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ATO Penalty Changes

The ATO, courtesy of a legislation change in a bill passed in November, now has the power to levy vastly increased penalties against taxpayers for the late lodgement of forms. These are known as Failure To Lodge or FTL penalties.

They're levied in blocks of 28 days or part thereof (referred to a penalty unit) up to a maximum of 5 penalty units. The value of a basic penalty unit has been increased from $110 to $170, with multiples of the unit applying depending on what size taxpayer the ATO deems you to be.

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Valuation Issues with Property

Valuations are particularly important where CGT Small Business Concessions are being accessed, property is being transferred between related parties including into SMSF, company assets are being used by shareholders, and property putinto property development ventures.

Where a valuation is necessary, the taxpayer must satisfy the burden of proof that their valuation is acceptable and reasonable.  Simply disproving the Commissioner’s valuation is insufficient.  The taxpayer must go one step further and prove that their valuation is acceptable and reasonable in their particular circumstances.

In M & T Properties Pty Ltd v FCT where the taxpayers valuations were challenged by the ATO.

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Share Trading Business

The ATO are establishing distinctions between accounts held on capital, trading or revenue based on time periods held, number of trades etc.  A recent case highlighted that the GFC has impacted investors trading decisions which would normally change the classification of the investor.

The ATO has a comprehensive guidance on whether a taxpayer is carrying on a business of share trading: http://www.ato.gov.au/content/21749.htm

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Stronger Super

This program is being introduced by the Government in response to the Super System Review whic was announced in December 2010.

A SMSF Working Group has been established to introduce reforms in the following areas;

  • Registration of SMSF auditors;
  • ATO penalties;
  • Measures to improve information available on the sector; and
  • New processes and penalties to deter the use of SMSF's for illegal activities.
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Claiming self education expenses for Youth Allowance.

The recent win by a taxpayer in a case regarding self education expenses has ruled that taxpayers who receive Youth Allowance to study can claim their study costs as an expense.

The ATO will automatically amend eligible taxpayers up to a limit of $550 per year for the years ended 2007, 2008, 2009 & 2010.  Taxpayers will receive letters if they are eligible.  Taxpayers can claim for more than the $550 if they have receipts to substantiate the claims. 

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Capital Gains Tax

CGT events are taxed based on the contract date, however the event is deemed to have "happened" until settlement occurs.  Hence if settlement does not ever take place then regardless of the existence of a contract there is no CGT event.

The net asset test (currently $6m) is based on net assets excluding private assets "just before" the CGT event, though this can include costs which have not yet been paid.

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