Tax Smart Australia 2012 Articles Removed from Capital Gains Tax Minimisation Strategies Bonus Issue. Contents

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2 Tax Smart Australia 2012 Articles Removed from Capital Gains Tax Minimisation Strategies Bonus Issue Contents Cases Relating To CGT Small Business Concessions ATO Interpretative Decisions Released In The Last 12 Months Recent Tax Rulings Cases And Legislation Extend The Temporary Loss Relief For Merging Superannuation Funds By Three Months Share Transactions Characterise Your Gains Share Traders Crystallising Capital Losses And Wash Sales After Partial Recovery In The Stock Market Transferring Shares Or Business Real Property Into A Self Managed Superannuation Fund (SMSF) CGT Issues For Beneficiaries Asset Disposal Super Is Super The Accidental Developer A Really Fine Line If You Have To Pay The Capital Gains Tax Pay It And Be Done With It! 1

3 Tax Smart Australia 2012 Articles Removed from Capital Gains Tax Minimisation Strategies Bonus Issue CASES RELATING TO CGT SMALL BUSINESS CONCESSIONS Commissioner of Taxation V Byrne Qld Pty Ltd (2011) FCAFC This case was an appeal against the decision in The Taxpayer and Commissioner of Taxation (2010) AATA 455. The Taxpayer (Byrne Hotels) sold its business (Glenmore Tavern). Its related entity (Halgalemo) also sold the land upon which the business was situated. The contracts of sale were dated October The taxpayer made a capital gain of $4,125,955. The taxpayer did not declare any capital gain in their income tax return for the 2004 income year. The taxpayer believed they met all of the conditions of the small business CGT relief in Division 152 of the ITAA 1997, including the maximum net asset value (MNAV) test in section as required by paragraph (c). Accordingly, the taxpayer claimed the small business 50% reduction in the capital gain under Subdivision 152 C and the small business rollover concession in Subdivision 152 E effectively reducing the capital gain to zero. The Commissioner considered that the taxpayer failed the maximum net asset value and was therefore not entitled to the small business concessions. The taxpayer appealed and was successful at the Administrative Appeals Tribunal (AAT). On appeal to the Full Court of the Federal Court, the Commissioner challenged the findings of the AAT that the costs of sales (being solicitor s fees, accountant s fees and real estate commission) should be regarded as liabilities for the purposes of subsection (1) in the context of the MNAV test in section (The threshold at that time was $5 million). The issue before the Full Federal Court was whether the taxpayer satisfied the MNAV test in section just before the contract of sale of the business was entered into. In particular, whether the real estate commission and legal fees incurred by the taxpayer were liabilities for the purposes of subsection (1) just before the CGT event. The Commissioner contended that the real estate commission and the amounts of two of the three invoices issued in respect of the solicitors fees were not liabilities for the purposes of paragraph (a) as they were contingent liabilities. Decision The Commissioner s appeal was partly allowed. The case was remitted back to the AAT to undertake an apportionment of the solicitor s fees contained in the second invoice as it represented work done both before and after just before the CGT event. The Court found that the amount of solicitor s fees contained in the first invoice was a liability in existence just before the CGT event and the fees contained in third invoice were in respect of work done after the just before time and were therefore not a liability in existence just before the CGT event. The Court noted that even if the entirety of the legal fees was to be treated as a liability of the taxpayer, the MNAV calculation would still be above the threshold of $5 million. Accordingly, the AAT also needs to determine the net asset values of Mr and Mrs Byrne whether such net asset values should be disregarded under subsection (4). The majority of the Court concluded that the real estate agent commission was a liability in existence just before the CGT event and was therefore taken into account in calculating the net value of the taxpayer s CGT assets. Tax Smart Australia 2012 Articles Removed Page 2

