Taxation of Family trusts has been a focus of attention for the Australian Taxation Office (ATO) in recent months.
It has issued a number of statements lately, most notably in early June 2010 when it released important documents dealing with two issues:
1. Allocating trust income to company beneficiaries, and
2. The High Court decision in Bamford. As a result, trustees of family trusts should check their trust deeds and income distribution practices.
The ATO’s final ruling on the question of ‘unpaid present entitlements’ (UPEs) involving company beneficiaries of a trust has been released. Essentially, it maintains the same view as a draft ruling released late last year.
Broadly, the issues covered by the ruling arise when a family trust has allocated some of its income to a company beneficiary, but has not paid the full amount to the company by the due date for lodging the trust’s tax return for the year.
The ATO’s view is that, at this time, the unpaid trust distribution becomes a loan, thus triggering the deemed dividend rules in Division 7A (see example below).
This is a change from the previous understanding of whether Division 7A applied in such cases.
According to the tax ruling, Division 7A rules will be applied to any allocation of trust income made on or after 16 December 2009, which usually will mean from the 2010 tax year. The ruling will only apply retrospectively where something more has been done, such as the trustee actually creating a loan in its accounts.
Example - unpaid present entitlements
Cash Sales - New Tax Office Benchmarks!
Are you? - A small business owner?
The Tax Office recently released a new category of small business benchmarks which focus on cash sales within a business.
You should be aware of the new benchmarks for small business.
- Contact us if you require any clarification or advice.
The small business benchmarks were introduced by the Tax Office to provide a tool for assessing the performance of a business as well as checking the reasonableness of various costs incurred in the business relative to its turnover.
The benchmarks provide a means of assessing what is happening in a particular industry.
The Tax Office has announced that it will be using the cash sales benchmarks to determine the proportion of cash sales a business should be making to identify businesses that may be avoiding their tax obligations.
The cash sales benchmarks have been initially developed for the following industries:
· Clothing retailers;
· Beauty Supplies;
· Coffee Shops;
· Fruit and Vegetable retailers;
· Fuel Retailers;
· Garden Supplies retailers;
· Grocery retailing and general stores;
· Hardware and building supplies retailing;
· Meat retailers and Butchers;
· Pubs, taverns and bars;
· Restaurants; and
· Takeaway food services
Small businesses that are found to be falling outside the benchmarks for a particular industry will be more likely to attract an audit by the Tax Office.
The Tax Office estimates that it will contact over 100,000 businesses this year.
Changes to Rules Governing Company Dividend Payments are now in Force
Are you? - A company director considering paying dividends?
At a glance: - The Government has made amendments to the Corporations Act to alter the conditions under which dividend payments can be made.
You should: - Consider whether the changes will have an effect on your company's dividend policy.
- Contact us if you require any clarification or advice.
Under the original rules governing company dividends under the Corporations Act, companies were only allowed to pay dividends out of profits.
A recent amendment has effectively abolished this concept and replaced it with a more comprehensive assets test.
As a result, companies can now pay dividends even if there are no profits, provided the following tests have been satisfied.
The company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and
The payment of the dividend is fair and reasonable to the company's shareholders as a whole; and
The payment of the dividend would not materially prejudice the company's ability to pay its creditors.
Private companies can generally choose to use their own accounting records to determine the assets and liabilities, while public companies must calculate their assets and liabilities according to relevant accounting standards.
For more information on the change to dividend policy under the Corporations Act, visit the ASIC website at www.asic.gov.au.
Please contact A Grade Tax Penrith on (02) 4731-1405 with your specifice tax accounting needs.
Businesses may have to pay superannuation to contractors in some circumstances after the Australian Taxation Office (ATO) succeeded in three separate actions.
The ATO won its arguments the contractors were actually employees, so their employers were required to pay the compulsory superannuation guarantee (SG) levy on their behalf.
Business advisory firm Hayes Knight director Greg Hayes told Risk Report a Federal Full Court action involved pollster Roy Morgan Research; and the Administrative Appeals Tribunal heard two cases against an interpretation and translation services company, Associated Translators&Linguists, and garment manufacturer John Brilliant.
"Any business that engages contractors needs to check the arrangements in place to determine whether there could be a Superannuation Guarantee exposure," Hayes said. "It all comes down to whether the individual is deemed an employee under the Superannuation Guarantee Act."
He said businesses that engaged contractors where the supply was principally labour were at greatest risk because those contractors were more likely to be deemed employees."Small business has fewer resources to check through all the details and they may think they are doing the right thing but could still be risk exposed." Hayes said legislative definitions of 'employee' varied and the lack of a consistent definition created uncertainty.
But Freehills partner and superannuation expert Natalie Gullifer told Risk Report the laws were very clear. Employers needed to closely examine the Superannuation Guarantee Act and not assume, perhaps incorrectly, they were not required to pay contractors' superannuation, she said. (Associated Translators and Linguists Pty Ltd v Commissioner of Taxation , AAT 260, 14/4/10; Brilliant v Commissioner of Taxation , AAT 267 16/4/10; Roy Morgan Research Pty Ltd v Commissioner of Taxation , FCAFC 52, 26/5/10)
The Australian Tax Office (ATO) is launching a data matching program focusing on individuals and businesses who have sold more than $20,000 in goods and services on the online selling sites eBay and The Trading Post in any of the last three financial years.
If you are running a business through online selling sites, or you have an existing business and are making additional sales through these sites, then you need to include this income in your activity statement and/or tax return.
The data match will detect businesses that are under reporting or not reporting income generated from these sources.
