| February Newsletter |
| 2002, FEBRUARY NEWSLETTER |
Double Tax Treaties
Non-residents will not be relieved from CGT by certain double tax treaties on their Aus-tralian-sourced capital gains, the Tax Office has ruled.
The Tax Office issued a final ruling concerning the operation of double tax treaties nego-tiated before CGT was intr-oduced. This includes treaties with the UK, USA, Germany, Japan and France. Broadly, the ruling states that pre-CGT treaties were not intended to apply to CGT. This is because the mechanism extending treaty coverage to taxes not in existence when the treaty was signed is limited to ?similar taxes?, which CGT is not.
The Tax Office has also issued a new ruling intended to guide its officers in interpreting Aus-tralia?s double taxation agree-ments (DTAs). This extensive ruling covers a number of areas, including the impact of DTAs on Australian tax law as regards source of income, allo-cation of taxing rights between countries and the operation of ?tie-breaker? residence rules.
Non-commercial Losses Explained
Non-commercial loss rules are fully explained in a new com-prehensive Tax Office ruling. These rules defer the deduct-ibility of business losses made by individuals unless and until one of four statutory tests are satisfied.
Broadly, the ruling discusses the application of the four statutory tests, namely:
? the assessable income
test (that is, activity produces at least $20,000 assessable income);
? the profits test (that is, tax profits were made in three of the last five years);
? the real property test (that is, $500,000 non-private real property is used); and
? the other assets test (that is, $100,000 of other specified assets are used).
There are exceptions concerning primary production and profes-sional arts business losses where the individual has other unrelated income of less than $40,000 per year.
These are considered briefly in the ruling.
The ruling also discusses the Commissioner?s discretion to grant relief and suggests it will apply very narrowly as follows:
? if special circumstances have meant that losses were incurred (e.g. a long illness or natural disaster); or
? to particular industries where there is typically a long lead-time to profit-ability (e.g. forestry or viti-culture) ? in such a case, evidence of commercial viability must be produced.
Scrip for Scrip Rollover
Capital gains tax rollover may be available where there is an exchange of an interest (not being a unit) in a trust for a unit in a unit trust, a Tax Office draft determination has con-firmed.
Rollover relief is, however, subject to the following:
? The interests in the entity must be exchanged for similar interests in another entity.
? Holders of interests in both entities must have fixed entitlements to all of the income and capital of the respective trusts, both before and after the ex-change.
? Broadly, the market values of each interest exchanged must be substantially the same.
Deduction for Self Education
A nurse was entitled to a deduction for self education expenses in relation to a Masters course in Adult Edu-cation, the AAT has ruled.
It was considered critical that there was a research component in the course that directly related to the taxpayer?s em-ployment duties, and that the topics covered in the course enabled him to better perform existing duties.
The AAT also found that the taxpayer?s prospects of pro-motion within the wider nurs-ing industry were enhanced by the course, even though it was not strictly necessary for future promotion. It rejected an argument by the Commissioner that the course was preparing the taxpayer for a role beyond his current clinical duties.
Accountants? Records Accessed
The Tax Office has been allowed access to accountants? records under a Federal Court ruling. The Federal Court upheld the validity of Tax Office notices requesting client details from three Ernst & Young partners.
The notices were issued as part of a Tax Office audit of the firm and requested the name, address and tax file number of clients to whom each partner had provided services.
The Tax Office successfully argued that the notices were issued so that it could perform its statutory duty of revenue collection. It was considered relevant by the Court that the partners had been advising on, and participating in, various aggressive tax planning ar-rangements and schemes.
School Building Funds
Gifts to school building funds will only be deductible if the Tax Office endorses the fund.
In a new fact sheet, the Tax Office states that a fund will only be endorsed if it is established and maintained for the acquisition, construction or maintenance of a building for use by a school or college.
Contributions which are not voluntary, or which result in a material benefit to the donor (such as a reduction in fees) will not be considered a gift, and accordingly are not considered deductible.
TVM Future Still Unclear
The future of the Tax Value Method (TVM) is still undecided, with little indication from the Federal Government if and when it will proceed.
The Board of Taxation has released its third version of draft legislation concerning the TVM (also known as ?Option 2?) for further consultation.
The TVM bases tax liability on net cash flows and changes in the tax values of assets, rather than on taxable income. In addition, the new draft includes provisions on taxable income adjustments, tax losses and asset and liability valuation rules.
Superannuation Guarantee ? ?Ordinary Time Earnings?
Ordinary time earnings is used as a default base when deter-mining whether an employer has contributed the required level of superannuation for an employee.
Failure to make the required contribution will result in the application of the Super-annuation Guarantee Charge.
The Full Federal Court has held, in relation to overtime worked by casual employees under a particular state award, that the ordinary time rate of pay (rather than an overtime rate) earned should be used.
The taxpayer in this case has applied for special leave to appeal to the High Court.
First Homeowners Grant Extended
The first homeowners grant will continue, subject to a reduction for new homes, the Government has announced.
The grant of $7,000 for existing homes will continue, but the grant for new homes will be reduced to $10,000 (from $14,000) for contracts entered into after 31 December 2001.
24th-January-2002 |
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