B PICKUP & CO
MAY 2005
P r a c t i c e U p d a t e
The Government has started sending employers and super funds the information about the choice of superannuation regime which commences on 1 July 2005.
They should receive the Choice of Fund Employer Guide and copies of the Standard Choice
Form (which employers will be required to provide to each of their eligible employees by 28
July 2005 (and to any new employees within 28 days of starting work)).
Information can also be obtained from www.superchoice.gov.au or by calling the information line on 13 28 64.
From 1 July 2005, people who have reached their retirement age will be able to access their super through an income stream without having to retire permanently from the workforce.
For example, a person could continue working part-time and use part of their superannuation to supplement their income.
Features of the new regulations include:


 no work test; no cap on the amount of benefits a person can access; and allowing people who purchase an allocated pension to stop (or commute) their income stream and return the benefits to their super fund. This would benefit people who choose to return to full time work.
Basically, this new measure means that there are now more options for people making the transition from work to retirement.
The ATO has advised that it will request and collect names and addresses of entities within the real property market from a large supplier of property information services.

These will be electronically matched with the ATO's own data to basically help the ATO pursue non-lodgers and non-payers.
A document describing this program has been prepared in consultation with the Office of the
Federal Privacy Commissioner, and is available from the ATO.
Taxpayers who do not have a receipt for workrelated expenses, but who can prove the expense from other records, may still be able to claim a tax deduction.
The ATO has issued a practice statement to clarify the types of records that are acceptable as proof for work-related expenses.
Where there is a good reason why people don't have a valid receipt or one that contains the right information, the ATO will take a practical approach to administering the law.
The ATO will accept documents containing similar information to what appears on a traditional paper receipt.
These documents may include:

 online banking and credit card statements;
 online, email, electronically-stored and photocopied receipts; and
 BPAY reference numbers combined with bank statements or tax invoices.
This recognises that, even though standard paper receipts are still the most common form of documentation, e-commerce, electronic transactions and online purchases are a growing part of the economy.
The Victorian Court of Appeal has recently agreed with an argument by the ATO that two taxpayers were beneficially entitled to a residential property and should have it transferred to them - so that the ATO could then use it to enforce a tax debt!
The parents of one of the taxpayers had gifted the property to the taxpayers in 1987.
However, the gift was verbal and the property had never been transferred into their names.
After that date, the taxpayers lived in the property, paid all of the outgoings, incurred construction costs in relation to the property, and also borrowed money against the property.
The court held that the taxpayers would be regarded as the beneficial owners of the property and would be entitled to compel the parents to legally transfer the property to them, as their parents held the property for them on "constructive trust".

The ATO has issued a draft determination stating that a club, association, trade union, society or co-operative ("association") does not make a supply when it imposes a nonstatutory fine or penalty on a member for a breach of its membership rules.
Therefore, the payment of a fine or penalty imposed by an association will not be consideration for a supply and a GST liability does not arise for the association.
An example provided by the draft determination is where a sporting association fines a club, which is a member of that association, for failing to phone in the results of a game.
In that case, the fine is imposed on the club in accordance with the association's rules of membership and the fine is primarily intended as a punishment and to act as a deterrent.
The benchmark interest rate for the 2005/06 FBT year is 7.05% per annum.
This rate is used to calculate the taxable value of loans and car fringe benefits (under the log book method).
Example
On 1 April 2005, an employer lends an employee $50,000 for 5 years at an interest rate of
5% p.a. The actual interest payable by the employee for the current year is $2,500 ($50,000 x 5%).
The notional interest, with a 7.05% benchmark rate, is $3,525.
The taxable value is $1,025 ($3,525 – $2,500).
The cents per kilometre rates for calculating the taxable value of private use of a motor vehicle other than a car for the 2005/06 FBT year are as follows:
Engine capacity Rate per kilometre
0 - 2500cc
Over 2500cc
Motor cycles
39c
47c
12c

With the increase in self-managed superannuation funds, the Australian Taxation Office is beginning to take more interest in their compliance. We have reprinted below an extract from a Taxation Office publication indicating which superannuation funds are likely to be targeted for audit.
In 2004 –05 we are increasing our compliance focus on self managed superannuation funds.
As part of this, there are a number of fund characteristics we use to help select funds for audit. Research shows that funds with one or more of the following characteristics may be at a higher risk of non-compliance.
 A fund’s assets include a linked (or related) trust.
A linked or related trust is a trust controlled by individuals or corporations who are related to, or associates of, the fund trustees. This potentially presents a conflict of interest, as transactions may not be made on a commercial basis. It may also indicate that the fund has not been established solely for providing retirement benefits for its members, thereby putting members’ benefits at risk.

A fund has been in existence for more than five years and has not yet been selected for review.
We have found that funds that have not been reviewed for more than five years are at greater risk of not meeting their obligations, thereby endangering members’ retirement benefits.

A fund has a low asset value (under $40,000) and has not yet been selected for review.
Funds with low asset values can have diminished potential to generate returns due to their operational costs. Funds with low asset values are also at risk of not having a sufficiently diversified portfolio of assets, therefore subjecting members’ benefits to increased risk. Our experience also shows that funds with low asset values are sometimes used for early access.

A fund claims non-specified deductions that appear to be high compared to its asset value.
We expect that most deductions should be able to be specified. Large non-specified deductions may indicate that deductions are not legitimate claims.

A fund claims amounts at the salary and wages label.
A claim for ‘salary and wages’ on a fund income tax return may indicate that the fund is running a business and potentially not meeting the sole purpose test.

A fund claims excessive management and investment expenses.
Much larger than average deductions claimed for management and investment expenses may indicate that the expenses need to be substantiated.


A fund reports employer contributions in its income tax and regulatory return, but does not send a corresponding member contributions statement to the Tax Office.
Employer contributions to a fund must be reported annually on a member contributions statement. We use this statement to assess a fund’s surcharge liability. Failure by a fund to lodge a member contributions statement may therefore indicate deliberately avoiding paying the surcharge.

A fund that pays a lump sum or begins to pay a pension to a member.
Funds must report both these payments to us. We require this information to determine if reasonable benefit limits have been exceeded. Failure to notify us of such payments may indicate a deliberate attempt to avoid reasonable benefit limit liabilities.

A fund is established and wound up in the same year.
This may indicate that the fund was established for purposes other than accruing benefits for retirement.

A fund has experienced a significant drop in asset value but has no reported benefit payouts.
This may indicate that benefits have been accessed illegally.

A fund has the same address for service as the reported auditor.
This may indicate that the auditor is also responsible for preparing the fund’s accounts and financial statements, and therefore would not be acting independently.

A fund reports offshore investments.
We are aware of certain schemes involving offshore investments through self managed super funds that result in illegal early access to preserved benefits.

A fund reports substantial borrowings in relation to the asset value of the fund.
Large borrowings suggest that the fund has breached the borrowing restrictions of the
Superannuation Industry (Supervision) Act 1993 (SIS Act), and may be putting the fund’s investments at risk.

A fund reports an acquisition from a related party.
Acquisitions from related parties are prohibited because of the risk that market value may not be obtained and the subsequent risk that the fund’s investment returns will suffer.”
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.