Bucket companies – you have to wait!

We reported three weeks ago that the ATO lost a significant case on bucket companies – you can read that blog – here. The Full Federal Court in a 3 – 0 decision decided that unpaid entitlements from a trust to bucket companies did not constitute a loan within the meaning of Division 7A.

That is they did not have to:-

Be paid out before lodgment of the year of the loan’s Tax Return or otherwise
Put under the terms of a Division 7A loan agreement.

This Full Federal Court decision was favourable to taxpayers.

The ATO have filed a special leave application to have the matter re-heard by the High Court (the highest court in the land).

It has been said by some commentators that the ATO’s post 2009 view was controversial. Other tax experts have pointed out how the legislation has been subject to amendment after amendment in order for the way they want it to work. Others have said they had to appeal as there is way too much at stake. And do so even though they have unanimously lost a decision before 3 very senior judges.

And so we wait.

We understand the appeal may be heard by August.

In the meantime, the ATO have issued what they call a Decision Impact Statement.

In that Statement the ATO have advised that:-

The ATO will continue to administer the law as it now stands.
The ATO will not issue any amendments or private rulings nor consider any objections until the High Court hears the appeal.
In tax speak, the ATO will continue to consider reimbursement agreement issues where no complying Division 7A loan agreement exists.

We will keep you posted.

And so we wait …

Timely reminder about unclaimed monies

Unclaimed monies is such an important but hidden sleeper that it is worth returning to this.

We blogged on this 5 years ago when there was $1,100,000,000 of unclaimed monies in bank account, shares and life insurance. 2 years ago it had grown to $1,500,000,000 (we can’t find a more current number).

How can I lose money that is mine?

The balance of any bank account unused for more than 7 years is transferred to the government.

So too is a life policy which is not claimed within 7 years of maturity also becomes unclaimed money.

It is not easy to reclaim one’s money as what one might think. So to avoid the problem of trying to recoup unclaimed monies, you need to:-

Create and check a list of bank accounts, shares and endowment life insurance policies (and store it securely).
Transact on any bank account every seven years. Please remember that charges debited or interest credited by a bank to your account do not keep an account active. So you need to either make a payment from or deposit into an account for it to be considered active. Make a habit of transacting on every bank account in the first week of January (or July if you’re finance minded like me and think in financial years).
Update contact details after a move.

If you want to know more or undertake a search on a closed bank account or shareholding or matured life insurance policy, go to http://tinyurl.com/qjozgon

Good news for bucket companies?

So is the Full Federal Court decision in Bendel’s case good news for bucket companies? We will have to wait and see as we will explain.

The Full Federal Court has just handed down a 3-0 decision in favour of bucket companies (being companies that receive trust distributions). The judges’ decision ruled in favour of distributions by trusts to companies not being a loan and therefore by extension not coming under Division 7A.

So what do we do now?

Nothing.

We wait.

We wait until 19^th March by which time the ATO must seek leave to appeal the case to the High Court.

Will the ATO appeal?

On the one hand they have just lost the case 3-0 before some of the country’s most senior judges. Their chances appear slim.

On the other hand, the ATO has a lot to loose so may well appeal. And if they appeal, we wait for certainty until the appeal is heard by the High Court.

The ATO may also seek to have the law amended.

So for the time being, we wait and see.

If this decision of the Full Federal Court holds or is upheld by the High Court or the law not subsequently changed, this means either that distributions to bucket companies:-

Do not have to be paid out in full to bucket companies before the year of a loan’s Tax Return is lodged to paying interest or
If not fully paid out, ensuring subsequent payments comply with an interest and principal repayment formula.

This is particularly good news for small businesses as they will be able to retain funds to meet working capital needs – rather important with all the cost and cash flow pressures being experienced by small businesses.

We will keep you posted.

Supporting Marysville Golf Club

It was great to take a friend from the US to Marysville Golf Club yesterday.

Maggs Reid Stewart has been pleased to support the Marysville community since the Black Saturday bushfires of 2009.

Golf and bowls are such wonderful games that one can play well after one has ceased playing all other sports. Moreover, both supports provide a wonderful social fabric, particularly so in a country town.

Maggs Reid Stewart looks forward to continuing to support the Marysville community by renewing its sponsorship of the Marysville Golf Club.

You can also support Marysville by taking a day trip but, better yet, staying over a weekend. It is an area of great beauty with plenty of things to see and do with terrific food options (including at the golf club itself with its very pleasant views from the clubhouse).

You can read more by clicking here.

Are you entitled to claim a government grant?

Are you entitled to claim a government grant? You may be more in luck than you think as there are currently 237 grants and programs available to Victorian businesses.

Government grants and programs can broadly be categorised in two ways:-

Those available to support new businesses.
Those that target particular industries and activities.