4 AAT Case (2011) AATA 588, Re Venturi and FCT This case was a review of the objection decision by the Commissioner concerning the taxpayer s assessment for the 2006 income year. The taxpayer sold two ordinary shares in Fiduzu Pty Ltd for $4,930,000. The cost base of the shares was $2. The taxpayer made a capital gain of $4,929,998 from the sale. The capital gain was reduced to zero after the taxpayer claimed the 50% discount in Division 115 of the ITAA 1997 and the small business concessions in Division 152 of the ITAA The Commissioner disallowed the taxpayer s claim for small business CGT concessions on the basis that the maximum net asset value test was not satisfied as required by section of the Income Tax Assessment Act 1997 (ITAA 1997). Accordingly, the taxpayer was issued with an amended assessment increasing their taxable income for the 2006 income year. The substantial issue that the Administrative Appeals Tribunal (AAT) had to consider was whether the taxpayer satisfied the maximum net asset value test in section of the ITAA 1997 in order for the taxpayer to validly claim the small business CGT concession in Division 152 of the ITAA Relevantly, the AAT had to consider whether the market valuations of the assets of the taxpayer s related entities (e.g. hotel and Caravan Park) could be accepted as correct. Decision The AAT found that the valuations commissioned by the taxpayer were flawed and that the taxpayer failed to discharge the onus of establishing the correctness of the values of the hotel and caravan park at the relevant date. Therefore, the AAT concluded that the taxpayer did not satisfy the maximum net asset value in section Syttadel and Holdings Pty Ltd and Commissioner of Taxation (2011) AATA August, 2011 This case was a review of the decision to disallow the taxpayer s objection concerning the availability of the CGT small business concessions with respect to the sale of a marina. The taxpayer sold the marina for $8.9 million. The taxpayer contended however that the value of the marina at the time of the sale was $4.5 million. The Commissioner said that the value of the marina was greater than $5 million and therefore the CGT small business concessions were not available. The issue before the AAT concerned the market value of the marina at the time of the sale (that is when the contract of sale was entered into in July 2006). Depending on the market value of the CGT assets of the taxpayer, the capital gains made from the sale of the marina may qualify for concessional taxation treatment subject to the conditions set out in Division 152 of the ITAA Relevantly, section provides for the meaning of net value of the CGT assets and section provides for the maximum net asset value test which at that time had a threshold of $5 million. Decision The AAT did not accept the opinion of the taxpayer s valuer that the marina had a market value of $4.5 million in July As the AAT was not persuaded by the evidence presented by the taxpayer s valuer, it concluded that the taxpayer failed to discharge the onus of proof. The AAT said that the methods used by the taxpayer s valuer simply cannot be justified. The AAT agreed with the valuation approaches applied by the Commissioner s valuer who concluded that the marina had a market value of $5.3 million in July The AAT was satisfied that the value of the marina was at least that amount. Tax Smart Australia 2012 Articles Removed Page 3

5 Therefore, the AAT affirmed the decision under review and held that the taxpayer was not entitled to the CGT small business concession because the maximum net asset value test was failed. In February 2012, the ATO released a Decision Impact Statement on this case. ATO INTERPRETATIVE DECISIONS RELEASED IN THE LAST 12 MONTHS ATO ID 2011/1 Capital Allowances: Depreciating asset jointly held composite asset ATO ID 2011/2 Capital Allowances: Depreciating asset segments of a fibre optic cable system ATO ID 2011/3 Capital Allowances: Primary production water facilities sprinkler system used for frost protection ATO ID 2011/9 Capital Gains Tax: Collectable art work acquired for investment ATO ID 2011/25 Capital Allowances: Immediately deductible expenditure contractor providing geophysical surveying services to entities in the mining and mineral exploration industries ATO ID 2011/26 Capital Gains Tax: Assignment of renewable energy certificates ATO ID 2011/37 CGT Small Business Concessions: Maximum net asset value test disregarded assets asset being used solely for personal use and enjoyment ATO ID 2011/40 CGT Small Business Concessions: Maximum net asset value test disregarded assets asset being used solely for personal use and enjoyment non income producing use by others ATO ID 2011/41 CGT Small Business Concessions: Maximum net asset value test disregarded assets asset being used solely for personal use and enjoyment income producing use ATO ID 2011/45 CGT Small Business Concessions: Basic conditions CGT event happening in relation to a CGT asset granting an option ATO ID 2011/78 Capital Allowances: Business Related Costs limitation of deduction return of an equity interest ATO ID 2011/79 Capital Allowances: Business related costs limitation of deduction return of an equity interest ATO ID 2011/101 Capital Gains Tax: Division 149 majority underlying interests no new shareholders ATO ID 2011/107 Capital Gains Tax: Division 149 majority underlying interests new shareholder ATO ID 2012/9 Capital Allowances: Holder of a depreciating asset right to remove ATO ID 2011/38 CGT Small Business Concessions: Maximum net asset value test disregarded assets dwellings ATO ID 2011/39 CGT Small Business Concessions: Maximum net asset value test disregarded assets asset being used solely for personal use and enjoyment by spouse and children Tax Smart Australia 2012 Articles Removed Page 4

