MARCH 2013 – Tax Updates

SUPERANNUATION CHANGES AFFECTING EMPLOYERS FROM 1 JULY 2013

  1. Superannuation rates will increase from 9% to 9.25%. This will be effective from 1 July 2013.
  2. Superannuation payments will be required for employees aged 70 years or older. The existing upper age limit will be removed.
  3. 30 June 2013 falls on a Sunday. This will have ramifications for timing of contributions made. It is to be noted that the contribution is only effective on the DATE when it is actually credited by the fund, and NOT when the employer sends the cheque or made the bank payment.

SMALL BUSINESS BENCHMARKS BRING FLORIST UNDONE ON INCOME TAX AND GST

CASE REFRENCE: AAT Case [2013] AATA 141, Re Carter and FCT

The AAT has dismissed a taxpayer’s appeal against income tax and GST assessments issued following an ATO audit of her florist business.

FACTS

  1. Taxpayer is a GST-registered florist business and lodged monthly BAS (Business Activity Statements).
  2. The 2008 tax return reported the following figures: Cost of Sales $259,982 | Total Business Income $313,971
  3. The Cost of Sales represent 83% of Total Business Income. This was outside the industry benchmark

    percentage range of 44% to 54%.

FINDINGS

  1. ATO requested for taxpayer to prove her reported numbers.
  2. Her tax agent forwarded supporting documentation and paperwork to the ATO for the period covering April to July 2008.
  3. The ATO audit reveals that inadequate records had being kept. This resulted in the issue of amended assessments plus penalties amounting to over $130,000.
  4. The taxpayer objected to this where she was allowed a partial reduction in the administrative penalty component of the judgement. However, her objections on the amended assessments were turned down by ATO.
  5. The taxpayer appealed to the AAT.

DECISION

The AAT rejected the appeal from the taxpayer. This was based on insufficient evidence to prove the taxpayer’s stand. The evidence did not prove on how the gross income of the florist business were calculated for year ended 30 June 2008.

The AAT made some observations as to how this might have happened:

  1. Defective cash register
  2. Missing cash till tapes
  3. No reconciliations had been shown to prove the spreadsheets that were done
  4. Difference between spreadsheet figures and actual lodged BAS figures on sales numbers
  5. Due to supporting factors, it is reasonable for the application of the small industry benchmark range.

CONCLUSION

The above once again proved the importance of good record keeping and adherence to proper accounting procedures. Even the tax agent in this case had not bothered to check (as it appears to be) the documentation that was submitted to the ATO. The sad part behind this is the inevitable conclusion that taxpayers are ultimately responsible for their tax affairs.

It is really about applying some common sense in your records and the things that you do in your business.It is one thing to rely on external expertise but it is also equally important that you know what is really being done to your records. Again the decision was made based on what a reasonable person would have done if he/she was running a business. There was a definite forseeable risk in running a business with a defective cash register! It was also reasonable that some basic reconciliation be done to ensure that sales were recorded properly and with completeness.


TUTOR RUNNING A BUSINESS – INPUT TAX CREDITS CLAIMS DENIED

CASE REFRENCE: AAT Case [2013] AATA 136, Re The Private Tutor and FCT

The AAT has held that a taxpayer was carrying on an enterprise during the relevant period and therefore set aside the Commissioner’s decision cancelling his GST registration. However, the AAT denied the taxpayer’s input tax credit claims, and therefore affirmed the Commissioner’s assessments of the taxpayer’s net amounts
for the relevant period.

FACTS

  1. Taxpayer’s tutoring ‘business’ was just a ‘side line’ to his full-time job. He devoted a few hours per day on this tutoring.
  2. The BASs revealed that over a 4 year period, the input tax credit claims exceeded the GST owing.
  3. The Commissioner formed an opinion that the taxpayer was not carrying on an enterprise. Therefore, the claims should be refused and that his GST registration should be cancelled. Assessments were then made on this.

ISSUE 1

  1. The Commissioner’s assessments altered the taxpayer’s position from refund to payable for each relevant quarter’s BAS.
  2. The Tribunal was surprised such an assessments were even made at all, since the Commission’s opinion was that the taxpayer was NOT carrying on an enterprise.
  3. The Commissioner explained that such assessments gave rise to his discretion to withhold funds from the taxpayer.
  4. The Tribunal was not satisfied with the explanation and concluded that the Commissioner should have assessed a net amount of zero.
  5. The Tribunal found that the tutoring activities constituted an enterprise under s 9-20 of the GST Act.

    The activities were recurrent, regular, systematic and organized. There is a commerical rationale behind these activities.

    The taxpayer had placed his name on the books used in the various colleges for the purpose of advertising his tutoring services to the available market. Records revealed that his income was reliably computed and when viewed from an objective angle, these activities were undertook to make a profit from them.

CONCLUSION – ISSUE 1

The decision to cancel the taxpayer’s GST registration was therefore refuted.

ISSUE 2

  1. From the records, the Tribunal does agree with the Commissioner in disallowing the input tax credits. This was due to credits claimed in respect of purchases that were not subject to GST like mortgage and private health insurance.
  2. There were also acquisitions that were of a private or domestic nature that were wrongly claimed in full. There were also lack of evidence in proving the apportionment of such purchases.

CONCLUSION – ISSUE 2

Therefore, the AAT held the taxpayer had failed to show the Commissioner’s assessments were excessive. Based on some basic ratios and mathematical proportions, the claims were unjustified when compared to the relevant income.

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