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Tax News and Updates February 2023


Importance of paying ASIC fees on time for a SMSF


It’s very important for directors of corporate SMSF trustees pay the annual ASIC review fee on time, or risk deregistration of the company by ASIC.


If the trustee company is deregistered, this will have serious consequences for the SMSF, including the now former directors will no longer have the right to deal with fund assets.

Also SMSF assets held by the corporate trustee will vest in the commonwealth represented by ASIC.


Importantly the SMSF will no longer be able to accept any contributions or member benefit rollovers.


Whilst the director (s) can apply to ASIC to have the company subsequently reinstated, this will be a time-consuming and costly exercise process. And once the company is reinstated, the SMSF will have to claw back the fund assets that were vested with ASIC.



Impact of downsizer contributions on contributions caps


Downsizer super contributions are one-off contributions individuals can make if they sell their home and meet a range of conditions (such as having owned the home for at least 10 years and never having used the downsizer rules before. The amount that can be contributed is up to $300,000 for an individual, or up to $300,000 each in the case of couples.


From 1 January 2023, individuals aged 55 or older you can make this type of contribution into their super fund. There is no upper limit on the age at which a downsizer contribution can be made.


A downsizer contribution doesn’t count towards any of the contribution caps and will not affect an individual’s “total superannuation balance” (TSB) until it is recalculated at the end of the financial year.


However, downsizer contributions will count towards the transfer balance cap. This cap applies when all or part of an individual’s super balance is allocated to the retirement phase and will be considered for determining eligibility for the age pension.


Note that downsizer contributions are subject to the preservation rule. This rule keeps super locked up until retirement, or the individual satisfying a condition of release such as turning age 65.



AAT case on GST registration – no evidence taxpayer was carrying on an enterprise


On 11 November 2022, the Administrative Appeal Tribunal (AAT) in Chami and Commissioner of Taxation [2022] AATA 3797, found that a taxpayer was unable to show that he was carrying on an enterprise and was therefore not entitled to a GST refund.


In his BAS for the quarter ended 31 December 2021 (allegedly in his first year of operations), the taxpayer recorded purchases of goods and services totalling just over $415,000 and sales of just over $25,500. This led to a substantial GST refund. Following an audit, the ATO determined that the taxpayer was not carrying on an enterprise for the purposes of the GST Act and therefore he was not entitled to the refund.


The AAT agreed with the ATO. The taxpayer claimed that there were no written contracts, he conducted his business solely in cash and any invoices and written correspondence he had were lost in a flood, along with a quotes workbook and a laptop containing electronic information. However, he made no attempt to obtain substitute documents or reconstruct records and he failed to provide particulars of any transactions to support the amounts reported in the December 2021 quarter BAS. Nor was there any independent evidence that the taxpayer was carrying on a business.


This case highlights the importance of keeping proper records not only for income tax purposes, but also to substantiate GST claims.



AAT case on CGT small business concessions - multi-dwelling property is not an active asset


In Del Castillo v FCT [2022] AATA 4233, the AAT has upheld an objection decision in which the Commissioner held that a taxpayer who developed and rented out multiple dwellings on the same block of land was not entitled to claim the small business capital gains tax (CGT) concessions in respect of the property's subsequent sale on the basis that it was not an active asset. This was because the block fell within the exception in section 152-40(4)(e), as it was an asset which was mainly used by the taxpayer to derive rent.


Conversely, where a taxpayer runs their business from premises they own, or the premises are owned by a connected entity or affiliate from which the business is run, then subject to meeting the conditions, the CGT small business concessions may be claimed by the relevant taxpayer on selling the premises.



Complexity of CGT small business concessions


The capital gains tax (CGT) small business concessions on the sale of a business, or the shares or units in an entity, are a very complex area of tax law with so many issues that need to be considered and worked through.


You have to firstly apply the basic tests (e.g. the $6 million assets test and the turnover test) and also assess whether the retirement exemption or the 15 year exemption is to be claimed. The concessions get even more complicated when a company and/or trust is involved as there are additional tests that needs to be satisfied. Also the concessions can apply differently depending on whether the assets are sold or the shares or units in a company or trust that owns the asset. Then if any amounts are to be paid into super, there are various timing rules and elections that need to be prepared. Specialist advice should always be obtained in relation to these concessions.



Recordkeeping requirements for working from home deductions under revised fixed rate method


In order to claim a deduction under the new "revised fixed-rate method" of multiplying hours worked at home by 67 cents per hour, then according to the ATO, taxpayers must keep actual records of the time worked from 1 January 2023.


The ATO has made it very clear that it will not accept estimates of the time worked.

Taxpayers should ensure that they keep an Excel spreadsheet or physical diary to record the actual hours they are working from home.



Disclaimer


This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.


We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.


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