$200,000 Fine Over Failure to Pay GST On Sales

Thursday, December 3rd, 2009

A recent case provides a warning for anyone thinking about developing a property and trying to skip paying GST on the sale. In Khoury v Federal Commissioner of Taxation, Administrative Appeals Tribunal (AAT) 2009, the taxpayers were fined $162,405 for failing to disclose the sales of new townhouses in their Business Activity Statement and a further $32,481 for obstructing the audit investigation.

The taxpayers were considered to be obstructing the Australian Tax Office (ATO) when they didn’t give correct information to their tax agent, failed to attend meetings and refused to give information on the sale of their units.

The taxpayers’ plea that they did not have the funds available to make the payment at the time because their financier had imposed a condition upon them that all sale proceeds were to be paid direct to the bank only led the AAT to conclude that the non-disclosure was deliberate.

The AAT readily accepted that the penalty would crush the taxpayers but as errors had been discovered in other GST audits they deserved no leniency.

If you build a property with the intention of selling it for a profit then you are required to register for and charge GST on its sale.

Catching you is a no-brainer for the ATO; they get all the information they need from the Titles Office.

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Government Closes Hobby Farm Tax Loophole

Monday, November 30th, 2009

The Federal Government has introduced legislation to close tax loopholes around hobby farms and smaller non commercial pursuits exploited by nigh income individuals.

Assistant Treasurer Nick Sherry said the legislation would give effect to the changes to the non commercial losses rules announced in the 2009 – 2010 Budget.

“The current loophole in the rules allows high income individuals to take advantage of the tax system and claim deductions meant for functioning businesses when the non commercial activity is no more than a hobby or lifestyle choice,” Sherry said “The targeting contained in this measure will contribute $700 million to the budget bottom line over the forward estimates.”

Under the existing rules, individuals may apply losses against their other income where one of four tests is met.

The current four tests focus on the business activity’s prior years profits, its revenue and the assets, such as real estate and equipment, that are involved in carrying on the business.

The new non commercial losses rule will prohibit individuals win an adjusted taxable income of more than $250,000 from applying losses from non commercial business activities against their other income, unless the Commissioner of Taxation has assessed the activity as genuinely commercial.

Disclaimer: this authors of this blog do not purport to give financial, accounting or taxation advice. Do not rely on anything we say here. Instead consult with your accountant or tax professional.

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Is Your Holiday Home Held In A Company?

Monday, November 30th, 2009

Investors who own assets, including property, through a company need to re-examine the tax implications of using those assets for private use. As companies don’t qualify for the 50 per cent capital gains tax (CGT) discount or the main residence exemption, its highly unlikely, even for asset protection purposes, for a person to hold their home in a company these days. But this is more likely to be the case if the property was purchased before CGT was introduced. This article could also apply to a holiday home – infact any asset owned by a company of which you are a shareholder and have private use, even if the asset is pre-September 20, 1985.

In the May 2009 Federal Budget, the government announced it would introduce laws to tax people on the market value of benefits they received by using property owned by a company, unless they paid market rent. The law was applied retrospectively from July 1, 2009, so if this applies to you it looks like your rent is already in arrears.

If you are an employee of the company the benefit you receive would have already been caught under the fringe benefits tax rules. This new law is designed to deem a dividend at the value of benefits paid to shareholders and their associates who may not be employees or where a company only has passive investments.

The main point of the new law was to catch boats and the like, but it is clear from a Treasury media release in September announcing some concessions for motels and farms that it is intended to catch homes.

If you own any asset that you use for private purposes in a company are not currently paying fringe benefits tax on the market value of the benefit you receive then it is important you discuss your options with your accountant. This is not something that should wait until after the end of the financial year, and in the meantime at least keep a diary of your use of the asset.

Disclaimer: this blog does not purport to give accounting or taxation advice. Do not rely on anything we say here. Instead consult with your accountant or tax professional.

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