| AUGUST NEWSLETTER |
| August Newsletter |
Concerns on Amended Personal Services Income Rules
Intense lobbying by industry groups has seen a Federal Government backflip on rules governing personal services income.
While the housing industry has welcomed the reversal, accoun-tants have expressed strong concerns about the complexity of the amended laws now facing contractors.
Personal services income rules particularly affect individual contractors who operate through a company or trust.
These rules ensure that an individual is taxed on all their personal services income whether derived personally or via an interposed entity (e.g. a company or trust), unless they are carrying on a personal services business.
Agents Exempt
The Treasurer has announced an exemption from these rules, applicable retrospectively from 1 July 2000, for agents who:
? receive income from the provision of services on behalf of their principal to customers, less than 80% of which relates to particular customers;
? derive at least 75% of that income as commission or similar;
? actively seek customers for their principal;
? do not provide services from the premises of their principal; and
? satisfy one of the three personal services business tests.
Self Assessment
In addition, all taxpayers caught by the personal services income rules will be entitled to self assess from 1 July 2000.
Formerly, where an entity derived 80% or more of its personal services income from one source, it had to obtain a personal services business determination from the Tax Office to avoid adverse implications under these rules.
Penalty and Payment Concessions
The Tax Office has announced that affected taxpayers will not be subject to penalties where they have made a genuine attempt to comply with their obligations under these measures. In addition, a PAYG withholding payment will not be required for the 2000/01 income year for personal services income.
For the 2001/02 income year, personal services entities may make PAYG withholdings based on either 70% of gross personal services income, or a percentage (to be announced) based on the entity?s net personal services income for the previous year. Amounts withheld should be calculated as if this amount were paid as salary or wages.
We will keep you advised of further developments.
Late Penalties Jump
Penalties have risen sub-stantially for late 2000/01 income year returns.
The Tax Office announced that under the new regime, late lodgement penalties for tax-payers, including individuals, will depend on the size of the taxpayer?s operation. The clas-sification tests are similar to those used for PAYG.
For every 28 days or part thereof that the lodgement is overdue, the penalty is $110 for small entities (including individuals), $220 for medium entities and $550 for large entities. Maximum penalties are $550, $1,100 and $2,750 respectively.
Indexed Superannuation Amounts for 2001/02
The Tax Office has released the following indexed super-annuation thresholds for the 2001/02 income year:
? Tax-free amount of a
bona fide redundancy pay-ment or approved early retirement scheme payment:
? fixed component: $5,295;
? annual component: $2,648.
? Age-based deduction limits:
? under 35 years: $11,912;
? 35 ? 49 years: $33,087;
? 50 years and over: $82,054.
? Reasonable benefit limits (RBLs):
? lump sum RBL: $529,373;
? pension RBL: $1,058,742.
? Post-June 1983 component threshold: $105,843.
New Debt/Equity Bill
The classification of interests in companies as debt or equity could soon be subject to new rules. Proposed rules would determine, among other things, whether payments made are tax deductible as a debt repayment or frankable (or rebatable) as a distribution of profit.
Equity interests are, broadly, shares or other interests for which the return is contingent on the economic performance of the company.
Debt interests are those where the return is not contingent upon the economic per-formance of the company and it is more likely than not that the ultimate return to the holder of the interest will be greater than the financial benefit received by the company.
Certain non-commercial ar-rangements (potentially in-cluding loans) will be treated as equity interests where it is reasonable to assume that arrangements would have re-sulted in an equity interest (as opposed to a debt interest) had the parties been dealing at arm?s length.
We will keep you advised of any developments.
Legal Costs
Tax Deductible
A taxpayer?s legal costs for defending his business were fully tax deductible, a court ruled.
The court supported the taxpayer?s argument that the legal costs related to defending the way in which he conducted his business (by using a trademark he believed he was entitled to use), not defending an asset (i.e. the right to use the trademark). Accordingly the costs were deductible.
The taxpayer had affixed a trademark to all trailers he manufactured in the belief that he was licensed to use it. An action was subsequently brought against the taxpayer for unauthorised use of the trademark, resulting in the taxpayer incurring the costs.
Review Loss
Transfer Notices
Reviewing past loss transfer notices within groups of companies would be prudent following a recent Full Federal Court decision.
The Court held that while such notices do not have to include the particular dollar amount to be transferred, the transfer amount must be both fixed and identifiable at the time of signing the transfer agreement. Accordingly, a self-adjusting formula would not comply with the legislation.
The Court did, however, adopt a wider view than the previous court, which initially held that as the notice did not specify the actual amount of the loss to be transferred, it was not valid.
The new provisions under the Income Tax Assessment Act 1997 specifically require that an amount be specified.
Please contact us to help you review loss transfer notices from previous years.
14th-August-2001 |
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