| September Newsletter |
| September Newsletter |
Commercial Web Site Expenditure ? Tax Deductible?
The Tax Office has finalised its ruling concerning tax deduct-ions for commercial web site expenditure.
The ruling makes the following comments:
? expenditure on web site hardware is depreciable for tax purposes over its effect-ive life;
? expenditure on software acquired or developed (in-cluding labour costs) will be deductible over two and a half years. The ruling contains a list of indicators of software expenditure;
? expenditure on updates providing additional func-tionality, will be considered expenditure on software; and
? ongoing operating expenses such as administration and content updating costs and site host fees may be immediately deductible.
50% Capital Gains Tax (CGT) Discount
Investors with a fixed interest in a trust will receive further concessions following a recent Federal Government announce-ment.
The concessions concern the application of the 50% CGT discount for investors with a fixed interest in a trust.
Broadly, cost base adjustments are not required for payments of the 50% CGT discount to another trust in respect of a unit or a fixed interest still held on
1 July 2001.
Under an earlier announce-ment, from 1 July 2001, CGT adjustments will not arise where 50% CGT discount amounts are distributed by fixed trusts. Such distributions previously resulted in cost base adjustments or deemed capital gains.
The Federal Government has now announced transitional measures for the period from 21 September 1999 (com-mencement of the 50% discount) to 30 June 2001 for those who invest through a chain of trusts.
Although the legislation has not yet been introduced to Parliament, the Tax Office has advised that it will accept tax returns prepared on the basis of the above announcements. Amendments could be neces-sary if the changes are not ultimately legislated.
Court Short on Travel Allowance
In a recent Court decision, a taxpayer has been successful in claiming an amount for ?unsub-stantiated? travel expenses, but it wasn?t the amount he was after.
The Court found that the taxpayer incurred unsubstan-tiated expenses of approximate-ly $60 per day while travelling. The Court allowed this deduction despite Tax Office arguments that substantiation rules had not been met.
The taxpayer was unsuccessful in arguing that he was entitled to a further deduction of $108 per day, which was the reasonable allowance amount allowed in a Tax Office ruling, because those expenses had not been incurred, and an allowance had not been paid.
This decision highlights the importance of structuring ar-rangements in the best possible way. Had the taxpayer?s employer paid him a $108 travel allowance, the allowance would have been tax free (fol-lowing the Tax Office ruling).
Director Personally Liable for Unremitted Tax Instalments
A company director was personally liable for unremitted company income tax instal-ments, a Court has ruled.
The Court found the director had not taken reasonable steps to comply with an agreement for payment made with the Tax Office. In particular, before appointment of an administrat-or, payments had been made to other creditors, including a related company, in preference to the Tax Office.
Spouse Secretarial Wages
The Tax Commissioner has discontinued his Federal Court appeal against a decision allowing tax deductions for wages paid by a taxpayer to his wife for secretarial services.
The taxpayer was employed as a business development manager for a bank and derived significant commission income.
The Court accepted that employing his wife to perform administrative duties allowed the taxpayer to devote more time to income producing activity, and to increase his assessable income.
Tax Fraud Equals Jail
Tax fraud has led to prison sentences for two taxpayers.
A company director, who failed to remit $3.5 million in Prescribed Payments System (PPS) and Pay As You Earn (PAYE) concerning cash overtime payments, has been sentenced to 18 months? prison.
Factors such as the substantial amount involved, the long period over which the frauds were committed, the element of planning, the cash payments to suppliers, and the provision of false documentation to the Tax Office to avoid detection all added to the seriousness of the offence.
In another case, a bricklaying contractor was sentenced to a minimum of six years? prison for failing to remit over $7.3 million in PAYE over a nine year period.
The contractor?s company employed bricklayers and deducted group tax from their wages, but did not remit these amounts to the Tax Office.
Warning on Private Company Loans
Private company loans to shareholders or associates may need closer inspection to determine whether they are deemed to be a dividend.
Certain loans by private companies to shareholders or associates are deemed not to be a dividend. This is the case provided the loan is made under a written agreement, the interest rate equals or exceeds
the benchmark interest rate, the term of the loan does not exceed the prescribed maximum and minimum interest and principal repay-ments are made.
The Tax Office has announced that the benchmark interest rate for the 2002 income year is 6.8%.
Tax Value Method ?Take Two?
The Board of Taxation has released its second version of draft legislation to introduce the ?tax value method? (also known as ?option 2?) for further public consultation.
The tax value method bases tax liability on net cash flows and changes in the tax values of assets, rather than taxable income. The new draft includes areas such as depreciation, capital gains tax and cal-culation of taxable income.
Future Trust Reform?
Trust reform is still on the agenda, a recent report on the Australian economy reveals.
The report identifies a need to crack down on discretionary trusts ?given the abuse that exists in the area?.
The report also recommends a withholding tax on undistribut-ed company profits to reduce the incentive to retain rather than repatriate the profits to individual share-holders.
At this stage, it is not clear whether either the Government or the Opposition supports this measure.
29th-August-2001 |
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