6 RECENT TAX RULINGS CASES AND LEGISLATION Tax Rulings Released in 2011 Taxation Determination TD 2011/26 Income Tax: Capital gains tax: if a share in a no goodwill incorporated professional practice is disposed of for no consideration, will the Commissioner accept, for the purposes of calculating the market value of the share upon possible application of subsection (1) of the Income Tax Assessment Act 1997 that the goodwill of the company can be taken to have no value? Yes. This approach will apply only for dealings done at arm s length for admissions to, and exits from, the professional practice in the natural ebb and flow of natural person practitionershareholders into and out of the company. For the approach to apply, all practitionershareholders must agree to follow the approach explained in this determination, and all must agree that the cost base calculation for the purchaser will be the reflex of the capital proceeds approach outlined in the determination. Draft Taxation Determinations Issued October 2011 TD 2011/D9 Income Tax: Employee share schemes: If a share in a no goodwill professional practice company is acquired by a practitionershareholder (or a new practitioner shareholder), will the Commissioner accept, for the purposes of determining whether that acquisition was at a discount within the meaning of subsection 83A 20(1) of the Income Tax Assessment Act 1997, that the goodwill of the company can be taken to have no value? Yes. This approach will apply only for dealings done at arm s length for admissions to, and exists from, the professional practice in the natural ebb and flow of natural person practitionershareholders into and out of the company. For the approach to apply, all practitionershareholders must agree to follow the approach explained in this draft determination. TD 2011/D10 Income Tax: When considering the application of subsection 159GZZZQ(2) of the Income Tax Assessment Act 1936 to an exiting vendor practitioner shareholder by a no goodwill incorporated professional practice, will the Commissioner consider that that buy back price is less than the market value of the shares merely because the price is calculated not to reflect the underlying goodwill of the company? No. This approach will apply only for dealings done at arm s length for admissions to, and exits form, the professional practice by practitioners. Associated transfers, buy backs and cancellations of shares in the company must occur in the natural ebb and flow of natural person practitioner shareholders into and out of the company and the circumstances of the firm and all the practitioner shareholders must accord with the approach explained in this Determination. Draft Taxation Determination February 2012 TD2012/D2 Here to ATO s view is that it is possible (depending on the circumstances) for a beneficiary of a trust estate to be reasonably expected to receive a share of the net financial benefit referable to such a gain for the purposes of paragraph (1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997), despite the making of the capital gain not being established until after the end of the income year. The reasonable expectation requirement is directed to the future receipt of an amount referable to the gain should it arise, not to the likelihood of the gain itself occurring. Draft Miscellaneous Taxation Rulings MT 2011/D1 Miscellaneous taxes: application of the income tax and GST laws to immediate transfer farm out arrangements. Tax Smart Australia 2012 Articles Removed Page 5

7 MT 2011/D2 Miscellaneous taxes: application of the income tax and GST laws to deferred transfer farm out arrangements. AAT Case (2011) AATA 479, Re Greenhatch and FCT This case was a review of the objection decision by the Commissioner concerning the deductibility of a contribution made to a super fund. The crucial issue was the operation of section of the ITAA The Administrative Appeals Tribunal decided in favour of the taxpayer. Patrick Carberry V Commissioner of Taxation (2011) AATA 303 This decision impact statement (issued on 15 September 2011) outlines the ATO view of this case which concerned whether a payment made under a state government program was assessable income as ordinary income, as statutory income as a bounty or subsidy, or as a capital gain from a CGT event. Commissioner of Taxation V AXA Asia Pacific Holdings Pty Ltd (2010) FCAFC 134 This decision impact statement (which was issued on 15 July, 2011) outlines the ATO view of the case which concerned the availability of partial scrip for scrip rollover relief under Subdivision 124 M of the ITAA 1997 in respect of a capital gain from the disposal of a shareholding in a wholly owned subsidiary. Tax Laws Amendment (2011 Measure No 70 Bill 2011 This Bill was passed by the House of Representatives on 13 th October, 2011 and moved to the Senate on 31 st October, It contains the following CGT related amendments: Removing tax issues facing special disability trusts Schedule 1 to this Bill will amend the ITAA 1997 to provide: - A CGT exemption for an asset transferred into a special disability trust (SDT) for no consideration; - A CGT main residence exemption for a trustee of an SDT; - A CGT exemption for a recipient of the principal beneficiary s main residence, if their ownership interest ends within two years of the principal beneficiary s death; and - Equivalent taxation treatment amongst SDTs established under different Act. Date of effect: These amendments will apply to income tax assessments for the income year and later income years. EXTEND THE TEMPORARY LOSS RELIEF FOR MERGING SUPERANNUATION FUNDS BY THREE MONTHS Schedule 6 to this Bill will amend Tax Laws Amendment (2009 Measures No. 6) Act 2010 to extend the end date of the temporary loss relief for complying superannuation fund mergers by three months from 30 th June, 2011 to 30 th September, The purpose of the extension is to provide additional time for mergers to take place before the loss relief expires. Exposure Draft Taxation of Share Buy Backs Treasury released on 20 th October, 2011 the exposure draft (Exposure Draft Tax Laws Amendment (2011 Measures No. 9) Bill 2011: Buy backs). As part of the Budget, the government announced that it would implement recommendations made by the Board of Taxation to improve the taxation arrangements relating to the buyback of shares and non share equity interests, with effect from the date of royal assent of the amending legislation. SHARE TRANSACTIONS Tax Smart Australia 2012 Articles Removed Page 6

