BUSINESS TAX BREAK MYTHS

Australian Tax Office advises people considering taking advantage of the business tax break to be aware the office is looking closely at claims.

They offer the following easily-digested ‘myth’ busting examples.

Myth: it’s too late to take advantage of the business tax break

No, it’s not too late, but you do need to make a decision very soon. The deadline for buying eligible assets is 31 December 2009, and you then need to use or install the asset by 31 December 2010.

To be eligible for the 50% bonus tax deduction, your business needs to have an annual turnover of less than $2 million and the asset needs to cost $1,000 or more.

If your business turns over $2 million or more, you can still claim a 10 per cent tax deduction for eligible assets (costing $10,000 or more) if you purchase them by 31 December 2009 and use them (or install them ready for use) by 31 December 2010.

Before making any investment, make sure you get all the facts about how the business tax break might apply to your personal circumstances.

Myth: I can claim the tax break on any asset, including second hand items

No, you can’t – only certain assets are eligible. This includes new, tangible, depreciating assets (such as a new business vehicle) and improvements or additions you make to existing assets (such as a new engine for an existing business vehicle). It doesn’t include repairs or second hand goods.

Myth: I only need an ABN to qualify

Wrong. Just having an ABN doesn’t mean you’re eligible. There are a number of eligibility criteria the buyer and the asset have to meet to qualify for the tax break. As a starting point, the buyer needs to be in business and the asset needs to be used principally for business purposes.

Myth: I will get cash back

No, you will not. The business tax break is an extra income tax deduction, not a tax bonus, rebate or offset. You claim this extra deduction in your income tax return.

Myth: I can buy an asset to get the tax break, then immediately sell it

No, you can’t. If you buy an asset and resell it soon after you bought it, it’s unlikely the asset will be used in the required way, that is, ‘for the principal purpose of carrying on a business’. You would therefore not be entitled to claim the tax break.

Myth: I can claim the extra deduction this financial year (2009–10) even if I don’t use the asset until next financial year (2010–11)

No, you claim the extra tax deduction in the income tax return for the year in which you first use or install the asset, which in this case would be 2010–11.

For more information visit www.ato.gov.au or phone 1300 337 921.

Tax Office focusing on discretionary option plan arrangements

The Tax Office today warned people to be wary of arrangements that attempt to artificially create up-front deductions for employment costs through discretionary option arrangements.

Under these arrangements, an employer makes a cash contribution to a trustee of a trust. The trust then pays the cash contribution back to the employer as consideration for acquiring options from the employer.

Tax Commissioner Michael D’Ascenzo said the Tax Office is looking closely at these arrangements.

These transactions may not comply with tax laws and anti avoidance rules may apply,” Mr D’Ascenzo said.

Employers involved in these arrangements use a trust and round robin cash-flows to artificially create up-front tax deductions, while also allowing employees to defer tax to a later income year.

People involved in or considering these arrangements should be aware that they face close examination by the Tax Office.”

Those who are unsure about their situation should seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

Those who have participated in these types of arrangements who contact the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that may apply.

More information

Taxpayer alert 2009/18 is available from the Tax Office website www.ato.gov.au

Tax agents with information about people or companies who may be promoting arrangements covered by this alert should call the Tax Practitioner Integrity Service on 1800 639 745.

Taxpayers who have information about these arrangements should call the Tax Office on 1800 177 006. People can also use this number if they want more information about the taxpayer alert.

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.