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By naming his practice "Carrazzo Consulting", Paul Carrazzo CPA made a definite
positioning statement, i.e. the providing of specialist tax advice was going to
be THE defining activity of his practice. Why not? Since his early days as a
member of the "Arthur Young" taxation division, Paul has developed and nurtured
a real passion for the providing of meaningful and current advice in this area.
A second glance at his Corporate Profile reinforces his impressive achievements as a Tax Adviser and respected commentator across a range of industries.
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The specialist advice available in this area includes:
- Capital Gains Tax ("CGT");
- Fringe Benefits Tax ("FBT");
- Primary Production concessions;
- GST;
- Business v Hobby;
- Salary Packaging;
- Tax Audit assistance;
- Residency issues;
- Business and Employment deductions;
- Tax rules relating to the various trading structures available (e.g. Company, Trust, Partnership, etc);
- Superannuation Guarantee Charge and related issues; and
- Thoroughbred Industry Tax Consulting.
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Q. What are the new CGT rules relating to the 2000 tax year
and beyond? How do I get the 50% discount? |
A.
The new CGT rules are quite complex, so to simplify, please refer to the following:
- To see what is IN, click
here;
- To see what is OUT, click
here;
- To see what is STILL UNCERTAIN, click here; or
- Click here for a summary of the new CGT law.
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Q. I live on a rural property, partly used to run a cattle and horse breeding business. I bought the property after 19 September
1985, do I pay Capital Gains Tax when I sell the property? |
A. It is important that you note that, if you pursue a separate primary production business, part of your rural property will be subject to CGT on disposal.
The family residence and, subject to conditions, the land adjacent to your residence (the "curtilage"), still remain exempted from capital gains tax under the sole or principal residence exemption.
As indicated above, the land adjacent to the dwelling will attract the exemption only if certain conditions are met, these being:
- the adjacent land is used primarily for private or domestic purposes in association with the dwelling; and
- the total area of the family residence and adjacent land must not exceed two hectares (almost five acres) and, if it exceeds this area, the exemption applies to the extent of two hectares.
The above conditions indicate that the adjacent land exemption can be lost if any part of it is used for income producing purposes, e.g. horse breeding, and that it only applies to the two hectares surrounding and including your family home.
A recent Tax Office draft determination, TD 1999/D37, has
confirmed that a taxpayer can select which two hectares the main residence exemption applies.
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Q. We have just bought a new home. We have owned our old home for many years and it has never been rented. How do we avoid paying CGT on our old home when it is eventually sold? |
A. Both homes are treated as your "main residence", and thus CGT exempt, for a period of six months after the new home acquisition. If the old home is sold after the six month period, it may be subject to CGT. |
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Q.I want to provide Fringe Benefits to my employees, but given that I deduct the FBT from their salaries, I am concerned that they will be worse off after tax. What benefits should I pay which will most likely place them in a better position after tax? |
A. You should be looking at providing your employees with either FBT exempt or concessionally calculated benefits, which include:
- a mobile phone or car phone used primarily for use in the employee's employment;
- a new briefcase;
- a calculator;
- an item of business related computer software;
- an electronic diary or similar item;
- a notebook computer or similar portable computer;
- certain taxi travel beginning and ending at the employee's place of work;
- employer provided vehicle (limited circumstances); and
- employee relocation costs, if applicable.
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Q.I am about to start a new IT consulting business and have acquired a company for this purpose. What are the new Personal Services Income ("PSI") rules which may stop me from obtaining the full tax benefit for using a company? What is this "80% rule" I am hearing so much about? |
A. The new PSI rules targets those individuals who divert income generated by their Personal Services Income to a company, trust or partnership. The measures apply from 1 July 2000. A brief summary of the new rules is noted below.
- If an entity earns less than 80% of its PSI from one source, the entity can self-assess whether it is conducting a personal services business.
- If an entity earns more than 80% of its PSI from the one source, the measures automatically apply unless the entity obtains a determination from the ATO stating it is conducting a personal services "business". The ATO may make the determination on one of four grounds:
- The entity has 2 or more "unrelated" clients;
- The entity has one or more employees;
- The entity has separate business premises; or
- The entity is contracted to produce a result, supply their own equipment and are liable for cost of rectifying work.
- The ATO can treat an entity as having met the tests 1 to 3 above, if the test is not met because of "Unusual Circumstances".
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Q.If fail PSI test, what are tax implications?
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A. If none of the above tests can be fulfilled, the tax implications are as follows:
- Treating the PSI of the entity as if earned by the individual and thus it will be subject to personal tax rates; and
- Limiting the amount of work-related expenses that can be claimed as tax deductions against the PSI of that entity. Deductions will not be allowed for:
- Rent or mortgage interest;
- Payments to associates/spouse (unless they perform revenue generating work for the entity); and
- Home to work travel.
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Q. Are there any other PSI issues that I should know about? |
A. It is worth noting that these new PSI provisions relate only to PSI of the entity. Thus, if your entity conducts other activities, such as hardware retailing, the income of that other activity is not taken into account in calculating the number of income sources the entity has. The tests are only applied to the PSI component.
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