MKT Tax Q&A


Each week MKT’s tax advisors receive scores of phone calls from accountants within their Premium Accountants Network and the general Accountants Network seeking our advice on tax issues relevant for their clients.  These are a selection of the most interesting and topical. This material should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own circumstances.

       

November 2017

GST and entitlement to input tax credits

Q: Can you claim the goods and services tax (GST) included in the purchase price of a motor vehicle used in your enterprise as input tax credits (ITC)? 

A: Yes. As long as you are purchasing a motor vehicle to use in connection with your enterprise, you are entitled to claim the GST included in the purchase price and running costs of the vehicle as ITCs. However, you must reduce the ITC amount by the proportion the motor vehicle is used for private purposes, and is not used for the purposes of carrying on your enterprise. 

You are allowed a partial ITC for the GST included in the price of the goods and services you use partly in the course of or furtherance of your enterprise. 

Section 11-25 of the GST Act states the amount of the ITC for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the ITC for a creditable acquisition is reduced if the acquisition is only partly creditable. 

The amount of the ITC you can claim on an acquisition that is made for a partly creditable purpose is provided in subsection 11-30(3) of the GST Act: 

[Full input tax credit x Extent of creditable purpose x Extent of consideration] 

where: 

extent of consideration is the extent to which you provide, or are liable to provide, the consideration for the acquisition, expressed as a percentage of the total consideration for the acquisition. 

extent of creditable purpose is the extent to which the *creditable acquisition is for a *creditable purpose, expressed as a percentage of the total purpose of the acquisition. 

full input tax credit is what would have been the amount of the input tax credit for the acquisition if it had been made solely for a creditable purpose and you had provided, or had been liable to provide, all of the consideration. 

New Company and Franking Deficit Tax (FDT)

Q: Will a private company operating in its first income year be liable for Franking Deficit Tax if it declares fully franked dividends and its franking account balance is in deficit at the end of the income year? 

A: Generally, a company operating in its first income year is not required to pay any income tax until the following income year. Therefore, when it declares a fully franked dividend in its first year of operation, the franking account balance will be in deficit at the end of the income year. It is therefore subject to FDT however, a special provision applies to ensure that the company is not penalised with a reduction in its FDT tax offset. To do so the company is required to lodge a franking account tax return and pay the FDT by 31 July, but can then claim the full FDT tax offset in its income tax return.

Cost of Managing Tax Affairs

Q: Can a taxpayer claim the cost of managing the tax affairs of another entity? 

A: The taxpayer can claim a deduction on expenditure incurred in relation to the tax affairs of another entity to the extent that they are related to compliance with an obligation imposed by a Commonwealth law. Common examples include an employer’s costs relating to PAYG Withholding, an entity’s or individuals tax matters (including preparation of their tax return) and director penalty notices.


October 2017

Dividends/Loans and Payroll Tax

Q: Can payments made to shareholders by way of dividends (rather than salaries or wages) be subject to Payroll Tax in Western Australia?

A: Provided the payments are not made to an employee in his/her capacity as an employee (rather, they are made in any other capacity, for example as a shareholder), the OSR accepts that the payments will not be subject to Payroll Tax.

Small Business Restructure Rollover (SBRR) and Shares 

Q: Can a Small Business Entity utilise SBRR involving the transfer of shares from one entity to another?

A: To be eligible, the shares must be active assets in a limited sense that they must be used, or held ready for use, in the course of carrying on a business by either the entity, its affiliate or connected entity.  Therefore, shares in companies are generally not eligible for the SBRR.


Capital Gains Tax - Deferring inclusion of income until after settlement time

Q: Can you defer including a capital gain in relation to the sale of a property until settlement or change of ownership occurs?

A: Where a property is sold, a capital gains tax event occurs at the time that the contract is signed.  Therefore, any capital gain realised will need to be included in your income tax return in the income year that the contract is signed.

Generally, settlement of the property occurs at a later date and in some cases that date occurs in a later income year to the signing of the contract.

Paragraph 3 of Taxation Determination TD 94/89 states that a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs, being settlement.

Where the income tax assessment for the appropriate year has already been issued it will be the taxpayers responsibility to amend the assessment once settlement has occurred.

Income tax assessments that are amended to include an amount of omitted income may give rise to interest on the shortfall amount.  However, as discussed in TD 94/89 at paragraph 5, where the amendment is made within a reasonable time the discretion to remit the interest is likely to be exercised. It is generally accepted that within a period of one month following settlement would be reasonable.


September 2017

GST and Internet Supply  

Q: Are you liable to pay GST on the sale of the computer software downloaded from the Internet by the purchaser?

A: 
Depends.  You are not liable to pay GST on the sale of the computer software downloaded from the Internet by the purchaser where the purchaser declares that they are not in Australia, will not be using the computer software in Australia and provide and overseas address. In this situation, the sale of the computer software is GST-free.

In all other cases where you do not have sufficient evidence to demonstrate that the consumption will take place outside of Australia, the sale of the computer software downloaded from the Internet by the purchaser is a taxable supply and you are liable to pay GST on the sale.

To establish that supplies are for consumption outside of Australia, the supplier should obtain: 
 

(i) Declaration from recipient about their residential status, physical location and use of the supply. 

The proposed wording for the declaration is:
        

I declare that I am not in Australia at this time and I will not be making use of this supply in Australia.

(ii) The full address of the recipient.


In order to satisfy the proposed National Privacy Principles the following clause should also be displayed on the order page.

                
'Information given in the course of this transaction may be used to determine your liability to Australian GST'

       
In order for the purchase to be considered a GST-Free supply the recipient must declare that they are not in Australia and will not be making use of the supply in Australia AND provide an overseas address. If both conditions are not satisfied, the supplier has a GST liability.


Donation of Trading Stocks 
        
 
Q: How much can an entity claim on the trading stock donated to an eligible DGR?

A: An entity can claim a deduction if:

1) It is a disposal of trading stock outside the ordinary course of its business; and
2) the entity has not made an income tax election involving the forced disposal or death of livestock.
 
The deduction is the difference between the opening and closing stock value. The amount of the deduction then depends on whether the entity had used either cost, market selling value or replacement value on the closing stock in the previous income year.

Land Tax and Property held by Trusts

Q:
 In calculating your land tax liability is property you hold personally aggregated with property you hold for your trust that you are trustee for?

A: Land tax and MRIT are calculated on the aggregated taxable value of all land held in the same ownership (excluding exempt land) at midnight on 30 June.  

Generally, only land owned by the same owners is aggregated.  For example, land that is owned solely by you is not usually aggregated with land you own jointly with another person or with land that you have an interest in through a company or trust.  In such circumstances, a separate assessment notice is issued. 

That being said, a person holding land as a trustee is in initially has this property aggregated with property they hold in their own right.  If however, it can be shown that they hold the land for different persons (i.e. in their capacity as trustee for a family trust), land tax should be assessed separately.