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Tax planning in April

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Government has previously announced that all tax policy will be reviewed to rein in the budget deficit. Items such as superannuation, taxation of multinationals and changes to negative gearing and even a potential lift in the GST rate were all touted as potential reforms. As the process has unfolded the Government has appeared to back away from many of the proposed reforms.

With the public mood and that of the cross benches firmly opposed to any upward or outward changes to the GST, the Government may be forced to compromise to achieve some savings, and this may see changes to the Superannuation regime once again.

Areas that may be targeted include:

  • Caps or increased taxes on Concessional Contributions (though Non Concessional Contributions may also be targeted);
  • Taxation of Assets supporting pensions when the level of member benefits, or the income derived on these benefits, exceeded a concessional threshold;
  • Taxation of Pensions for those over the age of 60;
  • A Restructure of the Lump Sum Tax regime, which may affect the taxes on Lump Sums for retirees aged 60 and above;
  • Changes to the rules around Limited Recourse Borrowing Arrangements; and,
  • Further changes to the Centrelink and Veterans Affairs assessment of Pensions paid by Superannuation Funds.

All of the above changes are likely as they can be said to target mainly the “rich” and those well off enough to be able to afford to go without these concessions. If these changes are to be made they will most likely be announced on budget night with the changes coming into place on that night. All current arrangements should remain untouched.

As tax planning is an activity usually carried out in May or early June each year, if these changes are passed on budget night many taxpayers will have already lost access to these concessions rendering many tax planning strategies useless.

It may therefore be wise to start the tax planning process now especially where that strategy involves using your SMSF. Planning for some of these changes includes:

  • Making Concessional Contributions and Non Concessional Contributions (including drawdowns and re-contributions);
  • Payment of annual pension entitlements;
  • Planned Lump Sum drawdowns;
  • Realisation of significant capital gains on Superannuation assets;
  • Limited Recourse Borrowing Arrangements for the acquisition of new assets, including assets in unit trusts or companies;
  • Centrelink and Veterans affairs planning where Superannuation pensions are concerned.

By taking these steps prior to the May Budget you will reduce the risk that you will lose the benefits of these concessions should touted changes be announced on budget night.

Inactive Trusts – ABNs to be cancelled

The ATO has advised that they will begin cancelling the ABNs of approximately 220,000 trusts, where there is evidence those trusts are no longer carrying on an enterprise.

Trust ABNs will be cancelled from February, where information available indicates that, for the last two years, the trust has not lodged BASs and/or trust income tax returns.

The ATO will send a letter if an ABN has been cancelled, including the reason for the cancellation, and a phone number to ring to get the ABN reinstated immediately if the recipient does not agree with the decision.

Editor: If you receive such a letter and think the trust should still be entitled to an ABN, let us know and we’ll try and sort it out for you.  Please also let us know if there are any outstanding BASs or returns you need us to lodge!

GST implications when employer pays for a super fund’s expense

An employer cannot claim an input tax credit where it pays an expense on behalf of a superannuation fund, as the supply is not made to the employer; but to the super fund.

However, if the fund is registered for GST, then it may be entitled to claim an input tax credit (or a reduced input tax credit if the requirements in Division 70 of the GST Act are otherwise satisfied).

For example, assume a super fund engages a legal firm to provide advice about its activities, but the employer connected with the super fund pays the legal fees associated with this advice.

Because the supply of the advice was made by the legal firm to the super fund, the employer is not entitled to an input tax credit (i.e., the employer has not ‘acquired anything’, even though it made the payment).

However, depending on the circumstances and whether the super fund is registered for GST, it may be entitled to a full or reduced input tax credit.

Editor:  The rules relating to GST are more complicated for super funds than for other entities, so please phone our office if you would like discuss this important issue.

Buyers to withhold tax for ATO when buying certain properties

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Editor:  Parliament recently passed legislation amending the taxation law to impose withholding obligations on the purchasers of certain Australian assets – generally property purchased from a non-resident.  However, the changes will affect most purchases of property in Australia!

The amendments impose a 10% withholding obligation on purchasers of ‘Taxable Australian Real Property’ (generally, this means an interest in Australian land) from certain foreign residents, as well as certain ‘indirect Australian real property interests’ (such as shares in companies that own a lot of land) and options to acquire such assets.

The amendments will generally apply where the contract to purchase an applicable asset is signed on or after 1 July 2016.

Tax Warning!
Where the land, or the interest in the land, is worth $2 million or more, the new law requires the purchaser to withhold 10% of the purchase price and send it to the ATO unless the vendor has obtained a ‘clearance certificate’ from the ATO and provided it to the purchaser prior to settlement.

This obligation arises regardless of whether the vendor is a foreign resident or not. 

Example
On 1 August 2016, Harvey enters into a contract to purchase a residential property in an affluent Sydney suburb for $2.5 million, with settlement proposed to occur on 1 October 2016.  He does not know whether the vendor is a foreign resident.

Despite many requests from Harvey’s lawyer, the vendor refuses to obtain a clearance certificate from the ATO to give to Harvey.

As Harvey is acquiring Australian land with a market value greater than $2 million and he has not received a clearance certificate from the vendor by the time settlement occurs, Harvey will be required to withhold and pay to the ATO $250,000, whether or not the vendor is an Australian resident.

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