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March 2011 Tax Update

Claiming self education expenses for Youth Allowance.
The recent win by a taxpayer in a case regarding self education expenses has ruled that taxpayers who receive Youth Allowance to study can claim their study costs as an expense.

The ATO will automatically amend eligible taxpayers up to a limit of $550 per year for the years ended 2007, 2008, 2009 & 2010.  Taxpayers will receive letters if they are eligible.  Taxpayers can claim for more than the $550 if they have receipts to substantiate the claims. 

Division 7A
Taxpayers with Company loan accounts we need to be aware of the ATO’s increasing interest in Div 7A loan issues.  The main lesson is that if a taxpayer has a company loan account where they owe money to the company, the loan should be cleared before lodgement of the tax return or set up a loan agreement.

It is important to note that if the loan is repaid before the due date for lodgement of the return (ie 15/5/yy, NOT 30/6/xx) there is no Div 7A issue.  Similarly any loan repayments need to be made by the due date of the tax return, rather than 30 June.

Capital Gains Tax
A taxpayer that is able to claim the small business concessions may choose the retirement exemption.
As a general rule if the taxpayer is under 55 years old then to claim the retirement exemption they need to put money into a complying superannuation fund.  If they are over 55 years old they do not need to do anything to be entitled to the exemption!

What is interesting is that the rule says that it is the age of the taxpayer when the choice is made (hence when the return is lodged) that is the critical point in time, rather than when the CGT event occurred.

Therefore it may be beneficial to delay the lodging of a return for as long as possible, if it means the taxpayer is 55 or older by the time the return is lodged. This may mean requesting a lodgement extension if a taxpayer turns 55 after their lodgement due date for the relative year.

Fringe Benefits Tax (FBT)
The ATO is concerned at the high number of accountants not lodging FBT returns for their clients.

They are going to start targeting agents who do not lodge any or only a few FBT returns to ensure compliance.  This may mean lodging a Nil FBT return where a taxpayer has a motor vehicle even though an employee contribution is being included to negate the FBT.
It is also interesting to know that if no FBT return has ever been lodged the ATO has authority to look back indefinitely if they find an issue with the current year.  Where Nil FBT returns have been lodged the ATO are limited with the number of years they can go back.

Discretional Trusts
There is a new definition of family for Discretionary trusts that have made a family trust election.
The definition includes the following;