Issue 168, 29 February 2008

Welcome to the latest issue of Thomson’s Tax & Accounting Insight, your free news service for tax and accounting professionals.

Tax & Accounting Insight is the easy way to keep up with the latest developments in your industry. Watch your inbox for your fortnightly issue of this free, informative service from Thomson.

Articles in this edition include:

• Commissioner flags ongoing international battle against tax evasion

• Identifying your main residence

• Thomson Tools

Editorial Enquiries:
Tel: 1300 304 197
LRA.Service@thomson.com

Copyright:
Thomson Legal & Regulatory Limited
ABN 64 058 914 668
100 Harris Street
Pyrmont NSW 2009
All rights reserved.

To subscribe, please click here.

To unsubscribe, please reply to this email with Unsubscribe in the heading.

Disclaimer:
The information contained in this bulletin neither represents nor is intended to be legal or professional advice. While every care has been taken in its preparation, no person should act specifically on the basis of the material contained herein. If expert assistance is required, competent professional advice should be obtained.

Privacy Policy

Commissioner flags ongoing international battle against tax evasion

In Tax Office media release 2008/08 (dated 26 February 2008) the Tax Commissioner has advised that tax administrations in Australia, Canada, France, Italy, New Zealand, Sweden, the United Kingdom, and the USA and others, all member countries of the OECD’s Forum on Tax Administration (FTA), are working together concerning Liechtenstein accounts being used for tax avoidance and evasion.

Mr D’Ascenzo said the Tax Office has already issued notices to produce information and conducted unannounced access visits with Australians who have suspected links to Liechtenstein accounts or legal entities. He said that, in Australia, there are 20 audit cases under way relating to funds in Liechtenstein ‘ranging from $200,000 to millions of dollars’. These are ongoing inquiries and the final tax bill is still unclear, Mr D’Ascenzo said.

The Commissioner warned that the tax Office is ‘committed to ensuring there is a level playing field for people who do the right thing and have therefore increased our focus on Australian taxpayers who have abusively used offshore bank accounts, offshore financial products, offshore tax arrangements and/or offshore structures’. Mr D’Ascenzo said this should send a clear message to participants and promoters involved that they can expect to face the full force of the law if they do not come forward now.

The Commissioner said the Tax Office has already received 425 submissions disclosing $17.5 million in income from offshore activities.

For more information, and to read the full text of the media release, visit the ATO website at: <www.ato.gov.au/corporate/content.asp?doc=/content/00125277.htm>.

This article appeared in Thomson’s daily Latest Tax News (Tuesday 26th February 2008). With tax fast-moving and ever changing — every day, practitioners rely on Thomson’s daily Latest Tax News for quick, accurate, comprehensive information — no compromises. When you need to know what’s new in tax and related news every day, there’s only one place to look — LTN. 
To find out more, click here.

Return to TOP

Identifying your main residence

It is essential to be familiar with the basic requirements of the CGT main residence exemption. To be able to apply that exemption, however, it is first necessary to determine whether a dwelling is a taxpayer’s main residence.

Generally, the disposal of a dwelling will cause a CGT event to occur. However, if a dwelling is the main residence of a taxpayer, in which they have an ownership interest, an exception may arise. This is achieved through Subdivision 118–B of the Income Tax Assessment Act 1997 (ITAA 1997), which provides that a capital gain or capital loss resulting from a CGT event that happens to a taxpayer’s main residence can be ignored, subject to certain limitations. The exemption also extends to land adjacent to a dwelling if the land was used primarily for private or domestic purposes. However, the maximum area of land that is covered by the exemption, including the area of land on which the dwelling is built, cannot exceed two hectares. Further, the adjacent land must be sold with the dwelling for the exemption to apply.

Neither the Income Tax Assessment Act 1936 (ITAA 1936) nor ITAA 1997 provide any guidance to assist a taxpayer in determining whether a dwelling is their main residence. In CGT Determination TD 51, which discusses whether or not a dwelling is a taxpayer’s sole or principal residence, the Tax Office provides its view of the factors that it takes into account. These factors include but are not limited to:

• the length of time the taxpayer has lived in the dwelling;
• the place of residence of the taxpayer’s family;
• whether the taxpayer has moved their personal belongs into the dwelling;
• the address to which the taxpayer has their mail delivered;
• the taxpayer’s address on the Electoral Roll;
• the connection of services such as telephone, gas and electricity; and
• the taxpayer’s intention in occupying the dwelling.

The mere intention to construct a dwelling or to occupy a dwelling as a main residence will not attract the CGT exemption. In AAT Case [2007] AATA 1388, Re Erdelyi and FCT, the AAT acknowledged that TD 51 provides useful guidance in establishing whether a dwelling constitutes the main residence of a taxpayer. However, an issue that frequently surfaces is the period of time a taxpayer needs to reside in a dwelling before it can be considered their main residence.