The support is usually financial and can be used for:-

Advice and mentoring
Funding
Loan
Sponsorship
Subsidies and rebates.
Tax benefits

Two of the most well known ones are:-

The Export Development and Market Grant – provides at least $20,000 for exporting to existing or new key markets.
Research and Development Tax Incentive – provides a tax offset to companies with turnover of less than $20,000,000. The tax offset is the sum of the company’s tax rate (either 25% or 30%) + an additional 18.5%.

The rules to these two grants are quite complex as there are many criteria to consider and pass.

Want to know more?

Ask us
And go the Australian Government’s Grants and programs finder – click here

February lodgement deadlines

With the Christmas holidays now behind us, we are now back in normal lodgement patterns. So here are the lodgement deadlines for February.

Deadlines for the month of February 2025 are:-

7^th – monthly Pay-roll Tax – January 2025 remuneration
21^st – monthly BAS remitters – January 2025 BAS
21^st – quarterly BAS lodgers with monthly PAYG Withholding remitter – wages tax for January 2025
28^th – quarterly BAS lodgers – December 2024 BAS

It is timely to remind all taxpayers that the ATO has been on the war path of late.

Whist they were friendly (perhaps overly friendly) during covid, the ATO is now actively chasing unlodged documents and moreover aggressively chasing tax debts.

It is also no longer easy to have late lodgement penalties and interest removed (no matter what the cause reason is).

And it is recounted by many fellow accountants that the ATO continues to issue Director Penalty Notices (DPNs) at an alarming rate. DPNs are issued where GST, PAYG Withholding or SG super remains unreported and unpaid after 3 months. A DPN makes a director(s) responsible for that debt. Options are limited and require prompt action – and if not paid or otherwise dealt within 30 days, a director will be left being personally responsible for that debt. This could mean bankruptcy.

You can read more about unpaid super here

I have also heard of where a director’s address as recorded with ASIC is out of date. The problem then is the ATO will mail the DPN notice to the address as recorded with ASIC. So apparently some directors have been unaware one was even issued.

There is also an issue that the 30 day countdown starts from the time the ATO issues a letter. The problem is that it may take 6 days to be received.

TIP Advise us as soon as you change address. In any case there is a 28 reporting deadline for reporting a change of director’s details to ASIC.

TIP Don’t fall for the mistake of not lodging or paying a BAS or SG super whatever the reason. In the first instance you will avoid late lodgement fines. Secondly, you can always enter a payment plan if necessary.

SG super reminder

I trust you had an enjoyable festive season – but it is now time to focus on time critical obligations. So here is a quick Super Guarantee (SG) super deadline reminder.

Tuesday 28^th January is the end date for satisfying your SG super obligations for the December 2024 quarter.

Please make sure you do not confuse this obligation with the December quarter BAS. The December quarter BAS automatically has a one month extension to 28^th February . There are no extensions for reporting and payment of SG super.

Please note that super clearing houses can take up to 8 business days to pass the money through to the super fund. It therefore means that processing and payment to the clearing should be made as soon as possible.

We therefore recommend paying your Dec quarter super by Wednesday 15^th January.

And please make sure you have been calculating super at 11.5% since it increased on 1^st July 2024.

Please refer to our previous quarterly reminder as to what forms of remuneration are subject to and not subject to Superannuation Guarantee.

SG super should never be paid late as late payments attract substantial interest and penalties. Furthermore, SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically can become personal debts of directors.

We welcome any questions you might have.

Beware the new Vacant Residential Land Tax (VRLT)!

One of the state government’s many new taxes is the Vacant Residential Land Tax (VRLT). And it requires action no later than 15^th January.

So what is the VRLT?

It is a tax imposed on residential properties not occupied for 6 months or more during the 2024 calendar year.

Why you need to be careful

Don’t be fooled by Land Tax being within the name of this new tax. This ain’t no small charge!

There are 3 reasons as to why an unexpectedly large liability may arise:-

Whilst Land Tax is based off the value of land, VRLT is based of the capital improved value of the property (so house and land).
There is no threshold as with Land Tax (whereas there is a tax free threshold before Land Tax is payable – albeit that has now been slashed from $300,000 to $50,000).
The rate for 2025 (based off 2024 unoccupancy) is a flat 1%.

So how much is payable?

In the first year, it would be $10,000 on a $1,000,000 property; $15,000 on a $1,500,000 property.

But the rate rises to 2% in 2026 – so $20,000/$30,000 is payable.

And then it rises to 3% in 2027!

The only “good thing” about it is that, as with Land Tax, it is deductible.

So what does the state government need you to do?

Property owners should have received a letter before Christmas from the State Revenue Office.

That letter includes a link with which to notify the State Revenue Office that you have a residential property that was capable of being occupied but was unoccupied for 6 months or more during 2024.

You need to do so no later than Wednesday 15^th January 2025.

There is no obligation to do so if the property was under construction, under renovation or that was uninhabitable as at 31^st December 2023 (but may be liable from the 2026 year as this exemption can only run for 2 years). Beware of what constitutes a property that is under construction, under renovation or that was uninhabitable.

So what constitutes vacancy?