8 The need to classify assets held by trusts and individuals as eligible for the 50% CGT discount is understandable in a buoyant economy, but given the recent market meltdown some assets should be reviewed. Care needs to be taken when reviewing how your investments should be characterised. It is not uncommon for investments to be incorrectly characterised as capital assets when they should in fact be treated as trading stock or revenue assets, held for a profit making purpose. Due to ongoing volatility on the Australian Stock Market (ASX), more people are now carefully considering their investments. By characterising investments correctly there may be opportunities to reduce tax liabilities. Care should be applied to the tax classification of the profits or losses arising from the purchase and sale of shares. Generally these gains are considered capital in nature, especially if the share has been held for more than 12 months. However, caution should be exercised meaning commercial classifications should be made as opposed to desired tax outcomes that pay little regard to the facts. CHARACTERISE YOUR GAINS There are three regimes to be considered when determining the tax treatment of share investments: 1. capital gains tax 2. trading stock 3. profit making schemes Frequently, mum and dad investors with small investments will treat any gains as being on capital account. This contrasts with professional share traders who generally classify their gains and losses as relating to trading stock on revenue account. Often overlooked is the in between category for investors who acquire shares for resale at a profit, but do not have a scale of activity to be considered a business (e.g. speculators). Depending upon the nature and intent when purchasing the shares, some mum and dad investors may be able to bring losses on shares to account as a deduction against other income. SHARE TRADERS Share traders enjoy situations where their realised losses are allowable as a deduction for tax purposes and unrealised losses can be claimed as deductions under the trading stock provisions. However, such taxpayers who seek to use the trading stock rules must convince the ATO that the nature and scale of their activities amounts to the conduct of a share trading business, before they can claim trading losses as tax deductions. The ATO has published fact sheets indicating key criteria that allow an investor to be classified as a share trader. A share trader is classified as someone who is undertaking business activities for the purpose of earning income from buying and selling shares. A taxpayer who infrequently has the odd punt on shares is unlikely to qualify as a trader because their activities will lack the commercial elements to suggest they are traders, as that term is recognised by the ATO. The long stock market bull run crashed in October 2007 and had attracted large numbers of speculators to the market. It is reasonable to infer their dominant purpose in purchasing shares was to make a quick gain rather than to hold them for franked dividends. They differ from share traders in that the nature or scale of their activities does not meet the criteria required to be considered a business. However, the tax law treats assets acquired for the dominant purpose of resale at a profit making undertaking or scheme, as being revenue assets. The profit or loss from the sale of such assets is treated as being on revenue account for tax purposes, and is not eligible for the 50% CGT discount. Tax Smart Australia 2012 Articles Removed Page 7

