Resident minors' effective 2010/11 tax-free threshold

The increase in the low-income tax offset to $1,500 for 2010/11 (from $1,350 in 2009/10) effectively means that $3,333 can be distributed to minors tax-free in the 2010/11 year.
Ordinarily, and excluding the offset, once a minor's income exceeds $1,307, the entire amount is taxed at 45%.
However, applying the low-income tax offset of $1,500 means that no income tax will be payable until the minor's taxable income exceeds $3,333, i.e., $1,500 divided by 0.45 = $3,333.

Source: AFA Wealth; www.afawealth.com.au

Hazards of property for SMSFs'

The ATO has warned that an SMSF holding property could be sued if someone is injured or dies because of faults in that property.The ATO provided a recent example of a property owner being held liable for the death of an electrician on their premises when replacing an old solar hot water system with a new one.
Therefore, if trustees own property in their SMSF, they should make sure they are aware, to the best of their ability, of any hazards on their property and, if any hazards do exist, they should have them fixed.
They should also consider having an insurance policy in the SMSF to cover the property and public liability.
Where the property was acquired with a limited recourse borrowing under with new borrowing laws, the ATO recommends that the trustees speak with their advisors on requirements for holding any insurance.

Source: AFA Wealth; www.afawealth.com.au

Development basics

Not a promotion for Metricon, but their Q&A answers a lot of basic development questions.

http://www.metricon.com.au/victoria/multi-dwelling-developments/dual-occupancy/buying-guide/3/default.aspx#q35

Mortgage Ezy promotes broker-only product

Mortgage Ezy has released its broker-only 6.19% uQUIT Variable Term Loan that features a 0.20% rate reduction off the standard wholesale pricing.

The uQUIT Variable is available as either a professional pack which features no application or valuation fees or a zero ongoing fee option at the same rate.

“This is one for the true believers and even hard core mortgage manager sceptics would find it difficult not to see the value this solution enables them today," CEO Garry Driscoll said.

After providing a pre-brief to selected distribution partners Driscoll expressed high confidence that the uQUIT variable program would fit well with traditional bank-aligned brokers “particularly because of the amount of control Mortgage Ezy has in the lending process with our inhouse delegated lending authority supporting a very attractive mum and dad type facility at a sharp rate”.

The uQUIT Variable release ties in with Mortgage Ezy’s aggressive uQUIT “bank replacement treatment” marketing campaign which specifically challenges brokers to take control of their own business and look for viable lending alternatives to the majors.

Head of sales and marketing Chris Wisbey said “the uQUIT Variable is aimed directly at benefiting Mortgage Ezy business partners because it’s a damn good, low cost quality solution that ticks all the important boxes for a borrower and enables our partners to maintain a level of control unheard of with a major bank”.

To find out if you are eligible for the 6.19% uQUIT Variable Term Loan, email your enquiry to tripleearthloans@gmail.com or dial(03) 8080 5901 today.

Should I register for GST for a once-off development?

It is important in determining whether an entity is an entity making taxable supplies and has to register for GST purposes. Note the Commissioner takes the view in GSTR 2001/7 that a taxpayer who is not otherwise registered for GST but undertakes a one off property development will be required to register and pay GST on the proceeds of that transaction - where an entity engages in acquiring a single asset for resale at a profit the activity, for GST purposes, is considered an "enterprise" as an activity in the form of an adventure in the nature of trade. The issue of Mum and Dad owning a farm or a second property long term and then deciding to sub divide and whether this requires GST registration and accounting is one which is ripe for litigation.

source:
Peter Gell (28 October, 2006)
http://www.rockliffs.com.au/article.asp?ID=7148

Who can be trustee of an SMSF?

Humans are Trustees

If you want a human Trustee, all members of the SMSF must also be Trustees. You can't pick and choose between members - it's all or nothing.

A company is Trustee (a Corporate Trustee)

If you have a Corporate Trustee, all of the members must be the Directors of the Company and all of the Directors must be members of the Fund. The Corporate Trustee carries out its role as a Trustee of your superannuation fund just the same as you as individuals do.

If you are the only member of your SMSF, special rules apply.

What if I am the only member of my SMSF?

If you are the only member of your SMSF, you need a company as your Trustee. If not, then you need another unrelated person to act as your second Trustee. You can't be the only member and only Trustee.