A residential property that is not occupied as either:-

A principal residence of the owner or an occupant permitted by the owner.
Under a lease or genuine short term arrangement.

None of the available State Revenue Office guidance specifies what constitutes a day. Presumably it is counted by nights stayed – so presumably a weekend counts as one day and not two.

Are there any exemptions?

Yes.

Properties that are exempt from Land Tax are exempt from VRLT.

Other exemptions include:-

Holiday homes (see below for special rules).
Homes used for work purposes.
Properties transferred in the previous year.
New residential properties.
Newly developed properties where the ownership is unchanged.

It is beyond the scope of this blog to explore all exemptions so one must be clear on whether they do in fact satisfy one of these exemptions to avoid risking penalties of up to 90% as well as interest.

There is also no exemption based off when a property was purchased. VRLT simply applies to residential properties owned at 31^st December 2024.

Holiday home exemption

We will explore this exemption due to its commonality to many.

An exemption is available to an owner who has an Australian principal residence (either owned or rented from someone else).

It must be a genuine holiday home to the satisfaction of the State Revenue Office. They give regard to location and distance (which is an interesting matter for those people I still know who have long family held generational family holiday homes in places such as Aspendale and Frankston).

The exemption applies when the property is occupied for at least 4 weeks. That need not be consecutive.

One can only claim one holiday home exemption.

Special rules apply to trusts and companies.

Special rules also apply to deceased estates.

Whilst the State Revenue Office has commented on properties owned by trusts and companies, it has not commented on properties owned by companies where that company itself is owned by a company or trust. It is unclear whether the VRLT has been poorly drafted or the State Revenue’ Office guidance is lacking.

When is the VRLT payable?

It remains to be seen how quickly these notices issue.

One then has 60 days to pay the tax.

It can be paid by B-Pay, credit card, debit card or instalments.

Objection rights

An owner has 60 days to object upon receipt of the assessment.

We suspect given other current State Revenue Office activity in respect of other taxes that response times will be slow.

If unsuccessful, one can then appeal to VCAT.

Should I keep or sell my vacant property?

Perhaps the first question is can I or should I rent it? This may require a substantial outlay to ensure that it meets rental standards – noting that one modern requirement is heating within every room.

Whether you hold or sell is not a matter to be taken lightly. For most people the most appropriate course of action is to engage a financial planner as they have powerful modelling software that can extrapolate the financial outcomes.

A word of warning

No doubt there will be some who may be tempted to falsely not declare a vacant property subject to VRLT. We have already referred to the substantial penalties and interest. One should also be mindful that the State Revenue Office can cross match rental bonds as well as water and electricity usage.

Closing remarks

This has been a difficult blog to write as the tax is new, there is little literature to refer to and some of that is confusing or unclear.

If there is doubt, it seems best to notify and then appeal.

That all said, we welcome any question you may have.

Are you a share trader or share investor?

It’s an important distinction as it can make a world of difference.

Both declare dividends as income (with a tax credit for any imputation/franking credits). However:-

A share investor is assessed on realised gains (i.e. when a share is sold). Only 50% of the gain is assessed if the share is held for more than 12 months. No deduction is available for realised losses; they can only be offset against capital gains.
A share trader is assessed on both realised and unrealised gains (and losses). The cost of shares bought are deducted as purchases, the sales treated as income and the value of shares at 30^th June is treated as closing stock (and therefore income).

So are you a share trader?

Well that depends on matter such as:-

The amount invested.
The frequency of trades.
The amount of trades.
Whether it is being carried on in a business like manner. In this regard, the ATO always places great weight on the existence of a business plan.
Time and money spent on research.
The sophistication of the operation including software programs.

It must also be said that the ATO take particular interest in taxpayers who change from one status to the other. Particularly so in years where there are large market movements.

Not sure where you sit?

The ATO has a useful short summary at – click here

We would your call to discuss your situation at greater length with you.

National Scam Awareness Week

No doubt you have heard through multiple channels that it is National Scam Awareness Week.

Some of the stories that have come out this week have been frightening. Perhaps the most alarming one was that the Commonwealth Bank stated that they are pulling down 50 fake web sites a week!

One must be vigilant and rely on common sense. If your employer, should be running training and moreover have the best security software. We have just ramped up our security and would welcome introducing you to an IT specialist.

Here are some scary facts – losses year to date from various forms of scams have been:-

$94,120,506 from investment scams
$13,399,355 from romance scams
$10,126,156 from phishing scams

But I suspect the real number is much higher as many would be too embarrassed to report their loss. and rarely can it be undone.

The three most common scam contact methods are:-

Text message – 62,121
Email – 51,023
Phone call – 26,804

There are many things I could say but perhaps the best 4 tips I can give are:-

Never click on a link from a text or email; always log in from your normal log in page.
Never respond to a request for personal information.
Use two factor authentication.
Have an IT specialist make sure your security is state of art and up to date.

You can read more at the National Anti-Scam Centre – https://www.nasc.gov.au/