A year of tax changes (but wait, there’s more!)

The world of tax is never dull – it never stands still long enough for that. By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

Of the two certainties in life (death and taxes), the laws of the last are undeniably capricious.

As 2007 draws to a close, in our prosperous and growing economy, it’s timely to think of those less well off than ourselves. Those:

• With poor tax records, making for tax time hell around 30 June.
• With unpaid tax bills with the taxman or his debt collector knocking on the door.
• Who bought that new building or sold that business and then checked with their accountant or tax adviser.
• Who still haven’t lodged last year’s (that is, the year ended 30 June 2006) tax return.
• The list goes on….

Now what about that Christmas tax wishlist. What would you like to see under the tree?

• Less red tape.
• Less red tape.
• Less red tape.
• Genuine simplification of tax rules affecting SMEs, for example, GST and BASs.
• Less frequent change, so you can at least get your head around the latest tax changes before more come along.
• …This could also turn into a very long list, although satisfaction of the first three points would go a long way towards easing the tax burden.

With the Christmas party season in full swing, SMEs should also not forget about the possible FBT implications that can flow from this. For example, for this year, the increase in the minor benefits exemption from $100 to $300 generally means that Christmas-time entertainment up to a value of $300 per employee is exempt from FBT. Although it should be remembered that the $300 limit applies to each benefit provided. Also, if the entertainment or gift is exempt from FBT, it will not be deductible for income tax purposes.

At Christmas time, if an employer provides a good bottle of wine or a store voucher to each employee, provided the value is below $300, it will generally be exempt from FBT.

Where the employer provides such a gift at a Christmas party for employees, the gift and the value of the party are each considered separately for FBT purposes. If each is below $300, they will generally be exempt from FBT.

Note however, if the employer is in the habit of regularly giving gifts to employees, the FBT situation might change. Regular small benefits such as those provided under an employee incentive scheme are generally not exempt from FBT.

More tax changes to come

The new year will bring with it the first parliamentary session of the new Federal Government. While reports abound of a “razor gang” making substantial cuts to government expenditure, tax changes will certainly feature prominently. Labor has already said it will introduce a “BAS Easy” option for reporting GST – see my 29 November column.

In addition, there are many changes to tax laws that were announced by the former Coalition government that had not been introduced as bills in Parliament when the election was called – so-called “legislation by press release” measures. While established practice and conventions suggest the new Government will likely proceed with these, Labor has yet to make its intentions known. It will be important to stay aware of these proposals, as many are relevant to SMEs, for example:

• A 2007-08 federal budget proposal to align the PAYG payment and reporting requirements with the annual payment and reporting requirements for taxpayers who are voluntarily registered for GST – proposed to apply from 1 July 2008.
• A review of unlimited audit periods. A discussion paper released in August 2007 examines the need for amendment periods beyond the standard time, and proposes a number of alternatives to limit taxpayers’ exposure if additional time is required. These proposals are designed to significantly reduce taxpayers’ exposure to the risk of amended assessments.
• To reduce uncertainty, the rules allowing the recoupment of company losses are to be amended.
• Amendments to ensure a more consistent tax treatment of amounts misappropriated by an agent. Currently, amounts misappropriated by an agent may reduce tax liabilities only in limited circumstances. The tax law allows a deduction for a loss incurred by a business through the misappropriation, theft or embezzlement of money by an agent, provided the money is included in the business’s assessable income. However, there is no offsetting adjustment available where an amount misappropriated by an agent arises from the disposal of a depreciating asset or a CGT asset. The proposed amending legislation is designed to extend the recognition of misappropriated amounts to calculations made under the uniform capital allowance and CGT regimes.

Some “certainties”!

Certain to continue in 2008 is the tax office’s attention to tax issues that affect SMEs. You can be sure to see action on matters like the cash economy, unpaid tax bills, FBT issues (for example, regarding company cars), superannuation (especially self-managed super funds), selling a business (and disposal of assets generally), record keeping, lodging returns on time, accounting for CGT, and correctly claiming losses. The world of tax is never dull – it never stands still long enough for that!

There might well be two certainties in life – death and taxes – but a third readily springs to mind; ever changing tax laws! A new government, a new day, but still we will have copious changes in the tax laws. The more things change…..

In closing for 2007, I would like to wish readers of my column a very happy Christmas and prosperous (and less taxing) 2008. Rest assured, there will be more tax issues to talk about in the new year.

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.

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