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The ATO has recently issued Taxation Determination 2007/30 which outlines the amounts that are acceptable as estimates of the value of goods taken from trading stock for private use by sole traders and partners in partnerships who operate in certain industries. These amounts are for the 2007/08 year.
Note the relevant amounts are those deemed acceptable by the ATO, but businesses don’t have to adopt them and can keep their own records of goods taken from trading stock for private use.
Where the business does not operate in a particularly industry named (e.g. bakery), a reasonable estimate should be made for items that have been consumed privately.
Note that an adjustment for the GST credits claimed in relation to these amounts also needs to be made.
Click here to access the Determination.
Businesses that operate through a company or trust cannot use the above amounts when calculating the fringe benefits tax (FBT) on trading stock that has been applied for the private use by employees, including working directors. In these circumstances businesses are required to maintain adequate documentation in making a "reasonable estimate" of the stock taken by employees for their private use.
The taxable value for FBT purposes is dependent on whether or not the company or trust manufactures or produces the stock itself, or sells the stock to manufacturers, wholesalers and retailers.
These rules are complex and include concessions which in many cases reduce or even eliminate any FBT otherwise payable. Businesses should obtain professional advice on how these rules apply to their business.
Eligibility for the small business CGT concessions was widened from 1 July 2007 whereby small businesses now only have to satisfy the annual turnover test of $2M per annum GST exclusive. The result is that small businesses are eligible for the concessions even though they may fail the $6M net assets test.
However these concessions only applied to the individual or entity selling the business and did apply where for asset protection purposes, an “active” asset (e.g. the business premises, or equipment) was held in a separate connected entity to the business, or an affiliate may own the property.
Shortly before the recent Federal election, the Government announced a change to the law with effect from 1 July 2007 that the affiliate or the connected entity can now access the CGT small business concessions where the $2M turnover test is satisfied. Note the $2M turnover test will be applied to the asset owing entity, its affiliates and connected entities (including the entity running the business). This will ensure that larger businesses cannot use similar structures to access these concessions.
Furthermore, a partner in a partnership will now qualify for the concessions, through the $2M turnover test, where the asset owned by the partner is used in the business carried on by the partnership. It will not be necessary for each partner to own the asset in the same proportion as their interest in the partnership.
Eligibility will depend on meeting the $2M per annum aggregated turnover test for the partnership, its affiliates and connected entities.
The above changes are a very positive measure and will extend the small business concessions to many common operating structures.
We will let you know when these changes become law.
In the recent case of "The Taxpayer" and Commissioner of Taxation [2007] AATA 1830, the Administrative Appeals Tribunal (AAT) has agreed with the decision of the ATO that an apportionment of home office expenses should be on a floor area basis, which entitled the applicant to claim 10% of the occupancy expenses as a tax deduction.
The applicant was a private Australian resident company with two directors and shareholders, Mr and Mrs X. The property was 50% owned by the applicant company and 50% by the directors Mr & Mrs X (as tenants in common).
The property was the main residence of Mr and Mrs X and their children. The applicant's businesses were mainly operated from a room in the property, which was set up as an office/studio and used exclusively for business purposes. The office/studio had an area representing approximately 10% of the total floor space of the building. Other common access areas were used primarily for private purposes (as a home). The AAT confirmed the ATO’s longstanding practice that the appropriate basis for apportionment should be on the actual business floor area occupied (being 10%) instead of the percentage of ownership of the property (being 50%).
The ATO have setup an automated arrangement to enable taxpayers to pay off tax debts by instalments provided that the debt is less than $25,000. The payment arrangement can be made by either the taxpayer directly or through their tax agent.
The following information is required by the ATO to consider the payment arrangement:
- the ABN or tax file number of the taxpayer;
- details of the tax debt (e.g. BAS payment) and the amount outstanding; and
- details of the payment arrangement proposed to be entered into, including the amount and first payment date and the frequency of payments.
A payment arrangement can be made by calling 13 28 65 and then pressing “3”.
If the tax debt is more than 2 years old, or it relates to the superannuation guarantee payments, the taxpayer may be contacted by an external debt collection agency.
A recent ATO alert mailed directly to businesses in the restaurant, cafe and takeaway Food industry has highlighted a number of improper practices when accounting for cash transactions.
The Fact Sheet (NAT 12661) notes the non-reporting of sales, the non-recording wages paid in cash and wages, the failure to lodge tax returns and activity statements.
The ATO notes that there are other parties dealing with these businesses who do maintain accurate records (e.g. suppliers of liquor and food). With this information, the margins are compared to industry averages and used to assist in identifying non-compliers.
The non-recording of wages has wider implications for an employer such as non tax deductible penalties for failing to deduct PAYG withholding and not paying superannuation contributions, and also underpayments of payroll tax and Workcover premiums.
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