax offset or payment to the value of $6,000 per dwelling per year in the first year of operation of the scheme
A state or territory contribution in the form of direct financial support or an in-kind contribution to the value of at least $2,000 per dwelling per year in the first year of operation of the scheme.
There are no capital gains tax consequences for providing incentives or other benefits under the NRAS.

The scheme will be indexed in line with the rental component of the consumer price index.

The incentives are paid The Federal Government contribution or incentive is paid in the form of refundable tax offsets for complying investors who can claim their entitlement to the tax offset using one of the following methods:
in their annual tax return
by lodging a short-form application if they are an income tax exempt entity who would not ordinarily lodge a tax return
The state and territory contributions you receive in cash or in-kind for participating in the NRAS are non-assessable and non-exempt for tax purposes. This means they are not included in your assessable income.

Who is entitled to the NRAS tax offset in their annual tax return?

Claims by individuals, corporate tax entities and super funds
An individual, corporate tax entity or super fund is entitled to claim a refundable tax offset provided both of the following apply:
they have been issued with a certificate from the Housing Secretary under the NRAS
The income year begins in the NRAS year to which the certificate relates.

A partnership or trust that is a party to a non-entity joint venture:
Another circumstance is where a partnership or a trust is a party to a non-entity joint venture. In this circumstance, all of the following apply:
the partnership or trust is deemed to have been issued with a certificate for its income year, which begins in the NRAS year
the rental dwellings covered by the certificate are those for which the partnership or trustee has derived NRAS rent
The amount in the certificate is the total of all the amounts worked out in relation to those rental dwellings.

The refundable tax offset will flow through to the partners or beneficiaries receiving the NRAS rent indirectly. Alternatively, if a trust has no net income, the trustee will be able to claim the refundable tax offset.
We can help you to claim the tax offset in your tax returns.

Dwelling owners investing under a head lease agreement

The ATO is aware of certain NRAS arrangements where a dwelling owner leases their dwelling to a housing provider under a head lease and that housing provider subleases the dwelling to eligible NRAS tenants for at least 20% below market value rent. A housing provider in this context is an approved participant under the NRAS scheme and includes charitable housing organizations.

Example:
Madeline is a business woman who has decided to participate in NRAS.

Madeline plans to build 20 rental dwellings of appropriate standard to meet the requirements to participate in the NRAS. Madeline applies under the NRAS and receives an allocation.

Once the dwellings are complete, Madeline, through her real estate agent, finds eligible NRAS tenants to whom she rents the dwellings at 20% below market value. Madeline complies with all the requirements set out by FaHCSIA and lodges her first statement of compliance on 13 May 2010.

On 30 June 2010, Madeline receives an NRAS tax offset certificate from the Housing Secretary. The certificate is for the NRAS year 1 May 2009-30 April 2010.

As Madeline is participating in NRAS as an individual and she has received a tax offset certificate, she is entitled to claim under section 380-5 of the Income Tax Assessment Act 1997

AJML Accountants Update – Residency for tax purpose 1

Residency for tax purpose – Part 1

Residence and source
As a general principle, an Australian resident is subject to tax in Australia on income from all (worldwide) sources, whereas a person who is not an Australian resident is only subject to tax in Australia on income from Australian sources.
The income tax law contains a comprehensive definition of ‘Australian resident’ in s955-1 ITAA 1997. It also contains some rules dealing with the source of income, but for the most part the source of an amount of income is simply a question of fact determined by applying principles laid down by the courts.

Resident vs non resident
In order to determine your tax rate, you must first determine your residency status as residents and non-residents are taxed differently. Australian residents are taxed on all sources of income at generally lower rates, have tax free threshold, have income tax offsets for example, low income tax offsets, and has to pay Medicare levy. Non-residents are taxed at a higher rate on Australia sourced income, do not have to pay Medicare levy, does not have an income tax threshold and does not have most of the income tax offsets that the residents have.

Generally, you are an Australian resident for tax purposes if you have:
Always lived in Australia

Moved to Australia and live here permanently

Been in Australia continuously for six months or more and for most of the time you have been

In the one job, and
Living in the same place

Been in Australia for more than half of the financial year, unless

Your usual home is overseas, and

You do not intend to live in Australia.
However, not everyone stays in one country for the entire year, and the ATO acknowledges this matter. Hence, for people who travel from country to country during the year, their residency status is determined based on the purpose of the travel as well as the length of time spent overseas. Some of the most common examples are given below.
So in most cases you are treated as a resident for taxation purposes if you:
Go overseas temporarily

Do not set up a permanent home overseas

Migrate to Australia and intend to stay here permanently
However, you are treated as a non-resident for taxation purposes if you:
Are visiting Australia for more than six months and for most of the time you are travelling and working in various locations across Australia

Are holidaying in Australia

Are visiting for less than six months

Leave Australia permanently

International taxation
The general principle that a non-resident is assessable on Australian source income is modified extensively by excluding from assessment, and instead subjecting to withholding tax, outbound payments of dividends, interest and royalties.
The general principle that an Australian resident is assessable on income derived from all sources is modified extensively by rules that include, as statutory income, amounts ‘attributed’ from certain foreign companies and trusts, and rules that exempt certain foreign dividend income derived by companies. A credit is available for foreign tax paid on Australian resident’s assessable foreign source income.

AJML Accountants Update – Guide on Trust Part 4

Guide on Trust Funds – Part 4

Estate planning

Since the assets of a trust are not owned by any one beneficiary, the beneficiaries cannot deal with those assets or pass them on their descendants by their wills.

However, if careful consideration is given to who is and will be the appointor(s) of the trust, control of the trust may be effectively passed to the next generation.

An obvious way to pass control of the trust to the next generation is for the trust deed to provide that, following the death of the original appointors of the trust, their children will become the appointors. This will mean that, upon their parents’ death, these children will obtain control of the trust (and the trust assets), in the same way that they could obtain other assets directly owned by their parents and passed by will.

A benefit of the assets remaining in the trust, under the control of the children but not directly owned by them, is that should the children (or grandchildren or further descendants) encounter financial difficulty or matrimonial trouble, the

assets of the trust should hopefully not be available to creditors or disgruntled ex-spouses for the life of the trust (at least until the assets or funds are distributed to any of those beneficiaries).

In the meantime, if those beneficiaries require funds, assets or anything else from the trust, the trustee still has the discretion to, for example, distribute income or capital to them or make a loan to them.

The Trust Deed

These instructions should be followed in numerical order:

  1. The settlor should give the settled sum to the trustee(s).
  2. The settlor, being a natural person (i.e., ordinarily being an individual, not a company) should sign each copy of the deed where indicated in the presence of an independent adult witness, who should then also sign the deeds.

a)if the trustee (or trustees) are natural persons (or any of them are), they should then sign each copy of the deed where indicated in the presence of an independent adult witness, who should then also sign the deeds; or

b)if the trustee is a company (or any of them are, if there is more one trustee), the company will need to resolve to accept appointment as trustee of the trust before executing the deed. Therefore, the resolution of the director or directors of the company accepting the appointment should be signed and dated and, once this is done, the company can then execute the deed according to its constitution (i.e., with the requisite number of directors and/or secretaries signing the deed, accompanied by an imprint of the common seal of the company, if the company has one and is required to execute documents with it).

  1. The trust deed should then be dated where indicated
  2. Each copy of the trust deed should then be stamped at the appropriate stamps office and the requisite stamp duty paid according to the State/Territory in which the trust deed is stamped (if necessary) – this will usually be the “Governing State” of the deed (though it is technically possible for a deed to be stamped in one State despite the trust deed specifying that the Governing State is another State).

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