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The ATO has ruled that compound interest is deductible just like simple straight line interest

The ATO issued Taxation Determination TD 2008/27 which follows the Federal Court and High Court decision in Harts case that compound interest is deductible according to the same principle as simple straight line interest. However, for more complex transactions that involve split loans, the ATO does not rule out applying the anti-avoidance provisions in Part IVA of the Tax Act agains the transaction.

The ATO has issued its Compliance Program for the 2008/09 income year

The Commissioner of Taxation, Michael D’Ascenzo, announced on 13 August 2008 the release of the ATO's Compliance program 2008-09. Mr D'Ascenzo indicated that the ATO "will focus on income tax, tax havens, dodgy tax schemes, wealthy individuals, large business and the cash economy in the coming year".

In relation to individuals, the ATO's priorities for the coming year are said to include:

• a focus on capital gains from the sale of property, shares and other assets
  
• expanding the review of the compliance activities of senior executives and directors
  
• monitoring work-related expense claims, particularly out-of-pattern claims for self-education, car and travel expenses
  
• examining returns that reflect a pattern of poor knowledge and practice by tax agents.

In relation to small to medium enterprises, the ATO's priorities for the coming year are said to include:

• increasing the focus on income tax compliance, particularly for those enterprises with turnovers between $100 million and $250 million
  
• increasing the monitoring of high wealth individuals
  
• communicating new fuel tax credits measures to eligible businesses.

For a copy of the ATO media release, No 2008/42, 13 August 2008, click here.

For a copy of the Compliance program 2008-09, click here.

Self-education expenses held not deductible

The AAT, in Southwell-Keely v Commr of Taxation, has affirmed the decision of the Commissioner to disallow the self-education expenses claimed by a taxpayer.  In this case, the taxpayer enrolled in a degree in hotel management. The degree required 500 hours of practical pre-experience.  The taxpayer undertaken the practical experience at a hotel and after completing the 500 hours, continued to work in the hotel in various roles while studying for the degree.

The taxpayer contended that the course of study was relevant to his progression of his career at the hotel, although the degree was not a condition of his continued employment or obtaining pay increases.

The AAT held that there was insufficient evidence showing that the course of study was incidental or relevant to the gaining of the taxpayer's assesable income.  Rather the expenses were concerned in obtaining work in the future, and on this basis, denied the deduction claimed by the taxpayer.

The ATO's stance on Capital Protected Products

 As announced in the 2008-09 Budget, the benchmark interest rate in the capital protected borrowing rules will be changed to the Reserve Bank of Australia's indicator variable rate for standard housing loans. The amendment will apply to capital protected borrowing arrangements entered into after 7.30pm (AEST) on 13 May 2008. The current law, which applies the Reserve Bank of Australia's indicator variable rate for personal unsecured loans to determine the cost of capital protection, will continue to apply to existing capital protected borrowing arrangements for a period of five years or the life of the product, whichever is the shorter.

The ATO has advised that it will apply the existing law in the period between the announcement and enactment of the proposed law and will not undertake specific compliance activity to enforce the existing law during the period between the announcement and enactment of the proposed law.

Tax Office's Focus for this year

In a speech entitled "Fostering a 'prevention is better than cure' approach for Tax Time 2008", the ATO explored a number of topics that will be addressed in the Compliance Program 2008-09. 

In particular, in terms of tax focus for individuals, the ATO this year will pay particular attention to:

• investors, particularly in relation to properties, dividends and interest, sale of investments, managed investment schemes, avoiding dodgy tax schemes and saving for retirement;
• salary packages for executives and directors; and
• employees and their work expenses claims.

In terms of small businesses, the ATO's focus will include:

• sale of businesses and investments
• foreign source income ; and
• employer obligations (including super)

The full text for the Second Commissioner's speech can be found at:

http://www.ato.gov.au/corporate/content.asp?doc=/content/00145192.htm

Does your business have a succession plan?

A recent survey indicates that 62% of the business in Australia do not have a succession plan.  Although much of the transactions during the succession process are one-off transactions, significant tax opportunities are unnecessarily lost due to lack of adequate planning.  The major tax risks & opportunities involving succesion planning include:

• Capital Gains Tax Exemptions
• Taxation of Goodwill
• Demergers and claiming a roll-over relief
• Trust cloning

Please contact Aspiron Consulting Group for an initial assessment of your tax risks.

Your Trust's Accounting Income Greater than Tax Income?

In a recent decision, the AAT has held that, in accordance with the decision in Zeta Force Pty Ltd v FCT (1998) 84 FCR 70, where there is an excess of tax net income (ie accounting income) over trust law income, the Tax Act requires that the excess be taxed to the beneficiaries in the same proportion as the trust law income was distributed. Under this circumstance, the affected beneficiaries would have to pay tax on an amount higher than the trust law income received.

Further, the AAT held that where there is no trust law income according to ordinary concepts (eg because the trust has carried forward losses or higher tax depreciation claims), the trustee will be taxed on the net trust accounting income at the top marginal rate.  Whether there is a clause in a trust deed empowering the trustee to treat a capital gain as income for the purposes of a distribution to beneficiaries would not matter.