Gotsis Rubic & Barbariol, tax accountants Sydney, see a number of target areas of focus for the Australian Tax Office (ATO) in 2010/11 as follows:

Cash Economy

The ATO is focusing their attention on cash economy hotspots, business to consumer transactions and those whose lifestyles do not match the income they report or whose businesses continue to operate with income levels below what would be expected. Business sectors attracting the ATO’s attention include the home renovations sector, some sections of the retail industry such as small value, high turnover retailers and certain sections of the hospitality industry, particularly those establishments offering lower cost products.

The ATO have developed industry benchmarks for more than 100 industries to identify those businesses that may be avoiding their tax obligations by not reporting some or all of their income. In addition the ATO are identifying additional sources of data to match with information supplied in the tax return and business activity statements, such as records of luxury car purchases and tying those purchases back to the taxable income declared.

An additional $107.9 million over 4 years will be provided to the ATO to address small businesses that use cash transactions to avoid tax.

Work Expense Claims

The key work expense claims subject to the ATO’s focus include:

• insufficient documentation available to support motor vehicle and travel expenses;
• claiming for the living-away-from-home allowance when the claimant does not qualify for the allowance;
• home offices, mobile phone and internet expenses.

We remind all clients to ensure they have appropriate documentation supporting their work expense claims. In some instances, this would include documentation in addition to the relevant receipts and invoices. For example, if a motor vehicle is used for both private and work purposes, car logbooks and odometer records should be kept in order to deduct the work related portion of motor vehicle expenses under the logbook method.

Payment of Superannuation Guarantee

One of the ATO’s key priorities is to ensure that employers meet their superannuation guarantee obligations. Industries identified by the ATO as being at high risk of not meeting their superannuation guarantee obligations include the road freight transport, automotive repair and electrical services industries. Employees identified by the ATO as being non compliant will need to pay the additional superannuation guarantee together with additional interest and penalties. In this regard we note that the late payment of the superannuation guarantee (i.e. payments made after the 28th day of the month following end of the quarter to which those payments relate to) are not tax deductible.

Rental Expenses

There are three expense items in the rental statement that the ATO will continue to pay attention to.

• Interest: Only interest on that part of the investment loan that relates to the investment property is deductible and only for that part of the year that the property was rented or available to be rented.
• Repairs and Maintenance: Expenditure that relates to renovations or improvements is not an income deduction but it may be a depreciable expenditure.
• Capital Depreciation Allowance: To be able to claim 2.5% of the cost of a building you must have an appropriate depreciation report from the Developer or from a Quantity Surveyor

Executives and Directors

The ATO are focusing their attention on executive and director remuneration payments, including checking that shares and options received as remuneration are correctly reported. For the 2010 year, there are new rules relating to the timing of the assessability of the discount received under the employee share or option schemes.  In brief, all discounts on share and options provided under an employee share scheme will now be assessed in the income year in which they are acquired, whether they are qualifying or non qualifying. The ability to defer taxation of the share or option may arise where there is a real risk of forfeiture of the share or option. New disclosures have been included in the 2010 tax return following the tax changes in this area.

Offshore Transactions

ATO are using data matching facilities and information from overseas tax offices and financial institutions to identify unreported foreign income. Audits will be directed to those taxpayers where there are discrepancies identified in the matched data.

Self Managed Superannuation Funds

Given the concessional tax treatment applied to self managed superannuation funds, the ATO are working on ensuring high levels of lodgement compliance, with a particular focus on regulatory matters such as loans, in-house assets, borrowings and arms-length transactions.

“Gotsis Rubic & Barbariol look after all of our personal and business tax and accounting matters including GST, PAYG, Workers Compensation and BAS.

They have also provided important property investment advice. I am very happy with their services. They are an experienced and professional team and are up-to-date on all of the latest tax developments.

Their expertise and timely advice has been extremely valuable to us and our business”.

Silvanna

Client Problem
Due to the lack of sufficient space in one of our client’s businesses, they decided they needed new larger premises. There was some concern among the Directors of the business as to whether they should rent a larger facility or purchase their own facility, either in the company’s name or the Director’s name. They came to tax accountants Sydney, Gotsis Rubic & Barbariol, to consider the options available to them.

Tax Effective Recommendations

In order to reduce their overall tax liability, the Directors followed the tax saving recommendations provided to them by Gotsis Rubic & Barbariol. They created their own Self-Managed Superannuation Fund (SMSF) and sought to acquire a facility that had the space needed for their business.

The Directors took the funds they had in external superannuation funds and rolled them over into the newly created SMSF. By doing so, the SMSF had the funds needed for a deposit to purchase the property needed.

A Custodian Company was created in order to meet the SMSF regulations. This company then acquired the property on behalf of the SMSF.

