ATO's 'main residence exemption tips'
The
main residence exemption needs to be considered in a variety of situations when
a taxpayer sells a property they have lived in.
The ATO hopes that the following tips will help in this regard:
- Taxpayers
should consider if they have started earning income from their home (in which
case they may need to get a market valuation for CGT purposes).
- When
renting out a property that was their main residence, taxpayers need to
consider whether to use the 6-year absence rule when they sell their
property.
- Taxpayers
can only have one property as their main residence at a time. The only exception is the 6-month period when
they move from one home to another.
- Has
the taxpayer's residency changed? If so,
this may affect eligibility for the exemption.
Reminder of June 2024 Quarter Superannuation Guarantee ('SG')
Employers
are reminded that employee superannuation contributions for the 1 April 2024 to
30 June 2024 quarter must be received by the relevant super funds by 28 July
2024 (which is a Sunday), in order to avoid being liable to pay the SG charge.
Notice of
Medicare levy exemption data-matching program
The ATO will acquire Medicare Exemption Statement data
from Services Australia for the 2024 to 2026 income years, including
individuals' full names, dates of birth, residential addresses,
entitlement status, and approved entitlement details.
The
objectives of this program are to (among other things) ensure individuals are
correctly claiming an exemption from payment of the Medicare levy and Medicare
levy surcharge.
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Family trust elections
and interposed entity elections
Family trust distribution tax ('FTDT') is
a special, 47%, tax sometimes payable by a trustee, director or partner. It applies when a trust has made a family
trust election ('FTE'), or an entity has made an interposed entity election
('IEE'), and makes a distribution outside the 'family group' (as defined) of
the specified individual in the election.
Where
such an election has been made by a trustee or another entity, it is important
that the original election is retained in the approved form. FTEs and IEEs can be lodged with the ATO.
Where
elections are involved, taxpayers should consider the following on an annual
basis:
- if the election is needed and whether it
can, and should be, revoked;
- whether the specified individual remains the
most suitable person and, if not, whether the specified individual can and
should be varied; and
- the timeframes to vary or revoke elections
(noting these are limited and that, outside these periods, the elections and
the specified individuals cannot be changed).
It is important to recognise who the
members of the specified individual's family group are when making annual
trustee resolutions, as distributions outside the family group will result in
FTDT of 47%.
ATO may cancel inactive ABNs
The
ATO regularly reviews, and sometimes cancels, inactive Australian Business
Numbers ('ABNs'). The ATO may review a
taxpayer's ABN if the taxpayer has not reported business activity in their tax
return, or there are no signs of business activity in other lodgments or
third-party information.
If the
ATO thinks a taxpayer is no longer using their ABN, it will contact them by
email, letter or SMS.
If the
taxpayer is still running a business, the ATO will tell them what they need to
do to keep their ABN. If they are no
longer in business, they do not need to do anything -- the ATO will cancel
their ABN.
Taxpayers
who think they are still entitled to an ABN that has been cancelled need to
reapply for it. If they restart their
business activities, they should be able to reapply for the same ABN, provided
that their business structure is not changing.
New lodgment obligation for income tax exempt
organisations
Non-charitable
not-for-profits ('NFPs') with an active ABN, including community service
organisations, need to lodge an annual NFP self-review return to notify their
eligibility for income tax exemption.
To be
eligible to self-assess as income tax exempt, the organisation's main purpose
must be a community service purpose. Any
other purpose must be incidental, ancillary or secondary.
Community
service purposes are altruistic, which means the organisation must be
established and operated for the wellbeing and benefit of others, and not for
political or lobbying purposes.
For
example, a club or association that has been set up principally to improve the
welfare of the community would be regarded as a community service
organisation. This would not be the
case, however, if its main purpose was to advance the professional interests of
its members.
Taxpayers able to apply CGT small business
concessions
The
Administrative Appeals Tribunal ('AAT') recently held that a trust was entitled
to apply the CGT small business concessions and, therefore, it could reduce a
capital gain it made down to nil.
In
March 2015, a family trust entered into an agreement for the sale of its shares
in a company for $3,500,000. In June
2015, the trustees of the trust passed a resolution apportioning the trust's
income for that year between the four taxpayers (two brothers and their wives),
and also distributing the capital gain made on the sale equally between those
four taxpayers.
The
determination of the trust's net income for distribution to the beneficiaries
took into account the 50% CGT discount and CGT small business concessions,
relying on a valuation of the shares (and underlying business) being
$3,500,000.
The
ATO, however, deemed the shares sold by the trust to have been disposed of for
a market value of $10,640,000, based on an updated valuation report. This also meant that the trust was not
entitled to the CGT small business concessions, as this valuation meant that it
did not satisfy the CGT maximum net asset value ('MNAV').
The
ATO relied on the 'market value substitution' rule to substitute the value of
$10,640,000 in place of the sale price of the shares. This meant that each taxpayer's share of the
2015 trust distribution was increased from $321,989 to $1,194,174.
In
relation to the MNAV test, the AAT needed to determine whether the net value of
the CGT assets of the trust (and its connected entities) exceeded
$6,000,000.
The AAT preferred the approach taken by the valuers for the taxpayers, partly because they had given "more attention and consideration to this particular business and the circumstances and location in which it operates".
The AAT accordingly concluded that the total net value of the CGT assets
of the trust (and connected entities) was below $6,000,000, and so the
MNAV test was satisfied, and the taxpayers' objections to the amended
assessments should be allowed.
Please note: Many of the comments in this publication are general in
nature and anyone intending to apply the information to practical circumstances
should seek professional advice to independently verify their interpretation
and the information's applicability to their particular circumstances.