Archive for the ‘Capital Gains Tax’ Category

New downsizing cap available

Wednesday, September 13th, 2017

If you are aged 65 or over, your home is your main residence for CGT purposes and you have owned it for a minimum of ten years, you could benefit from new draft legislation. You will be able to make additional non-concessional contributions, up to $300,000, from the proceeds of selling your home from 1 July 2018.
The downsizer contribution cap of $300,000 will be in addition to existing caps; the capital must come from the proceeds of the sale price and application must be made within 90 days after the home changes ownership. There will also be exemption from the contribution rules for people aged 65 and above, and the restrictions on non-concessional contributions for people with total super balances above $1.6 million.
TIP: Thinking of downsizing? Speak to us about what this could mean for you in terms of tax concessions.

Foreign resident CGT withholding: early recognition of tax credit

Wednesday, September 13th, 2017

The Commissioner has made a determination to modify the time at which the vendor is entitled to a tax credit in respect of an amount withheld under the foreign resident CGT withholding rules.
The modification, applicable for transactions entered into on or after 1 July 2016, ensures that, where a settlement period for a transaction covers more than one income year for the vendor, the credit entitlement will be available in the same year as that in which the transaction giving rise to the payment to the ATO is recognised for tax purposes for the vendor.

Budget changes to foreign resident CGT: draft legislation

Wednesday, September 13th, 2017

Draft legislation has been released to implement 2017–2018 Federal Budget measures relating to the CGT liability of foreign residents. The measures, which applied from 9 May 2017:
• remove the entitlement to the CGT main residence exemption (MRE) for foreign residents that have dwellings that qualify as their main residence; and
• ensure that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an associate inclusive basis.

Tax assessments confirmed for undisclosed business income

Monday, August 21st, 2017

The Administrative Appeals Tribunal has ruled that the ATO was correct to issue tax assessments of $3.7 million and penalties of $3.3 million to a business taxpayer that had underreported its income and failed to lodge several years worth of tax returns. The taxpayer, PSI Pty Ltd, argued that it owned and rented out several Sydney properties, but did not engage in other business activities or receive the significant amounts of income that the ATO had assessed to it.

In fact, evidence before the Tribunal showed that PSI made a range of expensive capital purchases, including fitness equipment, more than 30 motor vehicles, firearms and a “bomb dog”. Its bank statements included references to “consultation fees”, “gun licences” and a “security industry register”, a loan application suggested income 20 times what the taxpayer admitted to earning, and PSI had apparently made significant loans to related parties with no returns.
The Tribunal upheld the assessments and penalties issued, and allowed the ATO to impose an extra 20% penalty for two of the taxpayer’s income years.

Small businesses

Monday, August 21st, 2017

Asset write-offs
Small businesses with a turnover of less than $10 million can get an immediate deduction for assets that cost up to $20,000 each in their 2016–2017 return. The $20,000 threshold now applies until 30 June 2018.
Assets that cost $20,000 or more can’t be immediately deducted. They need to be deducted over time using a small business asset pool.

TIP: It’s important to apply all of the simplified depreciation rules correctly so your business doesn’t under-claim for its eligible assets. Talk to us today for more information.

Reduce Tax with an Investment Property

Thursday, March 16th, 2017

The most common question being asked by the majority of clients today of MDB is “HOW CAN WE REDUCE OUR TAX??”

As we all know with the advent of the computer age the Australian Taxation office is now very aggressive scrutinising client taxation affairs.

There are only a few true safe harbour ways to legitimately reduce your tax and create wealth for you and your families future at the same time.

These two methods are Superannuation and also Negative Gearing by reducing your Tax and building a great property portfolio.

Most times client say to us that they have no idea where to commence looking for investment properties and what is suitable to their situation.

We have partnered with Nyko to assist client to look at opportunities.

Frank Pana from Nyko property is willing to have a one on one meeting with you, to discuss the merits and suitability of investing in property.

Nyko property has done substantial research into the property market are a willing to share this information with you. Armed with this information I am sure you can make a better investment decision.

If you would like us to organise a meeting here at MDB please let us know.

An example of an Investment Property now available: Retreat Elsternwick. Great location which has recently been rezoned so there will be very little development in the surrounding areas.

