Tax Hot Spots II 2009 WHAT S NEW IN 2009/ Division 7A expanded problems for clients using company assets...3

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1 Contents Topic Page No. WHAT S NEW IN 2009/ Division 7A expanded problems for clients using company assets The use of company assets by shareholders Proposed carve-outs under the new rules Potential carve-out for minor and infrequent use Potential carve-out where the use is otherwise deductible What should clients be doing now?...5 Government goes on attack against hobby farms Background to the non-commercial loss rules What are the problems with the current rules? Proposed changes introduce income test...7 Proposed changes to the taxation of employee share schemes...9 Introduction How will interests acquired under an ESAS be taxed under the proposed regime? Upfront taxation Deferred taxation Calculating the tax payable Employer reporting and tax withholding Application date and transitional provisions...13 CGT update for The ATO warns against re-characterising capital losses as revenue losses Which taxpayers does TA 2009/12 apply to? Why is the ATO concerned? What risks are associated with incorrectly classifying a taxpayer as a share trader? Can company formation costs be included in the cost base of an asset? The facts in ATO ID 2009/ National Tax & Accountants Association Ltd: October 2009 i

2 2.2 The decision in ATO ID 2009/ How does the first home owners grant affect the cost base of the asset acquired? The facts in ATO ID 2008/ The decision in ATO ID 2008/ The maximum net asset value test and assets used solely for personal use Background Personal bank accounts Vacant land Does taxable Australian real property include a leasehold interest in land? Background The Commissioner s view The opposing view Legislative changes...21 GST update for Are there GST implications when a partner takes trading stock for private use? Background The Commissioner s view in GSTD 2009/D Does GST apply to the disposal of a stratum motel unit? The facts in ATO ID 2008/ The decision in ATO ID 2008/ When is the sale of vacant land treated as an input taxed supply? Background...26 Tips and traps with claiming the Tax Break What are the conditions for claiming the Tax Break? What assets are eligible for the Tax Break? Assets that are ineligible for the Tax Break What is a new investment in an eligible asset? Who claims the Tax Break? Meeting the new investment threshold...32 ii National Tax & Accountants Association Ltd: October 2009

3 5.1 The new investment threshold applies on a per asset basis Adding together multiple expenditure on the same asset Investing in sets of assets or identical assets Determining the investment commitment time Satisfying the purpose test...34 Extending the TFN withholding rules to distributions from discretionary trusts...35 Private health insurance rebate The proposed changes The current state of play...36 Claiming interest for moneys settled on a trust when do you need to apportion? Claiming a deduction for interest Interest deduction reduced on a proportionate basis Interest deduction capped to income derived Interest deduction denied in full...38 NEW DEVELOPMENTS FROM THE ATO...39 Latest developments in Fringe Benefits Tax Changes to the FBT treatment of sacrificed donations What are the changes to the FBT laws? Should employers amend their 2009 FBT Return? Determining if an eligible work-related item is exempt When will a GPS device qualify for the exemption? When will a laptop computer be subject to FBT?...44 Discounts and rebates on trading stock Tax consequences for the purchaser Tax consequences for the seller...48 ATO s compliance program targets highly wealthy individuals in Information gathering by the ATO in 2010 the highly wealthy individuals entity questionnaire...50 National Tax & Accountants Association Ltd: October 2009 iii

4 2. What should taxpayers (or their tax advisers) do if they receive an entity questionnaire?...51 Superannuation recent developments to be wary of TR 2009/D3 - New ATO Draft Ruling on superannuation contributions How can a superannuation contribution be made? When is a superannuation contribution made? SMSFs and unpaid trust distributions SMSFR 2009/ Unpaid trust distributions after 30 June How are unpaid entitlements treated in the SIS Act? Unpaid trust distributions and the in-house asset rules Unpaid trust distributions and the arm s length investment rules Unpaid trust distributions and the sole purpose test Will an SMSF be made non-complying for a breach of the SIS provisions discussed above? Trap with salary sacrifice and concessional contributions caps Traps with salary packaging super beyond 30 June Update on claiming deductions for blackhole expenditure Claiming a deduction for blackhole expenditure The types of capital expenditure deductible under S Expenditure incurred in relation to a business The timing of a deduction for blackhole expenditure Interaction with the non-commercial loss rules Limitations and exclusions to S NTAA OVERSEAS WORKERS KIT" The overseas workers reference kit Australian employees working overseas recent changes now tax foreign earnings Applying the S.23AG exemption to foreign employment income derived before 1 July 2009? Foreign employment income eligible for the S.23AG exemption from 1 July Transitioning to the new S.23AG last opportunity to apply the former rules!...78 iv National Tax & Accountants Association Ltd: October 2009