Real Tax Benefits
Rent is now paid by the parent company into the SMSF (as the beneficial owner of the property). The parent company sees a tax deduction benefit in the rents paid, which is equivalent to a 30 year saving. The SMSF is only taxed at 15% for the rent received; thus there is an immediate 15% tax savings. An additional benefit to this is that it allows the Directors to build up their assets for retirement. As a member of the SMSF, once the Directors reach the age of 60, they are able to make withdrawals from their SMSF, completely tax-free.

Client Problem
A client that had sold an investment property that netted them a Capital Gain in excess of $1.6 million approached business accounting Concord firm, Gotsis Rubic & Barbariol. They were enquiring as to whether there are provisions in the tax laws that they could take advantage of in order to reduce their tax liability to Capital Gain.

Tax Effective Recommendations

Once we had completed a thorough examination of the history of the property that had been sold, including its usage during the years they owned it and other pertinent factors, our clients were stunned when we gave them the results that would effectively reduce their Capital Gains Tax to zero.

• The first thing that helped our clients was that being individuals and having had ownership of the property for more than a year they were entitled to a 50% concession on the Capital Gain.
• The second thing was the remaining 50% concession on the balance, as our clients met the “active asset” test.
• And finally, our clients had no tax liability of any kind on the Capital Gain as they were entitled to take advantage of the “used for retirement” provision.

Real Tax Benefits
No taxes were due and payable by our clients on a Capital Gain of more than $1.6M. What surprised our clients the most was that, as they said, there were no tax schemes, no complex arrangements, etc. To put it simply, the appropriate tax recommendation given by tax accountants Concord, Gotsis Rubic & Barbariol, allowed them to take advantage of the tax law provisions and the Small Business Concessions.

Client Problem
A high net worth individual client was paying high tax rates. He approached Gotsis Rubic & Barbariol to consider his circumstances and advise him on to how to reduce his tax liability. The client was not very keen to acquire shares as he felt that he would have no control over his investment in this area. He wanted to start building up his assets but in such a way that he remained in control of his investments.

Tax Effective Recommendations

Following a detailed review of our client’s circumstances, his goals and aspirations, the client decided to buy a block of land on which he could build an investment property. His builder advised him that it may take two to three years for the property to become income-producing.

Real Tax Benefits
The interest, however, would be tax deductible to him from the time he took out the loan to buy the land, even though he did not receive any income from the property for some years. He was then able to reduce his tax liability, substantially, by deducting the loss on the property from his employment and other income.

Client Problem
Our client was expanding and their existing premises did not have sufficient space for its operations. The Directors were considering whether to rent out larger premises or buy new premises either in the company’s name or in the Director’s name. They approached us to consider these and other options.

Tax Effective Recommendations

Following the tax advice provided by Gotsis Rubic & Barbariol, the Directors agreed to acquire premises with sufficient space for their operations and to create their own Self-Managed Superannuation Fund (SMSF) in order to reduce their overall tax liability.

The Directors rolled over funds they had in external superannuation funds into the newly created SMSF. Their SMSF now had enough funds for a deposit to buy a suitable property.

In order to meet the SMSF regulations, they created a Custodian Company which acquired the property on behalf of the SMSF.

Real Tax Benefits
The family company now pays rent into the SMSF (as beneficial owner of the property). The rent paid is tax deductible to the family company which is equivalent to a 30 year saving. The rent received by the SMSF is taxed at 15% only, thus there is an immediate 15% tax saving. This also enables the Directors to build-up their assets for retirement. When the Directors reach the age of 60, as members of the SMSF, they may withdraw, absolutely tax free, funds from their SMSF.

Client Problem
Our client sold an investment property and made a Capital Gain in excess of $1.6M. They approached Gotsis Rubic & Barbariol to determine if there were any provisions in the tax laws that they could take advantage of to reduce their tax liability to Capital Gain.

Tax Effective Recommendations

Following our detailed examination of the history of the property sold, its usage during the years it was owned by them, and other relevant factors, our client could not believe their luck when we presented them with the results that they could reduce their Capital Gains Tax to zero.

Firstly our clients, being individuals and having held the property for more than 12 months were entitled to a 50% concession on the Capital Gain.

Secondly, there was another 50% concession on the balance as our clients met the “active asset” test.

Finally, our clients had no tax liability, whatsoever, on the Capital Gain as they were entitled to take advantage of the “used for retirement” provision.

Real Tax Benefits
So, out of a Capital Gain of more that $1.6M, no tax was payable by our clients. The surprising thing to our clients about this result was, as they said, there were no complex arrangements, no tax schemes, etc. Simply with the appropriate tax advice given by Sydney property investment accountant Gotsis Rubic & Barbariol, they took advantage of the tax law provisions and the Small Business Concessions.

I have found Gotsis Rubic & Barbariol to be outstanding! They are responsive, professional and have demonstrated, on many an occasions, their deep knowledge about accounting and tax matters.

Mr Gotsis listens to our needs, is accessible and has provided invaluable advice that has greatly helped our business.

Gotsis Rubic & Barbariol look after all of our personal and business accounts and provide financial and tax advice. They offer timely information and easily meet all deadlines. I am extremely happy with their service.