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     S   P   R   I   N   G       2     0   0    4                                                          Chartered Accountants

         FREE PASSAGE !
         With control over the Senate, the Government will not experience the log jam it has
         encountered to date in passing legislation.
         The new Senators take their positions in July 2005 therefore legislation that would be
         blocked by the current Senate will not be introduced until the next financial year.
         Whilst we do not know the exact timing, the detail or the mechanics of proposed
         change – outlined below is an overview of what is in store.

         s   Increase in the threshold for the top two tax bands to
             $63,000 for 42% and $80,000 for 47% scheduled for
                                                                                    •   Simplifying the rules for contribution to superannuation
                                                                                        and paying out benefits for those aged 65 to 74;

             1 July 2005.
             Mature age tax rebate of $500 for people over 55 years and
                                                                                    •   Allow people to access their superannuation as an
                                                                                        income stream even when they continue working past 55.

             earning less than $55,000.
             30% Childcare rebate on the out of pocket expense from
                                                                                    •   Super Co-Contribution to be set at a maximum of $1,500
                                                                                        for employees on incomes up to $28,000 making their
             January 1, 2005.                                                           own voluntary super contributions.
         s   Extension of the Simplified Taxation System (STS) to
             small businesses that account on an accruals basis.
         s   A new 25% “Entrepreneurs” tax discount on the income
                                                                              Small Business
             tax liability on the business income of small businesses         s     More flexible workforce arrangements including a full
             that are in the STS and have an annual turnover of $50,000             exemption from unfair dismissal laws for Australian
             or less.                                                               Small Business.
         s   Reduction in the Tax Office amendment period to two              s     Greater protection for small businesses by strengthening the
             years for taxpayers in the STS.                                        Trade Practices Act including new collective bargaining
         s   Allow small businesses to lodge one Business Activity                  power provisions and reintroduction of legislation to help
             Statement (BAS) and remit one GST payment once a year.                 reduce public liability insurance premiums.
                                                                              s     Removal of compliance burden of quarterly superannuation
                                                                                    reporting requirement effective January 1, 2005.
         Superannuation                                                       s     A business monitoring and succession program is to be
         s   Reduction of Superannuation Surcharge to 12.5% from 1                  put in place with $9m of funding.
             July 2004 and further reduce surcharge to 10% from July          s     It is proposed that businesses with less than 15 employees
             1, 2005 and 7.5% by 2006.                                              will not be required to make redundancy payments.
         s   Choice of Super Fund legislation allowing employees to           s     The Export Market Development Scheme is to receive an
             select their superfund.                                                additional $30m over 3 years.
         s   Availability of superannuation will be broadened by:             JR will keep you abreast of whether the promises are delivered,
             •   Removing the work test to allow people under 65 to
                 contribute to super whether they work or not;
                                                                              in what form and when!

             JR’S PARTNERS ARE:

             Bruce Annabel                  Chris Ball              Clark Jarrold                 Jason Evans                 Ken Ogden
             Mark Nicholson          Nigel Fischer       Peter Camenzuli          Robert Brooks        Ross Walker         Teresa Hooper

      S   P   R    I   N   G       2    0   0   4

          SPLIT LOANS –
          s   What is a split loan?                                              If it does it is likely we will advise you if it is appropriate to
          A split loan is a single loan with separate accounts for private       negotiate a settlement with the Australian Taxation Office.
          and investment purposes. Loan repayments are directed into             s   Is the repayment of private loans at a
          the private account to reduce borrowings and interest                      faster rate than investment loans still
          compounds on the investment account.                                       a viable taxation planing strategy?
          This product was widely marketed as an effective mechanism             Yes – In a simple analysis it is still open to take out say an
          to reduce non deductible interest on the private account               interest only loan for investment purposes and a principal and
          (usually used to fund the acquisition of the family home) and          interest loan for private purposes.
          maximise the deductible interest on the investment account             Additional principal repayments could also be directed to the
          (usually an investment property).                                      private loan rather than the investment loan.
          s   Harts’ Case                                                        Whilst more aggressive views of the High Court’s decision in
          The High Court has ruled in Harts’ Case, that the Part IVA             Harts’ Case exist, the safe ground is that as long as the interest
          general anti-avoidance provisions of the income tax law applied        on the interest only loan is paid each year there will be no
          to this arrangement, and that the additional interest on the           dispute with the Australian Taxation Office.
          investment account payable as a result of the split loan was not
          deductible. In Harts’ Case this additional interest represented the                          * * * * *
          interest on the compound interest which had not been paid as           As with all lending arrangements your financier will have to
          all repayments were reducing the private account.                      be happy with the security and servicing of both the private
                                                                                 and investment loans.
          s   What you should do if you have a split loan
          If you have a split loan please arrange an appointment to see
          us and we will review if Harts’ Case applies to you.