5 1.4 What is the impact of the changes from 1 July 2009? Resident vs. non-resident the distinction is crucial! Tips and traps to watch for when resident employees become non-residents The CGT sleeper what happens to assets already owned when an individual becomes a non-resident? The SMSF trap the impact on superannuation benefits held in an SMSF when residency changes Common tax issues for non-resident employees returning to Australia The CGT treatment of assets acquired overseas Foreign termination payments are they taxable when received in Australia? What are the tax implications of receiving foreign superannuation entitlements in Australia? Demystifying the rules relating to employee shares and options acquired whilst overseas...92 THE A Z GUIDE OF SELLING A BUSINESS...97 The A-Z Guide of Selling a Business Comprehensive checklist...99 MAIN TAX ISSUES AFTER SELLING A BUISNESS The major income tax issues after selling a business Introduction Selling depreciable assets under a sale of business contract Calculating a balancing adjustment under the SBE regime Selling trading stock under a sale of business contract The tax treatment of payments made to employees following the sale of a business Accrued annual leave and long-service leave Eligible termination payment ( ETP ) Genuine redundancy payments ( GRP ) Accrued leave transfer payments Interest deductions following cessation of a business Maximising the CGT small business concessions on the sale of a business The key concepts for applying the SBCs National Tax & Accountants Association Ltd: October 2009 v

6 2. Companies and the SBCs (Case studies 1 and 2) Companies and the small business active asset reduction Unit trust with discretionary trust unitholders (Case studies 3 and 4) Sale of a business by a unit trust CGT event E4 may apply Availability of the SBCs to a sale of the units in a unit trust Partnership of discretionary trusts (Case study 5) Planning tips to maximise access to the SBCs by discretionary trusts Sole trader carries on business (Case study 6) DIY LIQUIDATIONS AN ACCOUNTANT S GUIDE DIY Liquidations An Accountant's Guide A simple Deregistration Deregistering a company comprehensive checklist Reinstating a deregistered company What are the consequences of reinstatement? A MVWU What do you need to lodge? Income derived by a company during a MVWU Obtaining a tax clearance from the ATO Obligation to lodge returns Deductibility of costs to wind up the company The exceptions to the rule Can the shareholder claim a deduction? Tax implications of distributions from a company What should be paid out prior to the MVWU? Understanding the method statement governing the tax treatment of distributions Interim and final distributions Income derived Amounts not deemed dividends under S.47(1)/S.47(1A) Method statement governing the tax treatment of distributions vi National Tax & Accountants Association Ltd: October 2009

7 2.4 Capital gains on distributions that are not dividends Dealing with Division 7A and shareholder loans Clearing credit loan accounts Is the loan a personal use asset? Tax planning to maximise the CGT SBCs Identifying significant individuals and CGT concession stakeholders The meaning of significant individual Problems with different classes of shares Dangers with the 50% active asset reduction Do the SBCs apply to a capital gain on shares? Applying the SBCs on a MVWU for an individual Accessing the SBCs for an entity other than an individual Paying out the retirement exemption tax effectively Access to retirement exemption further improved SOME CERTAINTY FOR TRUSTS FOR NOW AT LEAST Some certainty for Trusts for now at least What the court in Bamford decided The proportionate approach must be used Equalisation clauses work Consequences of ATO preferred approach Where to from here? Establishing new trusts what to look for? Amending existing deeds is it necessary? Preparing resolutions for future years TAX ISSUES WITH FINANCIAL DISASTERS Tax Issues with Financial Disasters Timbercorp and Great Southern - forestry and horticulture giants take a tumble Tax treatment of participation in a MIS ATO guidelines for participants in MIS run by Timbercorp or Great Southern National Tax & Accountants Association Ltd: October 2009 vii

8 1.3 Other considerations for grower investors Worthless investments Storm Financial margin lending gone wrong Tax implications for Storm clients Agency and financial advisers where has the money gone? Background Deductibility of funds misappropriated by an agent Analysis of Lean s case Overview of deductions for misappropriated money FINANCIAL PLANNING AND YOUR PRACTICE! Financial Planning and Your Practice Setting up an ideal financial planning structure Are Reps prohibited from using any structures? Which structure should be used? What is the tax treatment of commission income? What is PSI? When will the income derived by a Rep be PSI? What are the concerns where the income is PSI? Common products and their tax treatment Tax effective insurance premiums Capital protected products and negative gearing Notes viii National Tax & Accountants Association Ltd: October 2009