Issue 175, 6 June 2008

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Articles in this edition include: 

• New tax withholding schedules to apply from 1 July 2008

• CGT small business concessions - home as active asset

• Thomson Tools

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New tax withholding schedules to apply from 1 July 2008

The Taxation Administration Act 1953 - Withholding Schedules 2008 were registered on the Federal Register of Legislative Instruments on Wednesday 28 May 2008. The Schedules specify the amounts, formulas and procedures to be used to work out the amounts required to be withheld. The instrument contains 27 withholding schedules based on the threshold changes announced by the Treasurer in the 2008/09 Federal Budget and set out in the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008. Each schedule provides information for calculating the withholding amount, taking into account the particular circumstances presented in the schedule. The instrument applies from 1 July 2008.

This article appeared in Thomson's daily Latest Tax News (Thursday 29th May). 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, phone Thomson Customer Service on 1300 304 197.

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CGT small business concessions - home as active asset

Q. My client, a physiotherapist, runs her business from her home. Twenty per cent of her home is considered to be a place of business and therefore will be subject to CGT on its sale. Can this taxable portion of her home be considered an 'active asset' for the purposes of the CGT small business concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)?

A. A CGT asset is an 'active asset' for the purposes of the CGT small business concessions if it is used, held for use, or held ready for use, in carrying on a business (by the taxpayer, an affiliate or a connected entity): section 152-40(1). Your client's home is a CGT asset and it is being used in carrying on her business. Accordingly, it qualifies as an 'active asset'. This means that the CGT small business concessions are potentially available, provided all other criteria are satisfied, for example, the $6million maximum net asset test.

The manner in which the capital gain that is subject to the CGT small business concessions is calculated will depend on whether the home was first used to produce income after 20 August 1996 (see section 118-192 of ITAA 1997). If that is the case, the gain that will be subject to the CGT small business concessions will be calculated as follows:

(capital proceeds (i.e. sale proceeds - section 116-20) less market value of home at time first used to produce income) x 20%.

However, this rule will only apply if the home would have been entitled to the full main residence exemption (under Subdivision   118-B of ITAA 1997), if sold immediately before the time when it was first used to produce assessable income. Otherwise, the capital gain subject to the concession is the gain calculated in the 'usual' manner over the entire period of ownership of the home, pro-rated for the 20% business use.

Note also that the taxpayer must use the 50% CGT discount (under Division 115 of ITAA 1997) before applying any of the CGT small business concessions.

This issue appeared recently in Thomson Tax Q&A. Thomson Tax Q&A is issues based and uses actual scenarios confronted in practice to help you understand how developments affect your client's tax position. New Q&As are added regularly and the answers provided online are updated to take into account tax changes that impact on the issues raised.

It therefore provides an up-to-date database of real solutions to actual tax issues facing tax advisers in practice.

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Thomson Tools

Thomson's 2008 Mid-year Annuals

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