There are only 3 apartments left:

Developers Price Valuation and Nyko’s Sale Price Estimated Rental BMT Depreciation Estimate 1st Yr Deduction
Apartment 3 Ground 1 Bed 1 Bath 1 Car $512,500 $487,500 $400 – $420 pw $13,700
Apartment 4 Ground 2 Bed 2 Bath 1 Car $770,000 $750,000 $610 – $620 pw $15,800
Apartment 13 Level 1 2 Bed 1 Bath 1 Car $689,000 $675,000 $540 – $560 pw $17,590

Intangible capital improvements made to a pre-CGT asset

Tuesday, February 21st, 2017

The ATO has issued Taxation Determination TD 2017/1. It provides that for the purposes of the “separate asset” rules in the Income Tax Assessment Act 1997 (ITAA 1997), some intangible capital improvements can be considered separate capital gains tax (CGT) assets from the pre-CGT asset to which the improvements are made, if the improvement cost base is more than the improvement threshold for the income year when CGT event happened, and it is more than 5% of the capital proceeds from the event.

This determination updates CGT Determination No 5 to apply to the ITAA 1997 provisions, without changing the CGT determination’s substance.

TIP: Contact us if you would like more information about how this determination applies to your CGT situation.

Property developer entitled to capital gain tax concession

Friday, July 22nd, 2016

A taxpayer has been successful before the Administrative Appeals Tribunal (AAT) in arguing that a commercial property it acquired, developed and later sold for a profit of some $40 million had been acquired as a capital asset to generate rental income, and not for the purpose of resale at a profit. The AAT reached this decision despite indicating that the taxpayer was essentially involved in “property development” activities on a broad analysis of its activities. As a result, the AAT found that the profit of $40 million was assessable as a capital gain and entitled to the 50% capital gains tax (CGT) discount.

TIP: This case is a good example of the need to maintain contemporaneous documentation should there be a dispute with the ATO. The ATO has recently reiterated its focus on trusts developing and selling properties as part of their normal business and incorrectly claiming the 50% CGT discount.

Small business tax concession refused as threshold test failed

Friday, February 26th, 2016

The small business capital gains tax (CGT) concessions contained in the tax law allow eligible small businesses to access tax concessions on capital gains made from the sale of certain CGT assets.

There are threshold tests for accessing the concessions outlined in the tax law. Importantly, the taxpayer must be a small business entity, or a partner in a partnership that is a small business entity, or the taxpayer’s net assets, together with certain associated entities’, must not exceed $6 million. This is the Maximum Net Asset Value (MNAV) test.

A recent case before the Federal Court examined whether a taxpayer was entitled to the tax concessions. In particular, the Court looked at whether the taxpayer had correctly excluded a debt (a pre-1998 loan) from the MNAV test calculation. The taxpayer had not included the pre-1998 loan on the basis that it had no value, being “statute-barred” under the relevant state legislation, in this instance the Limitation of Actions Act 1936 (SA).

However, the Court dismissed the taxpayer’s appeal. The Court confirmed that the pre-1998 loan could not be regarded as having no value, and that the loan amount of $1.1 million should be included in the MNAV test calculation. The inclusion of the amount meant that the sum of the net values of the relevant CGT assets exceeded the $6 million MNAV threshold. As a result, the small business CGT concessions were not available to the taxpayer.

TIP: This case highlights the importance of satisfying the basic conditions to access the small business CGT concessions, in particular when an asset originally excluded from the MNAV test is subsequently included in the test calculation and results in the breach of the MNAV threshold.

Tax concessions following business sale cancelled

Thursday, March 26th, 2015

The Administrative Appeals Tribunal (AAT) has confirmed that the general anti-avoidance rules under the tax law applied to a “scheme” carried out by taxpayers in order to enable them to qualify for the capital gains tax (CGT) concessions for small businesses on the sale of a business. In particular, the AAT examined the effect of a “restructure” of the business which occurred several weeks before the sale. An effect of the “restructure” was to enable the taxpayers to meet a requirement to access the CGT small business concessions.

Before the AAT, the taxpayers sought to argue that, contrary to the position they took on claiming the tax concessions on the lodgment of their tax returns, they did not qualify for the concessions. However, the AAT held the taxpayers did qualify for the concessions. It also held that, after finding that the steps to “restructure” the business constituted a “scheme”, the general anti-avoidance rules under the tax law applied to cancel the “tax benefit”. The AAT found the taxpayer entered into the scheme for the dominant purpose of obtaining a tax benefit (reduced tax) and not for any asset “protection purpose”.

TIP: The ATO uses data-matching to identify taxpayers that may be inappropriately seeking the CGT small business concessions. Business “restructures” which occur just prior to a particular transaction which result in significant tax benefits could potentially raise red flags. Where a restructure is effected for purposes such as asset protection (which the courts have said is a legitimate non-tax purpose), such benefits must be real and not simply illusory.