Structure of Joint Commercial Property Investment Purchase

Posted On: Thursday, April 11, 2019

Two individual persons want to buy the commercial property together for investment. We would like to know the best business structure for this use regarding tax minimisation and asset protection.   Read More

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Capital Gains on Client Base Sale

Posted On: Thursday, April 04, 2019

I have a Corporate Client who is selling off part of a Client Base and I’m unsure of the Tax Consequences, although it does appear to be a CGT Event.

The Sale Price is expected to be $175,000.

A Cost base is yet to be established, but it will probably be between $40,000 and $80,000.

It’s all Goodwill.

The ATO have suggested that TR 1999/16 and TR 2005/16 may help me.

The Corporate Client has been operating for some 13 years.

Answer — Let’s work on the basis that the capital gain is a notional $115k.

Example 2 in TR 1999/16 indicates we are dealing with goodwill, but this would have to be determined and confirmed from the terms and conditions of the sale.

We do not see how TR 2005/16 is relevant in any way as this deals with PAYG issues.

Given the business has operated for 13 years, we are clearly dealing with a post CGT (Sept ’85) asset and the 15-year retirement exemption does not apply.

Firstly, are there any capital losses in the company? If so, then these should be offset first.

So, to be clear we are now dealing with the CGT small business concessions.

Given all the SBE CGT conditions have been met, you could apply the active asset (AA) concession (50% reduction) but the application of this illustrates the shortcomings of a company in these instances.

A trust would be effectively able to apply the active asset concession (50%) and then the individual concession (50% of the remaining balance) if the distribution was made to an individual.

This effectively deals with 75% of the capital gain.

In a company you can only apply the AA concession at company level – you then pay out this component of profit as an unfranked dividend then pay individual tax or deal with a Div7A issue.

For this reason, many people in this situation decide to apply the retirement exemption which is up to a lifetime limit of $500k per person.

If the significant individual is less than 55 years of age, then this must be paid into a complying super fund with no contributions tax.

If the individual is over 55 years of age, then there is no requirement that the capital gain be paid into a complying super fund – rather it can be accessed by the individual.

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Leighs Corner 46

Posted On: Sunday, March 31, 2019


Leighs Corner

Article Number 46-

The Role of a Support Person in Disciplinary Matters

Disciplinary meetings between employers and employees are often difficult and tense processes and many employers are not trained in dealing with difficult situations involving workplace disputes, breaches of policies and procedures and conduct that requires disciplinary action up to and including dismissal.

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Property Purchase and Main Residence

Posted On: Thursday, March 28, 2019

Hello. I refer to October 2014, Tax Smart magazine, issue number 0071, example 1, on page 29.   Read More

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Employment Type of Appointment-Based Worker

Posted On: Thursday, March 21, 2019

The new dentist has no set hours during the 5 days at an office (pay rate 40:60 inc. super & etc.), so he works only if there is a patient. The employer is managing the dental assistants and receptionists. He also has P.I and works no other place.  Read More

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PAYG Calculation Question

Posted On: Thursday, March 14, 2019

We have questions relating to PAYG and the possible calculation of such for the below situation.  Read More

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How to Calculate Flat Rates of Pay

Posted On: Thursday, March 07, 2019

Q: Can you provide information about flat rates of pay and what is included in the rate? Are holidays & holiday pay incorporated in the rate? How are public holidays paid? How is sick leave applied or are these all part of the Flat rate payment. Can the flat rate for ordinary hours 38 hrs be say $40.00 and the rate for the balance of hour worked be say $40.25 for superannuation purposes?  Read More

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Tax Deduction for 25k Super Contribution

Posted On: Thursday, February 28, 2019

 Part (1) - The Client is 66years old, has made a concessional contribution by way of salary sacrifice to a defined benefit fund since 1/7/2017: $25,000.

The question:

Is he entitled to get a tax deduction up to $25,000 in the year 2018 income tax? If so, what is the negative effect on his retirement in the near future.

The Fund taxed his contribution 15% ($25,000-$3,750) = $21,250.

Answer – Part (1)

Firstly, as your client is over 65, it is necessary that the “work test” be met in order for a contribution to be made.

If so the client is entitled to a tax deduction but first, consider whether the client needs a tax deduction.

Some or part of this could be characterised as a non-concessional contribution without the need to pay the 15% tax.

You appear to be indicating that the client has already contributed the $25k – so regarding the negative affect on retirement?

Here we assume that you are referring to pension entitlements and we would advise that superannuation fund assets (asset test) and pension streams (income test) are taken into account by Centrelink when considering eligibility for the age pension.

Part (2) - Thank you very much for your response.

The client met work test and asset test and income test, and getting small amount of prorate age pension:

The question is that:

Concessional contribution to defined benefit super fund entitles him to a tax deduction and,this deduction has a negative effect on his prorate age pension.

If so, can client complete Notice of Intent to claim deduction for personal super contributions.?

Answer – Part (2)

In the year ending 30 June 2018 your client can claim $25k as a tax deduction as you advise he has met the work test.

We assume he will have other assessable income that makes the claiming of the $25k as a tax deduction tax effective.

Also, that he has no employer support – kindly note that $25k is the total limit that includes individual AND employer contributions.

As his tax adviser you will be doing these sums close to the end of the financial year when you have an overview of the situation.

It may be that it is tax effective to claim only a portion of the payment as a tax deduction… and the fund manager should be advised accordingly.

But as you point out…. there are two issues being the tax saving and the effect on the pension.

Regarding whether the super contribution can reduce income for the pension.

The Dept of Human Services website indicates that they look at income only.

For rental property owners and business owners they look at the concept of net income.

So, if your client operates a business it would indicate that a tax deduction could be claimed for eligible super up to the amount that would make net income nil.

If it were wage or investment income he derived, we suggest that would be another matter i.e. the super deduction would not be taken into account for the pension income test.

We stress that this is our interpretation and that you or client could well hold another view.

Confirmation could be sought from the Dept of Human Services.

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How to Calculate Loan Interest Portions Based on Use

Posted On: Thursday, February 21, 2019

Q: Mr A has obtained a loan $250k using his residential house as security. For example, he used $100k for personal use and used $150k for investment use.   Read More

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Tax, Active Assets and Small Business Concessions

Posted On: Thursday, February 14, 2019

Q: Purchase of farming property in May 2013 for $1,600,000 in the family trust. The family trust is a business of primary production. This 160-acre property has since been rezoned to residential R1 and approximately 800 lots will be available for sale at 550 sq. metre minimum lot sizes.   Read More

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