The company acting as Trustee abides by special rules. You must:

·       Be the sole director of the Trustee Company; or
·       Be related to the other director of the Trustee Company (where there are only two directors of that Company); or

·       not be an employee of the other director of the Trustee Company (where there are only two directors of that Company).

Therefore, there are limited circumstances for a sole member with a Company as the Trustee to have a second director. This is the case even though that second director is not a member.

Source: law central

Interest deduction allowed on loan for units in a hybrid trust

The Full Federal Court has held that a taxpayer was entitled to a deduction for interest incurred on a loan taken out to acquire units in a hybrid trust.

It's an interesting case because the taxpayer's units entitled him to ordinary income of the trust, but capital gains could be distributed to other beneficiaries on a discretionary basis.

The technical details related to certain standard clauses in the deed (and in most hybrid trust deeds) granting the trustee the power to decide whether amounts received should be considered to be derived on income or capital account.

The Tax Office alleged that power made the deed a discretionary trust, meaning that the taxpayer would not be able to claim interest on the loan he took out to buy the units.

The Court rejected the ATO's assertions and allowed the taxpayer to claim the interest as the power in the deed merely allowed the trustee to allocate amounts between income and capital.

Source: AFA (www.activefa.com)

Implication of Bamford case on Trust capital gain

March 30 2010 is a landmark day for trusts in Australia. The High Court released its decision for Bamford v FCT [2010] HCA 10.

Why is Bamford so important anyway?

This is the first time the High Court has considered two of the most important concepts in trust law:
1. A 'share' (the Bamfords appealed this); and
2. The definition of 'net income' (the ATO appealed this).
These concepts are central to lodging trust tax returns and making trust distributions.

What did the High Court say?
The High Court upheld the Federal Court's decision Bamford v FCT [2009] FCAFC 66 in its entirety. The ATO lost their appeal about the definition of 'net income', and the Bamfords lost their appeal about how to calculate a 'share'.
Just for our beloved Platinum Members who have paid their $99 subscription, we decipher what you need to know after Bamford.

What does this mean for my Trust?
If you use a deed that is drafted with Bamford in mind, capital gains are taxed in the hands of the beneficiary. The Trustee is no longer taxed at penalty rates where there is no other income.
Bamford means that the beneficiary's liability is proportionate to either their fixed dollar or variable percentage of their interest in the income. If you don't have a Bamford complying deed, your beneficiaries may be taxed on income that is higher than what they actually receive.

source: law central

ATO comes down hard on monies owed to 'bucket' companies

By way of background, for many years now the Tax Office has accepted that trusts could make distributions to private companies but not actually have to pay the amount. These were called unpaid present entitlements.
These amounts were taxed in the hands of the company and the trustee was able to continue to use the funds for the benefit of all the beneficiaries.
The Tax Office has now reversed that longstanding view and issued a draft ruling that many see, at the very least, as contentious.
New draft rulingThe new draft ruling means that, generally speaking, where a trust does not physically pay out a distribution to a private company, the Tax Office will deem that a loan has been provided by the private company to the trust.Where that occurs, the amount owing under the 'newly created loan' may be treated as a dividend to the shareholders of the company.
"Carve-out" for existing unpaid distributionsHowever, distributions made before 16 December 2009 are not affected by the ATO's new interpretation, and will therefore not generally be treated as loans (or dividends).
Editor: We have not gone into the technical side of this issue which is quite complicated to the uninitiated. However, while we will be in contact with clients over the next short while, we recommend that any clients who may be concerned with how this draft ruling could affect them should contact our office.For what it's worth, this is a draft ruling and it is possible, but not likely, that the ATO will change its view. In addition, the Tax Office's position has yet to be tested in Court.

Source: AFA
www.activefa.com

tranfer assets into SMSF - to look into further

Land Tax - I note in passing that you are probably in Victoria or Western Australia. Both have a progressive land tax system - the more you have the higher the rate you pay. Therefore, it is worthwhile to move the assets out of mum and dad's names into a company as trustee. There is no transfer duty or Capital Gains Tax if Brett Davies Lawyers attends to the transfer for your Self Managed Super Fund.


Brett Davies Brett@taxlawyers.com.au Brett Davies Lawyers, 201 Adelaide Terrace, Perth WA 6000Direct (08) 9325 8033 Mobile 0419 980 972 General (08) 9325 7999 Fax (08) 9325 5999


Note: Reference only for further investigation. This is not an endorsement.