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About Rob Warnock

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So far Rob Warnock has created 12 blog entries.

Updated Discretionary Trust Deed

As most tax advisors know when dealing with a trust the terms of the trust deed are critical.

That is why at BOS Lawyers our trust deeds are regularly updated to take into account changes to the law as well as changes to how revenue authorities and judges interpret the law.

For example, our discretionary trust deed excludes foreign persons from being beneficiaries to avoid unexpected stamp duty or land tax. This deals with recent changes to both the Duties Act and the Land Tax Act. Of course foreign beneficiaries can be included if required.

It is important to consider the issue before the trust is established to ensure the terms of the deed reflect what is wanted.

Our discretionary trust deed also provides for:

  • the trustee to have wide discretion in determining the income of the trust;
  • full streaming of different classes of income and capital gains; and
  • the addition and removal of beneficiaries in a way that will not involve the creation of a new trust.

Please contact Rob Warnock or Patrick Cussen on 1300 267 529 for any queries regarding trusts.

By |July 31st, 2019|News|0 Comments

Victorian State Budget – Extra taxes relating to land

The 2019 – 2020 Victorian Sate Budget was handed down on Monday 27 May 2019. It contained some tax ‘nasties’ for land owners. Below is a summary of these additional taxes.

  1. The land transfer duty surcharge on foreign purchasers of residential property will be increased from 7% to 8% for contracts entered into on or after 1 July 2019. Given the broad definition of ‘foreign trust’ great care must be taken when the purchaser of property is a discretionary trust. The terms of the trust deed may need to be amended before the property is purchased to ensure the duty surcharge does not apply.
  2. The land tax absentee owner surcharge will be increased form 1.5% to 2% from the 2020 land tax year.
  3. From 1 July 2019 the duty exemption applying to qualifying transactions of corporate reconstructions will be replaced with a duty rate of 10% of the duty otherwise payable.
  4. The land tax exemption for the principal place of residence will not apply for some properties. From the 2020 land tax year, land in metropolitan Melbourne that is contiguous with a principal place of residence but on a separate title and without a separate residence will no longer be exempt from land tax. This will no doubt lead to titles being consolidated, which in itself will generate more revenue for the state government through the increase of fees payable to the State Revenue Office.

In some good news, from 1 July 2019, a duty concession will be provided to transfers of commercial and industrial properties in regional Victoria. A 10% concession will be provided to for contracts signed from 1 July 2019, increasing by 10% each year to provide a 50% discount from 1 July 2023.

Should you require assistance or advice regarding these proposed changes, please contact Rob Warnock or Patrick Cussen.

By |July 31st, 2019|News|0 Comments

ATO Attack on Rental Property Expense Claims

We have recently helped a number of taxpayers who have had their rental property deduction claims queried, and often disallowed, by the ATO.

The property is usually in a ‘holiday town’ and is advertised as being available for rent all year but is also occasionally used by the taxpayer and their family to stay in. The taxpayer’s use is usually only a couple of weeks each year.

The ATO argues that the taxpayer is only allowed to claim deductions for interest etc. up to an amount equal to the actual income derived. So if the property is actually only rented out for 6 weeks and derives rent of $3,000 then the ATO says the taxpayer is only allowed to claim deductions of $3,000. This is despite the fact that the property was available for rent for 50 weeks of the year (the taxpayer staying in it the other two weeks).

The ATO argues that the property was not genuinely available for rent even though it has been advertised on the internet and listed with a real estate agent. The ATO tends to rely on very old Board of Review and Administrative Appeals Tribunal cases that have different facts to support its view. But other, more recent cases, indicate that provided the property is available for rent (e.g. listed with a real estate agent for rental) then the expenses incurred can be claimed for that period as well as for the period the property was actually rented out.

We believe the ATO is taking too harsher stance in these circumstances. The cases the ATO relies on arose in the pre-internet era. We reject the ATO’s view that advertising a property on the internet is not sufficient for the property to be genuinely available for rent. Hopefully there will be a test case in the near future.

 

If you or your clients need help in challenging the ATO’s disallowance of expenses, or in responding to the ATO’s position paper, please contact Rob Warnock or Patrick Cussen on 1300 267 529.

 

Below is a link to the ATO’s website page ‘Focus on holiday home rentals’

https://www.ato.gov.au/media-centre/focus-on-holiday-home-rentals/

 

By |June 6th, 2018|Uncategorised|0 Comments

Changes to Small Business CGT Concessions

A bill containing changes to the Small Business CGT Concessions (‘SBC’) has now been introduced into Parliament. It is Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018 (Cth) (‘the Bill’). According to the Bill, when passed, the changes will apply in relation to CGT events happening on or after 1 July 2017. That is, the changes are retrospective.

The first thing to note is that the changes only apply where the asset being sold, or in respect of which the CGT event happens, is a share in a company or an interest in a trust (e.g. a unit in a unit trust). If the CGT event happens in relation to some other type of asset the changes do not apply.

The changes were introduced to stop taxpayers accessing the SBC in certain unintended circumstances. Below you will find examples demonstrating the operation of these changes.

 

Example 1:

Bob owns 20% of the shares in Bigit Pty Ltd, a private company that develops and sells special IT systems to banks. The company’s market value is $50,000,000 and so Bob’s shares are worth $10,000,000. Bob does not work in Bigit Pty Ltd, he simply invested in it when a few friends started it up and has seen his investment grow. If Bob sells his shares he will make a very large capital gain. He would not be entitled to the SBC as he would not be able to satisfy the basic conditions.

 

Example 2:

Bob is an accountant employed at a mid-sized accounting firm. Bob decides he wants to run his own practice and, so, buys a small accounting practice which has an annual turnover of $300,000. 8 months later Bob sells his shares in Bigit Pty Ltd and makes a $10,000,000 capital gain. Under the current rules Bob can now apply the SBC to this gain. Bob is a small business entity under section 152-10(1)(c)(i) of the Income Tax Assessment Act 1997 (Cth) (‘the ITA Act’). The shares satisfy the active asset test because at all times the 80% test in section 152-40(3) of the ITA Act was satisfied. Bob is a CGT concession stakeholder in Bigit Pty Ltd and so the additional basic condition in section 152-10(2) of the ITA Act is satisfied.

 

Under the changes in the Bill, section 152-10(2) of the ITA Act is being replaced so that where shares or units are sold additional conditions must be satisfied before the taxpayer can access the SBC. In addition to the current requirements the following applies:

  • a modified active asset test must be satisfied;
  • if the taxpayer does not satisfy the maximum net asset value test then the taxpayer must be carrying on a business just before the CGT event; and
  • the object entity (i.e. the company or unit trust in which the taxpayer owns shares or units) must also satisfy a modified MNAV test or small business entity test.

Thus, in the above example, as Bigit Pty Ltd is not a small business entity and cannot satisfy the MNAV test, Bob will not be eligible to apply the SBC to the gain made on the sale of his shares.

 

Unfortunately the changes will deny some taxpayers from applying the SBC in circumstances in which arguably they should be allowed to apply them. For example, where a shareholder owns 25% of the shares in a company that has a net value of $10,000,000 and a turnover of $3,000,000, and that shareholder wishes to sell their shares.

So, if a taxpayer now wishes to sell shares in a company or an interest in a trust and apply the SBC, the proposed changes must be carefully worked through to see if the new additional conditions can be satisfied.

 

Should you require assistance or advice regarding these proposed changes, please contact Rob Warnock or Patrick Cussen.

By |May 24th, 2018|Uncategorised|0 Comments