Although Subdivision 118–B, in general, does not stipulate a minimum timeframe for occupancy before a dwelling can be considered a main residence, section 118–150 states that if a taxpayer builds, repairs or renovates a dwelling, they must live in the ‘new’ dwelling for a minimum of three months before it can be considered their main residence. If a taxpayer does not live in the ‘new’ dwelling for a minimum of three months, the dwelling still can be considered their main residence if that period was immediately succeeded by a period in which the taxpayer treats the dwelling as a main residence under the ‘six years rule’: section 118–145 and ATO ID 2006/189.

A taxpayer is also required to move into the dwelling when first practicable to do so. This requires consideration of situations where, for example, there is a delay in moving in because of illness or other unforeseen circumstances. However, a taxpayer must move into the dwelling as soon as the cause of the delay has ended. In ATO ID 2001/744, it was considered that a taxpayer whose dwelling had a ‘protected tenant’ and who only commenced court proceedings to evict the tenant two years after acquiring the dwelling, did not move in when it was first practicable to do so. Whereas in ATO ID 2007/128, it was considered the full main residence exemption was available to a trustee of a deceased estate, where an individual who was granted, under the will, a right to occupy the deceased’s dwelling, only occupied it from the time probate and administration of the estate was granted until it was sold by the trustee.

Once a dwelling, in which a taxpayer has an ownership interest, is established as their main residence, the taxpayer cannot choose for the main residence exemption not to apply: ATO ID 2003/257.

The main residence exemption provides a taxpayer relief from having to pay CGT on the disposal of their residence. However, it is pertinent that the dwelling is the main residence of a taxpayer. This will require consideration of various factors and ensuring moving in when first practicable to do so.

This is an article that appeared in Thomson’s InTax magazine (March 2008); Australia’s best independent monthly tax magazine. It provides concise reports of the latest tax news, plus the practical implications of tax developments in an easy-to-read magazine format. To find out more, phone Thomson Customer Service on 1300 304 197 or click here.

Return to TOP

Thomson Tools

Your FBT deadline is looming

The FBT year-end is rapidly approaching. Take advantage of Thomson’s FBT solutions, designed to keep you up-to-date with current issues and help you meet your business goals and deadlines. Get the support you need to stay a step ahead of FBT in 2008 with:

• cost effective online solutions to give your productivity a real boost;

• user-friendly resources to meet the impending FBT deadline; and

• better deals on essential salary packaging products.

FBT Compliance Toolkit

Forget tedious manual calculations, filling in forms by hand and endless filing.

The complete FBT service providing news, commentary, FBT return software and a helpline, FBT Compliance Toolkit provides everything you need to quickly and professionally complete FBT returns, calculate taxable values and produce ready-to-lodge returns and documentation in minutes.

Features include:

• Easy-to-use templates to automatically calculate taxable values and generate ready-to-lodge ATO approved returns.

• Rollover of prior year details, with a quick reference archive for previous returns.
• Expert FBT commentary to keep you up-to-date on significant FBT developments and offer guidance on the different types of fringe benefits and how to calculate them.
• FBT Helpline for expert assistance from specialists Moore Stephens.
• FBT email alerts to stay on top of developments, cases, rulings, rates and announcements.

For more information about the FBT Compliance Toolkit, click here.

Salary Packaging & FBT

Retain better staff and reduce costs through better remuneration packages.

Master tax-effective salary packaging with this two-volume salary guide to remuneration and fringe benefits. Structure win/win salary packages, meet your FBT compliance requirements, slash processing time and retain your best employees.

Vol 1: Salary Packaging and FBT — your in-depth guide to effective salary packaging and FBT management. Learn to manage FBT compliance and structure win/win salary packages.

Vol 2: Employment Taxes — your practical manual on employment taxes and the differences between states. Meet your legal requirements with answers to payroll tax and return lodgement questions from field experts KPMG.

For more information about the Salary Packaging & FBT, click here.

Thomson’s new Half-day Financial Reporting Workshops

International accounting standards are now a permanent part of the accounting landscape — have you fully implemented the standards to ensure you are compliant? Thomson’s Tax Effect Accounting and Asset Impairment half day workshops are designed to provide you with the IFRS knowledge and skills you need to confidently address the complex international accounting calculations and record-keeping requirements.

Value Package — book both workshops, complete them in one full day and SAVE $80.00.

For more information about the value package, please click here.

For more information on the Tax Effect Accounting half-day workshop, click here.

For more information on the Asset Impairment half-day workshop, click here.

Australian Valuation Handbook

Your valuations how-to guide 

This is your step-by-step companion to performing business valuations, project appraisals and feasibility studies. Gain fast access to help on key tasks including scoping a valuation assignment, financial analysis of data, and ways to tackle complex issues such as AIFRS, options, minority interests, technological obsolescence and debt.

PLUS you’ll have:

• electronic pro forma templates;
• 24-hour access to reference material via subscriber web-page; and
• examination of world’s best practice in valuation theory.

Features one update per year.

For more information about the Australian Valuation Handbook, click here.

Return to TOP