October 2012 Newsletter

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Welcome to the October newsletter, in this newsletter we will discuss:

  • Super and PAYG Withholding liability obligations on directors
  • Important ideas before the May 2013 Budget
  • New Estate planning rules
  • Tax issues on renovating your home ? Using the Margin Scheme to reduce the GST liability on the sale of a property.

Super and PAYG withholding liability obligations on Directors

It is important that you are aware of the super and PAYG withholding obligations that you as a Director may be liable. Please read the important information below:

  • Directors are now personally liable for their company’s failure to pay employees superannuation by the inclusion of amounts owing under the Superannuation Guarantee Charge (SGC) rules in relation to the Directors Penalty Notice regime. This is extremely important as a Director is not able to evade liability;
  • The ATO is now able to make a reasonable estimate of unpaid SGC where a company fails to meet its reporting obligations;
  • The ATO is able to commence recovery procedures where a company fails to comply with its reporting obligations for a period of more than 3 months. This means BAS’s should be lodged on time;
  • Directors will be personally liable for PAYG withholding debts existing at that date which have been unreported and unpaid for more than 3 months. This cannot be extinguished by the appointment of a voluntary administrator or liquidator. Nor will the lodgement of the outstanding Business Activity Statement remit the penalty for PAYG withholding which was unreported for 3 months or more; and
  • Restriction of access for Directors and certain associates to PAYG withholding credits where the company has failed to remit the PAYG to the ATO. This means the tax refund is reduced for a Director can be reduced if the PAYG withholding remains unpaid.

Important ideas before the May 2013 Budget

There have been numerous discussions in the media that the Government may change the Superannuation rules. We suggest the following to minimise any risk with your SMSF:

Make any Non Concessional Contributions before May 2013, this may also mean putting in $450,000 before the Budget. Please speak to the relevant Partner to assist you with this. We can also assist you with structuring advice on how you can tax effectively make this contribution so speak to us for assistance.

Withdraw the minimum Pension requirements before May 2013. You may also want to start a new Pension to ensure you can maintain a tax effective income stream so please speak to the relevant Partner for assistance on your personal matters.

New Estate planning rules

The Government has announced that if your SMSF is paying a Pension and you die then there will be no Capital Gains Tax implications on the assets that are subsequently transferred out of your super fund by your family. This is most likely to occur when no one is able to continue the Pension such as leaving your SMSF balance to adult children. If you have a spouse you can transfer the pension to them and in this way the assets can remain in the SMSF. The ATO previously stated that there would be Capital Gains Tax when the assets are transferred to your family from your SMSF but the Government has stated that this will no longer cause a Capital Gains Tax issue. Please note that there may be tax to your children on the taxable component of your SMSF balance but we can help you to reduce this if you require further assistance please contact us on this matter.

Tax issues on renovating your home

With so many building renovation shows on TV, you may wonder what the tax implications for you are if you plan to build or renovate a new home.

You are given up to four years to live away from the land that you purchased to build a new home and be able to sell your new home tax free. The same rule applies if you demolish an existing property and construct a new property on the same piece of land; you are given up to four years to do this.

You can also live in a property and then decide to demolish and replace it or just to renovate it; you have up to four years to construct/renovate the property from the time that you move out. The original property that you lived in is not allowed to be rented out in order to maintain the tax free status for the new property that has been constructed.

While you are constructing the property, there may be land tax if you are living in a property that you own during construction. Therefore, you may want to rent out a property that you do not own during the construction phase to minimise any land tax problems.

Once you have built your new home, you must move into it as soon as possible to utilise its tax free status.

Problems may arise if you bought the land and someone is occupying the land already. The tax free exemption only starts from the day that they vacate.

Using the margin scheme to reduce the GST liability on the sale of a new property

If you sell a new residential property then GST will apply on the sale. This is particularly important if you develop a block of apartments or if you demolish a house and build 2 townhouses. However, this can be reduced by using the margin scheme. The margin scheme is basically:

1/11 x (sale price less the cost price of the property)

You should also be aware that if you purchased the property before 1 July 2000, then the GST liability is calculated as:

1/11 x (sale price less the market value of the property when the SMSF was registered for GST)

In order for you to use the margin scheme, you must be registered for GST and in the sale contract it is important to ensure that your lawyer states that the margin scheme applies and that there is a written agreement with the purchaser to apply the margin scheme.

You cannot utilize the margin scheme if the property was purchased with GST included in the cost price and the GST was not calculated using the margin scheme. Also, you cannot use the margin scheme if:

  • The property was purchased as a GST-free supply, e.g. it was the sale of a going-concern;
  • The seller of the property had acquired the property where GST was included in the cost price; and
  • GST was calculated without applying the margin scheme.

You are entitled to claim GST credits on all the construction costs during the construction phase and this will help with funding the development.

In certain circumstances we suggest that you defer in applying for GST under the DA approval to mitigate any market value uplift and this means a lower GST liability when the property is eventually sold.

We hope you have enjoyed the article and please contact us if you require any assistance.

Disclaimer - The material contained in this newsletter does not constitute advice. DPL 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.


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The Loewy Consulting Partners team always provides excellent, understandable and timely service in a professional manner.

Steven Rom
CEO Avstev Group, Raymond Weil, Girard-Perregaux, Frederique Constant