April 2012 Newsletter

Welcome to the April 2012 newsletter. In this newsletter we will discuss:

• Paying ATO liabilities using your credit card • Land tax planning for Unit Trusts

• Legal expenses to claim as a tax deduction

Paying ATO liabilities using your credit card

You are now able to pay your ATO liabilities using your credit card which may provide a cash flow benefit to you, this is discussed below.

To make a credit card payment you will need:

• a current Visa, MasterCard or American Express card

• your EFT code

• Use the Government EasyPay website or telephone service.

A card payment fee applies to transactions made using this service; the fee is GST-free and is equal to the fee the ATO incurs from its banker.

The fee is a percentage of the tax amount being paid, based on the type of card used and the fee percentage is indicated below:

Card type                     Fee
Visa/MasterCard        0.48%
American Express     1.25%

Card payment fee deductibility

You may be eligible to claim a deduction for card payment fees. The examples are discussed below:

• You incurred it as a result of paying an income tax liability and you did not borrow money from your card provider to make the payment;

• You incurred it as a result of paying a goods and services tax, fringe benefits tax, luxury car tax or wine equalisation tax liability, and that liability arose in the course of gaining your assessable income or business income;

• You incurred it as a result of making PAYG withholding payments where you can claim a deduction for the wages and salaries that gave rise to the withholding obligation;

• You incurred it as a result of repaying your student assistance loans and then only to the extent that the expenses you paid using the student assistance loans were themselves deductible;

• You incurred it as a result of repaying your employee's student assistance loan, the repayment is a fringe benefit, and the employee's wages are also deductible.

Tax payments between $10 and $50,000 will be accepted.

Government EasyPay - processing times

Your payment needs to reach the ATO before its due date. Transactions entered on a weekend, national public holiday or after 6pm Sydney time will be processed on the next business day. The Government EasyPay system allows you to make a credit card payment for ATO liabilities. The website is listed below for EasyPay:

https://www.optussmartpay.com/governmenteasypay-ato/

Land tax Planning for Unit Trusts

 If you own a property in a Unit Trust then the Unit Trust may be entitled to the tax free threshold for land tax which for the 2012 year is $396,000.

There are two possible ways for the Unit Trust to receive the tax free threshold:

1. The Unit Trust owned land on 31 December 2005, 95% of the units were owned by a family group and the taxable land value in the Unit Trust was worth less than $1 million on 31 December 2005, this is called a Family Unit Trust.

2. The Office of State Revenue treats the Unit Trust as a Fixed Trust.

The two options listed above are an important issue as the Office of State Revenue generally treats all Unit Trusts as being NOT being a Family Unit Trust or as a Fixed Trust so that they do not receive the tax free threshold, unless you apply for an exemption. By being a Fixed Trust or Family Unit Trust the Unit Trust can save $6,436 in land tax in the 2012 year by claiming the tax free threshold.

In order for the Unit Trust to be a Fixed Trust it must have the following in the Unit Trust deed:

• Unit holders have fixed entitlements to income and capital; and

• The trustee has no discretionary powers in the deed to amend or fetter the rights of unitholders.

If the Unit Trust is a Family Unit Trust or a Fixed Trust then the unit holders will have to pay land tax on their percentage holdings in the Unit Trust but they will receive a credit for the land tax paid by the Unit Trust. We can assist you in updating your Unit Trust deeds to minimize your land tax expenses in the Unit Trust.

Legal expenses to claim as a tax deduction

If you run a business you may have to use a lawyer for various business purposes. If you are a property investor you will also have to use a lawyer for various purposes. The information below will help you understand the tax implications when you pay various legal expenses so you know how it affects you from a tax perspective.

 Legal expenses that are deductible

The examples below help you understand when the legal expenses are tax deductible and help you reduce your personal or your business’s tax bill:

• Drawing up a lease or reviewing a lease agreement, registration or stamping of a lease, or assigning or surrendering of a lease. The deduction is available to the lessee or lessor

• Chasing bad debts

• Defending against unauthorised use a of a trademark

• Defending against patent infringement

• Defending against a misrepresentation suit in relation to sale of your business’s goods

• Defending against an employee’s personal injury claim

• Defending against libel action.

Legal expenses that reduce any capital gain

The examples below help you understand when legal expenses reduce any capital gain, this means that when an asset is sold it will reduce the tax liability on the sale of the asset:

• Purchase and sale of a property

• Purchase and sale of a business

• Purchase and sale of shares in a company or units in a unit trust

• Defending against an action brought by the purchaser in relation to the sale of an asset

• Establishing, preserving or defending your title to an asset, an example of this will be to defend against someone who does not believe that you should receive ownership in a property from a will.

 Deductible over 5 years

There are certain business expenses that are tax deductible over 5 years and they are:

• Establishing a company or a trust

• Liquidating a company

• Business restructuring advice.

As you can see not all legal fees are automatically tax deductible. This is important for you to know so that if you do have to pay for a large legal fee then you know the tax outcome for you and your business.

We hope you have enjoyed this article please contact us if you have any questions.

 Disclaimer – The material contained in this newsletter does not constitute advice. DPL & Co Pty Ltd is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.