Recent ATO Updates - 9 November 2017
When Does A Company Carry On A Business? ATO Releases Guidance
The ATO has released draft Taxation Ruling TR2017/D7 Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? for consultation. This draft Ruling provides guidance on when a company carries on a business within the meaning of section 23AA of the Rates Act.
A company will be a “base rate entity” under section 23AA if it carries on a business and meets the aggregated turnover requirement. For the purposes of section 23AA, “business” is defined in the income tax law to include “any profession, trade, employment, vocation or calling”, but excludes “occupation as an employee”.
The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that “Limited” and “No Liability” companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit.
The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company’s business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.
A variety of examples are included in the draft Ruling to assist in understanding when a company may be “carrying on a business”.
| Note! |
| The issue of whether a company is ‘carrying on a business’ is relevant under the current law. However, if the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 becomes law, the draft Ruling will not be relevant from 1 July 2017 going forward. Contact us to discuss whether your company may be eligible to access the lower company tax rate. |
Small Business Tax Concessions At A Glance
The ATO has prepared a table that is available on their website which sets out at a glance all the tax concessions that may be available to small businesses. These include:
- simplified depreciation rules (eg the instant asset write-off, accelerated depreciation for primary producers);
- eligibility for the lower company tax rate;
- PAYG instalment concessions;
- simplified trading stock rules;
- simpler BAS;
- accounting for GST on a cash basis; and
- the various small business CGT concessions.
We will be able to assist you to work out which of these concessions your small business may be entitled to.
Tax Consequences Of Trust Splitting
The ATO is developing guidance in relation to the tax consequences of trust splitting arrangements.
A trust splitting arrangement occurs when separate trustees are appointed over different assets of an existing discretionary trust. Each trustee is typically controlled by a different party.
The intention of trust splitting is to produce a structure where each trustee is able to deal with the assets it holds independently of the other trustees. In particular, the trustee is able to deal with the assets largely for the benefit of the controlling party.
If you hold assets through trusts, this ATO guidance may be relevant to you. Contact us if you want to discuss whether splitting your trust is right for you.
Lump Sum Payments For Healthcare Practitioners
If you are a healthcare practitioner, you may receive a lump sum payment when starting or amending an agreement with a healthcare centre operator. The ATO is concerned that some healthcare practitioners may be incorrectly treating these payments as proceeds from the disposal of a capital asset. This may result in underpayment of tax and expose you to later tax adjustments and penalties.
| To do! |
| If you have received one of these payments, talk to us to make sure you treat it correctly for tax purposes. |
Industry Assistance Payments To Taxi Licence Holders
The ATO is providing assistance to taxpayers who hold a taxi licence (including a car hire licence). If you hold a taxi licence (including a hire car licence) and you receive an industry assistance payment from your State Government in relation to the licence (excluding a licence surrender payment), it is probably not a capital receipt. It’s more likely to be ordinary income. There are no GST consequences. More guidance can be found on the ATO website.
FBT: Uber Case: Definition Of ‘Taxi’ – ATO Technical Discussion Paper
In light of the recent Federal Court decision in Uber B.V. v Commissioner of Taxation [2017] FCA 110 and certain proposed changes to licensing regulations in a number of states and territories, the ATO has released Technical Discussion Paper TDP 2017/2 ‘Fringe Benefits Tax – Definition of Taxi’.
TDP 2017/2 considers the definition of ‘taxi’ contained in the Fringe Benefits Tax Assessment Act 1986 (Cth) and the exemption from FBT for taxi travel undertaken to or from work or due to illness.
The purpose of this paper is to facilitate consultation between the ATO and the community as part of the process of developing advice on the application of the FBT law. The ATO advises that all views in this paper are preliminary in nature and should not be taken as representing either an ATO view or that the ATO will take a particular view.
9 November 2017
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.