9 Frequently these speculative assets are misclassified. Failure to correctly classify such assets can lead to wrongly claiming the 50% CGT discount, for which capital assets held for more than 12 months are eligible. However, this can also lead to losses from sale of speculative assets being incorrectly treated as a capital loss, when it is in fact a revenue loss that can be offset against other types of income, such as salary or rental income. CRYSTALLISING CAPITAL LOSSES AND WASH SALES AFTER PARTIAL RECOVERY IN THE STOCK MARKET A surprising number of taxpayers have made taxable capital gains on the disposal of assets this financial year. This is mainly due to sales of long held assets with a view to consolidating their positions. This is something so fundamental but frequently overlooked: to avoid paying capital gains tax, crystallise losses by disposing of assets that have a capital loss prior to 30 June In crystallising capital losses we would draw your attention to Taxpayer Alert 2008/7 and Taxation Ruling TR 2008/01 which deals with wash sale arrangements and the application of Part IVA (the anti avoidance provision) of the Tax Act. The type of wash sale arrangement in TA 2008/7 covered is where a taxpayer disposes of, or otherwise deals with a capital gains tax (CGT) asset to generate a capital or revenue loss, but where in substance, there is no significant change in the taxpayer s economic exposure in the asset. This may occur where the interest in the asset is in some way reinstated by the taxpayer, in order to apply a resulting capital loss or allowable deduction against a capital gain or assessable income already derived or expected to be derived. Reinstatement of the taxpayer s interest is commonly achieved by a taxpayer selling a CGT asset and creating a trust over the asset or transferring an asset to a trust. The ATO is concerned where this is done with the sole or dominant purpose of generating a capital or revenue loss to offset against a capital gain or assessable income when in substance there is an intention to acquire the same or substantially the same asset or the taxpayer still benefits from the asset. Examples of mechanisms to carry out wash sale arrangements covered by this Taxpayer Alert and where Part IVA might be relevant are those discussed in paragraph 4 of TR 2008/1 which sets out the ATO view in relation to wash sales. These examples apply where the taxpayer disposes of, or otherwise deals with, an asset and there is an arrangement to acquire the same or substantially the same asset, or otherwise continue to benefit from the asset. TRANSFERRING SHARES OR BUSINESS REAL PROPERTY INTO A SELF MANAGED SUPERANNUATION FUND (SMSF) Tax Smart Australia 2012 Articles Removed Page 8 There is a prohibition on fund members (or associates) transferring property owned by them into SMSFs with two exceptions: Business Real Property (Broadly speaking, business real estate used in the course or conduct of a business) shares listed on the ASX or an approved equivalent stock exchange When asset values were booming the capital gains tax consequences were often too severe to consider transferring assets owned by fund members (or associates) into a SMSF. However, with asset values having taken a steep decline this may no longer be the case and the transfer of such assets may now be viable. This strategy should be considered and can be done by way of in specie contribution. Indeed it may now even be possible to incur have a capital loss on recently acquired approved assets on the transfer (but one

10 would have to consider TR 2008/01 see above). This could assist in overall tax planning. CGT ISSUES FOR BENEFICIARIES ASSET DISPOSAL This case study considers both estate planning and residency issues. Consider an individual who passed away in 1989 and a life interest in the income of his estate was granted to his wife with his two children as equal remaindermen beneficiaries. The assets held in trust consist solely of investment shares in listed public companies. The wife has passed away during the 2009 income year and the shares were dispersed to the two sons as beneficiaries accordingly. They sold their respective shares in the same income year. However, the eldest son became a non resident for Australian taxation purposes in 2003 and remains so. Let s examine the CGT consequences. The beneficiaries will be taken to have acquired the shares at the time of the deceased s death, see Taxation Determination TD 93/37, despite the shares being subject to a life interest. In addition, they will be considered to have acquired them for a cost base determined under the rules in s128 15(4) i.e. for their market value if they were pre CGT shares of the deceased, or for the deceased s cost base if they were post CGT shares of the deceased. At the time the eldest son became a non resident in 2003, CGT event I1 would have applied to treat him as having disposed of the shares (as well as his other CGT assets) for their market value at that time: s (1) (3). It should be noted that the exclusion from this deemed disposal rule in s (3) for taxable Australian property covered by Items 1 or 3 in the table at s855 15, or rights or options over such assets does not apply to shares. However, he can elect to ignore the capital gain or loss arising under the deemed disposal rule in CGT event I1 and instead treat the shares as taxable Australian property until such time as the taxpayer becomes a resident again. As a result, a liability for CGT will only arise on the actual sale of the shares, as occurs here: s (2) and (3). For these purposes, Item 5 in s provides for CGT assets subject to a deferral election under s (2) to be taxable Australian property. Note that if a deferral election is made under s , it must be made in respect of ALL assets that are otherwise subject to CGT on becoming a nonresident. In summary, both beneficiaries will be considered to have acquired the shares for the relevant cost base at the date of the deceased s death. In the case of the younger son, he will be liable for CGT on their sale in In the case of the eldest son, he will be liable for CGT on becoming a nonresident, unless he chooses to defer the CGT liability in which case he will be liable for CGT on their actual sale i.e SUPER IS SUPER The May 2006 Federal Budget changes heralded in what was thought to be the golden age of superannuation. However, the 2009 Federal Budget effectively halved concessional contribution caps from 1 st July, The Henry Review recommended changes to superannuation but to date this has not occurred and. Under the law as it stands, Super funds are a significant tax shelter and not just for CGT purposes. Deductible contributions and super fund income are taxed at 15%. However, there is a one third discount for assets held longer than 12 months meaning capital gains tax in a super fund is often only 10%. But if you are paying a complying pension to fund members it gets even better Tax Smart Australia 2012 Articles Removed Page 9

