Land Tax Free Threshold at Risk
Some landowners face the prospect of loss of their NSW land tax free threshold resulting in ongoing liabilities exceeding $6,900 per year. The relevant scenario involves individuals or companies owning land as trustees but the OSR is not aware of the trust’s existence. The OSR mistakenly thinks that the individual or company owns full legal and equitable title. It may not have issued a land tax assessment as a result of the land value being below the threshold (currently $432,000) and it certainly will not have sought to review the trust deed. The risk is where, on closer scrutiny, the deed does not allow the underlying trust to qualify as a “fixed trust”. Hence, the trust gains the land tax free threshold which it is not entitled to.
While exposures of up to five years could apply, it is doubtful that anything can be done about them. What can be done is the execution of suitable variations to the trust deed to enable the trust to qualify as a fixed trust prospectively and the land tax free threshold to be secured for the future.
Action Point: Identify land owning trusts which receive either no land tax assessment or receive an assessment with allowance of the tax free threshold. If there is any doubt that they qualify as fixed trusts, then vary the trust deed to secure the land tax free threshold for the future. Contact Steve Baxter, Associate Director of ITC Group, if you have questions about these issues.
Fuel Tax Credits for Vehicles with On-board Plant
The ATO issued a Practice Statement (PS LA 2013/14 (GA)) regarding the portion of fuel used in on-board machinery in vehicles which can be claimed at higher fuel tax credit rates following the Linfox case. Currently, that fuel can be claimed at over 38 cents per litre (cpl), which is around 26 cpl more than can be claimed for the fuel used in road travel.
The statement specifies safe harbour claim percentages for certain types of vehicles such as concrete transit mixers, waste collection vehicles, refrigerated trucks and buses. Any other vehicle not specified has a safe harbour of 5% of fuel purchased as being accepted as use in the plant and not used in road travel. Vehicles in this lower rebate category include mobile cranes, sucker trucks, pumping trucks, trucks with mounted loading cranes, elevating work platforms & specialised mobile plant with compressors, generators etc.
The Tax Office accepts that the safe harbours are very low. The Practice Statement encourages vehicle operators with on-board machinery to claim higher percentages if they can be substantiated. Our experience has typically revealed that operators of such vehicles have not previously apportioned non-travel fuel used in on-board plant and have claimed all fuel at the (lower) road transport FTC rate.
Action Point: Significantly higher FTCs are available for these types of vehicles. Higher rates well in excess of the minimal amount allowed may be claimable retrospectively over a four year period. There are many different ways of being able to substantiate higher plant fuel consumption than the minimum allowed by the Tax Office.
FOLLOW UP -Commercial Property Landlords not charging GST
In the November 2013 edition we advised that some commercial property landlords were not charging GST on rentals. That was as a result of a Federal Court decision. However, this decision was overturned by the High Court in late 2014.
Action Point: GST registered commercial property landlords should charge GST in nearly all circumstances. If you have clients who did not charge GST on rentals for a period, they need to seek specialist advice regarding their exposure.
R&D – The New Credit Rate
The Government proposes to reduce the corporate tax rate by 1.5% to 28.5% in the 2015/16 fiscal year. It has reduced the R&D credit rate in line with this change, but it applies for the 2014/15 year, meaning that for this one year R&D claimants will be disadvantaged by the 1.5% reduction in the R&D credit rate whilst the corporate rate remains at 30%.
All other aspects of the scheme remain unchanged for small and medium enterprises.
This effective reduction in the R&D benefit for one year will adversely affect claimants, especially those that factor in the benefit to cash flow where the refund is available. This applies to businesses with a (group) turnover below $20 million.
Action Point: It is possible to reduce the impact of this reduction by planning when qualifying expenditure is incurred or acquitted, as the case may be. Any such planning decisions will need to be made before the end of 2014/15.
Workers Comp Insurance – Wages Audits
Insurance premiums for workers compensation insurance are calculated by reference to the level of “wages” (as defined) paid by employers to “workers” (as defined). The definition of “worker” includes common law employees, but also certain contractors.
The treatment of contractors in some callings and trades is specifically addressed in the definition of “worker” (e.g., timber-getters, jockeys, caddies, etc). However, in relation to other contractors, they will not be deemed to be a “worker” if the work they perform is “incidental to a trade or business regularly carried on by the contractor in the contractor’s own name, or under a business or firm name”.
The court decisions indicate that this expression essentially means that the contractor is offering their services to the public generally (as distinct from providing their services exclusively, or near exclusively to one principal).
WorkCover uses a panel of third-party auditors to perform wage audits on behalf of WorkCover and the insurer. Insurance premium adjustments are made where the auditor finds (in their opinion) that the “wages” are understated.
Many of these adjustments arise as a result of an auditor’s re-classification of a contractor to the status of “worker”. In our experience, many of these auditor determinations are questionable and have warranted lodging an appeal with WorkCover.
Action point: Any re-classification of contractors to the status of workers should be reviewed by a professional adviser and an appeal to WorkCover considered if appropriate.
This newsletter is issued as a helpful guide. It is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is taken.