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November Newsletter

Pre-election Promises
Before its re-election, the Government announced various new measures which are applicable from 1 July 2002 (unless otherwise indicated), including the following:
?    mothers will be entitled to claim a refund (spread over five years) of tax paid on salary or wages in the year prior to childbirth. The claim will be subject to an annual $2,500 cap, and will be reduced where they return to work within five years;
?    spouses will be allowed to split superannuation contri-butions, from 1 July 2003;
?    there will be Government superannuation contribu-tions for low income earners;
?    the maximum super-annuation and termination payment surcharge rates will be reduced from 15% to 10.5% over three years;
?    there will be greater choice of and portability between superannuation funds (com-mencement date uncertain);
?    a tax exemption will be provided for certain capital gains and foreign source income of expatriates resident in Australia for less than four years, from
1 January 2002; and
?    venture capital limited partnerships with flow through taxation treatment will be provided.
Salary Sacrifice Arrangements
The consequences of salary sacrifice arrangements (SSAs) for income tax, FBT, PAYG withholding and superannuat-ion guarantee have been finalised in a Tax Office ruling.
The ruling distinguishes between ?effective? and ?ineffective? SSAs.
Effective SSAs arise where an employee agrees to receive part of their remuneration as benefits before becoming entit-led to receive that income. Benefits provided under such SSAs will be exempt from income tax (although subject to FBT).
According to the ruling an ineffective SSA will arise where an employee directs that income that has already been earned, is to be paid in a form other than salary or wages. In this case, benefits provided will be subject to income tax (not FBT).
The ruling provides that SSAs entered into by employees governed by an industrial award, which reduce salary below award rates, are still effective.
The ruling also provides that SSAs concerning bonuses or leave must be made before the employee earns the bonus or leave entitlement.
CGT Cost Base for Expenditure which Increases Value
The Tax Office has issued a draft determination concerning expenditure which increases the value of an asset.
Under CGT provisions a taxpayer is entitled to include in its cost base for an asset expenditure that is reflected in the state or nature of the asset on disposal.
In the draft determination, the Tax Office has taken the view that expenditure which results in a mere increase in value, with no change in the physical condition, attached rights or other qualities of the asset, will not increase the cost base.
The example given suggests that where a shareholder contributes additional share capital, without the issue of additional shares or a variation of rights attaching to existing shares, an increased cost base would not result.
This appears a very narrow interpretation of the provision and we will keep you informed of any developments.
Lodgement Extension for Large Companies
The Tax Office has announced a tax return lodgement extension for large entities from 3 December 2001 to 14 January 2002.
Legal Expenses ? Defamation
The Tax Office has released an Interpretative Decision con-cerning the deductibility of legal fees incurred by a taxpayer who took an action for defamation.
It provides that, generally, legal expenses are deductible provided the legal action:
?    arose out of, or concerns, the day to day income producing activities of the taxpayer;
?    is not undertaken to protect the taxpayer?s profit-yielding subject;
?    has more than a peripheral connection to the taxpayer?s business; and
?    arose out of litigation concerning the taxpayer?s professional conduct.
No Deductions for Fundraising Dinners
A fact sheet concerning the tax deductibility of fundraising dinners, has been released by the Tax Office.
Generally, no deductions are available even where the ticket price is significantly higher than the market value of the dinner. No apportionment is allowed.
Gift deductions are only available where the payment has been made voluntarily, arising from detached generosity, and no material benefit is received.
The fact sheet recognises that businesses may, however, be able to claim a deduction for related advertising costs.
First Home Owners Grant
An existing 1/4027 interest held in a holiday resort was sufficient to disqualify an applicant from obtaining the first home owners grant, a Tribunal has held.
The NSW Administrative Decisions Tribunal noted that the grant provisions contained no exemptions for holding proportional interests in properties and therefore any ?relevant interest? in a resident-ial property was sufficient to exclude the applicant from obtaining the grant.
Guarantor?s Interest Payment Held to be Non-deductible
The AAT has held that interest paid under a loan guarantee concerning a related company was not deductible.
The original loan related to a failed property development. The borrower company default-ed under its loan and the taxpayer was required to repay principal and interest. At the time, the property had been sold and no income producing activity or business existed.
Accordingly, the AAT decided that the payment was made by the applicant as guarantor and was necessarily on capital account. In any event, it found that as income activity had ceased, the payment was not deductible as there was no prospect of gaining assessable income from the payment.
Dividend and Interest Statements
Under an often ignored provis-ion, companies are required annually to provide the Tax Office with the names and addresses of all shareholders, and the amount of any dividend paid to them, plus details of all persons to whom interest in excess of $100 was paid during the tax year, typically by
31 October of the following tax year.
The Tax Office has announced an extension of this lodgement deadline to 14 December 2001. For statements lodged after that date, the Tax Office says it will consider each case to determine whether it should exercise its discretion to impose late lodgement penalties.