11 Just prior to paying a complying pension, assets are segregated to form the asset pool from which the pension is paid. There is no CGT on segregated assets and no income tax on these earnings. Furthermore, when a complying pension is paid to someone over 60 after 1 July 2007, it will not be taxable and will not even have to be disclosed in the recipients taxation return. The transition to retirement provisions applying from 1 July 2005, also open up a number of very interesting possibilities for part time workers over 55 who may still be deriving significant income. With careful planning it may be possible for these people to pay 15% as their highest marginal tax rate on a quite reasonable income. THE ACCIDENTAL DEVELOPER A REALLY FINE LINE Here the fundamental question will be whether the transaction or activity was business or mere realisation of an asset. Consider the case of Michael who owns 26 hectares of semi rural property which he acquired on his mother s death in mid 1985 when the land was worth $80,000. If Michael is treated as carrying on a business of property development, and the gain is taxed as ordinary income, Michael s tax liability will be approximately $697,500. (46.5% x $5.0 m less $1.5 m expenses less $2.0 m market value of land in 2007) However, note that Michael will pay no income tax or CGT if the transaction is taxed on capital account. This is because the land was acquired prior to 20 September 1985, the date of inception of CGT. Even if Michael acquired the land post CGT, less tax will be paid if the land is taxed under the CGT provisions due to the 50% CGT discount. It is clear that Michael has a strong incentive to argue for capital treatment. A review of the case law indicates a really fine line with a lot of these cases being difficult to reconcile. Furthermore, the fact that a profit or gain results from an isolated or one off transaction will not exclude it from being considered ordinary income by the ATO, which provides guidance in Taxation Ruling TR 92/3. This contains factors considered relevant in determining whether an isolated transaction amounts to a business operation or commercial transaction. These are: In 2007 when the land was worth $2 million, Michael: The nature of the entity undertaking the operation or transaction; Obtains permission from council to subdivide the land into 13 two hectare blocks; The nature and scale of other activities undertaken by the taxpayer; Arranges construction of a sealed road and full amenities to each block; Engages a real estate agent to market the blocks; Michael sells the blocks for a total of $5 million and total expenses are $1.5 million leaving a cash gain of $3,500,000. The amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; The nature, scale and complexity of the operation or transaction; The manner in which the operation or transaction was entered into or carried out; Tax Smart Australia 2012 Articles Removed Page 10

12 The nature of any connection between the relevant taxpayer and any other party to the operation or transaction; In view of this, it is suggested that, were Michael to request a binding private ruling from the ATO, the transactions would be regarded as income according to normal concepts and fully taxable. How far should Michael have taken the development and at what point should he have sold? As always, taxation is only one expense when considering optimal outcomes. At the outset, always take expert advice. There are often alternative strategies. Of course the other hidden issue for the Accidental Developer is GST. If the ATO comes in after the event and determines you were conducting an enterprise (as seems to be with Michael), then GST will need to have fully accounted for. IF YOU HAVE TO PAY THE CAPITAL GAINS TAX PAY IT AND BE DONE WITH IT! This is the one proviso because as mentioned earlier, good commercial opportunities don t present themselves on a weekly basis. If seeking to minimise or defer CGT means you lose the deal the whole exercise can be counterproductive. Taxation is just one of the costs of doing business. Tax liabilities should always be considered, but should not override good commercial decisions. This comment was first included in the 2007 edition before the economic meltdown and we wonder how many taxpayers are rueing lost opportunities. However, in 2013 the comment still is applicable given shareholders sometimes loose gains on stocks due to concerns over CGT. As part of the 2012/13 compliance program, the ATO focus is on small to medium enterprises claiming losses and this includes capital losses. In order to claim capital losses and minimise CGT, good records are essential Tax Smart Australia 2012 Articles Removed Page 11