Tax Commissioner Michael D’Ascenzo is encouraging anyone who may have understated their taxable income in the last three years to make a voluntary disclosure.
“If you do so you will be treated fairly and benefit where applicable from significantly lower penalties. You can make a voluntary disclosure on this or any other matter by writing to the ATO – more details are available on the ATO website,” Mr D’Ascenzo said.
Tax Commissioner Michael D’Ascenzo said the data matching program helps to ensure that there is a level playing field so that businesses doing the right thing are not disadvantaged.
“The online data matching program is part of the ATO’s focus on encouraging high levels of voluntary compliance and addressing the issues raised by non-compliant behaviour,” Mr D’Ascenzo said.
“Data matching allows information from a variety of sources to be brought together and compiled, identifying individuals and businesses that are avoiding their tax obligations.
“Records will be matched against different identifiers such as tax file numbers, ABN’s, addresses and date of births which will improve the integrity of our data matching program.
2010 Personal Tax Return
It will assist us to maximise your refund if you review the following checklist and bring all relevant information with you to your appointment.
Payment summaries for wages.
Centrelink Statement in respect of:
1. Tax-free Exempt Pension income received. (e.g., Disability Support Pension, Carer payments&Invalidity Service Pension etc)
2. Statement in respect of Child Maintenance / Support payments paid.
Payment summaries for superannuation pensions&lump sums and employment termination payments.
Payment summaries for govt pensions&allowances.
Interest received from banks etc.
Dividends received or reinvested (bring statements).
Partnership and/or Trust income.
Managed Funds (investments) Tax Statements&Capital Gains Tax Statements (if there were any disposals during the year).
Details of business income and expenses, including GST information where applicable.
Purchase and Sale documents for any assets which were acquired after 19 September 1985 and sold during the year, for Capital Gains Tax calculations (e.g. shares, rental property, holiday home, vacant land etc).
We are receiving enquiries from employers and employees regarding the amount to include on the 2010 PAYG Payment Summary for "Reportable Empoyer Superannuation Contributions".
Reportable employer super contributions are those contributions you make for an employee where all of the following apply:
• your employee influenced the rate or amount of super you contribute for them
• the contributions are additional to the compulsory contributions the employer must make under any of the following
◦ super guarantee law
◦ an industrial agreement
◦ the trust deed or governing rules of a super fund
◦ a federal, state or territory law.
In other words - all amounts an employer pays into a superannuation account for an employee under a salary sacrifice arrangement.
Please contact (02) 4731-1405 A Grade Tax Accountants Penrith for all your accounting and taxation services, superannuation advice and tax planning.
With the growth of our practice, it will assist us if you could ring and make an appointment with Nicole, Peter, Donna or Max for the preparation of your Tax Return.
This year there are two significant changes as per the attached checklist.
- Tax-free exempt Pension income is now recorded on the tax return, as is
- Child Maintenance / Support payments paid. If you are affected by either of these two changes then you will need a statement from Centrelink to clarify the amount to be included in your return or we will be unable to complete your tax return.
Please note we have moved 70 metres along Castlereagh Street to new ground floor offices at the intersection of Castlereagh&Tindale Streets – still opposite Penrith RSL:
We provide a full range of taxation services including:
- Advice regarding the best tax structure for the formation of new businesses. It is always best to discuss your new business proposal before committing to any new venture.
- Company&Family Trust returns.
- Formation of Self Managed Super Funds.
- Investment property tax advice.
See you soon and thank you again for your referrals over the past year.
B.Comm PNA JP
Australians are being warned to steer clear of sophisticated tax time phishing emails that purport to come from the ATO but are really designed to steal people's banking emails and passwords.
The MessageLabs Intelligence unit, part of computer security company Symantec, has observed an increase in the fraudulent emails as the end of the financial year approached. This year, the scams are more sophisticated than ever before.
"Scammers have mastered the art of making these emails look legitimate, often including the ATO logo and links to the ATO website," Symantec said.
"These phishing emails generally offer online tax returns, luring internet users with subject lines and key words such as 'benefits of e-tax', 'eligibility requirements' and 'click here to get tax refund'."
The scammers try to entice users into giving away personal details including banking information and passwords by saying that these details are required in order to get the refund.
In another variation of the attack, emails contain links to phishing web pages designed to look like a legitimate online tax return. The attackers can then use the information gathered by these scams to access the victims' accounts and steal money. It could also be used for identity theft.
"Impersonating tax and government agencies is becoming an ever more popular angle for phishers," Symantec said.
"Symantec has observed that the instances of ATO phishing attacks have been on the increase since January 2010."
The ATO said Australians should be alert to potential email or phone scams or suspicious door knockers. Suspicious activity can be reported to the tax office on 13 28 61.
"While we may occasionally send you emails or SMS text messages promoting new products or services we will never ask for your personal information such as credit card details, TFN, your date of birth or passwords," the ATO said.
What super obligations do I have for contractors?
If you pay your contractors under a contract that is wholly or principally for labour, you have to pay super contributions for them. This is even if the contractor quotes an Australian business number (ABN). These contractors are considered your employees for Superannuation guarantee purposes.
Generally, a contract is principally for labour if more than half of the value of the contract is for the person’s labour, which may include:
- Physical labour,
- Mental effort, or
- Artistic effort.
The Australian Tax Office have web-based tools to help you work out if someone is an employee or contractor, and if they are eligible for super contributions at:
Please contact A Grade Tax Penrith on (02) 4731-1405 or visit our website www.agradetax.com.au for all your taxation services, tax advice and planning.
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