          Overview                                                               That is, if the supply for consideration is made in connection
          There needs to be careful consideration given when a taxpayer is       with an enterprise carried on by the supplier and is not GST
          buying or selling property. The GST impact on a transaction            free or input taxed.
          needs to be analysed prior to finalising the contract. This is         The ATO has a narrow view on what is considered carrying on
          particularly important for the purchaser as in some instances the      an enterprise. An isolated property transaction could be
          choices the vendor makes at sale could affect the purchaser’s          considered an enterprise for GST purposes.
          GST liability on the subsequent sale of the property.
                                                                                 A summary of the general GST principles where a property is
          Generally, a GST registered taxpayer will be liable to pay GST         sold is contained in the following table:
          on the sale of property if the transaction is a taxable supply.

              Type of Premises                                Example                                      GST Treatment
              New residential premises                        New house                                   Generally taxable
              Commercial residential premises                 Hotel                                       Taxable
              Other residential premises                      Existing home                                Input taxed
              Non-residential premises                        Office building                             Taxable
              Part of going concern                           Sale of business                             GST-free
              Farm land                                       Sale to intending farmer                     GST-free

      S   P   R    I   N    G       2   0   0    4                                                           Chartered Accountants

          To summarise the more common types of transactions by                  Built to Replace Demolished Premises
          JR’s clients:                                                          Where a house has been built to replace a demolished house
          Residential Premises                                                   on a parcel of land the replacement property will be “new” and
          In general, the sale of residential premises that are not classified   a sale may be subject to GST where vendor is registered.
          as “new” are input taxed. As an input taxed supply, no GST is          As previously mentioned advice should be sought on any
          required to be remitted by the vendor. Additionally, no GST            transaction where property is being bought and sold as the
          credits can be charged by the vendor for costs associated with         ramifications of not considering the impact of GST may be a
          the transaction.                                                       hidden cost.
          This means that the seller will not charge GST on the sale             Going Concern
          price and the purchaser will not claim an input tax credit of          Where a property is sold as part of a going concern, the
          1/11 th of the purchase price.                                         transaction may be GST free. A partly tenanted building can
          Residential premises can be defined as land or a building that         be a going concern in its own right.
          is occupied and used as a residence. Vacant land can never be          In this case, it is important that the seller and buyer agree, in
          residential premises.                                                  writing, that the sale is of a going concern. The seller will be
          New Residential Premises                                               required to continue operations until date of sale and will need to
          If residential premises are classified as “new”, the sale of these     supply to the purchaser all things necessary to continue operating
          premises will be subject to GST. This will typically apply to          the enterprise. Where a business is acquired as a going concern
          builders and developers however, can also apply to renovators          and all conditions are satisfied, the transaction will be GST free.
          who substantially alter the structure of the property.                 It is important to note that there are claw back provisions that
          There are numerous situations that will arise where residential        effect the purchaser if the property is subsequently used to
          premises are classified as “new”. Outlined below are some              provide input taxed supplies.
          common examples:                                                       There are also specific provisions relating to the sale of farm
          Subdivisions                                                           land and where the supply will not be subject to GST.
          Where land with a building is subdivided and a vacant block is         Margin Scheme
          created. The parcel of land that the building is situated on may       In some circumstances the GST attribution on a taxable
          not be subject to GST if the land and building has previously          supply of property can be reduced if the vendor elects to use
          been sold as residential premises or has been occupied as a            the margin scheme prior to the settlement date.
          residence since prior to December 2, 1998. The vacant block of         In these instances the GST is reduced to 1/11 th of “the margin”.
          land created through the subdivision may be taxable.                   The margin is the difference between the consideration on sale
          There are many other situations that arise during a                    and the initial purchase price/valuation where applicable.
          subdivision or a house relocation and advice should be sought          A vendor may elect to use the margin scheme if they owned
          prior to commencing any such work.                                     the property at 1 July 2000. The margin scheme can also be
          Substantial Renovations                                                elected if their original purchase of the property was not a
          Property is deemed to be new if it has been subject to                 taxable supply under the GST provisions or if it was a taxable
          substantial renovations.                                               supply and the margin scheme provisions were applied.
          Prior to carrying out any major renovations on residential             If the margin scheme is elected by the vendor, the purchaser
          premises it is important that you consider what is considered          cannot claim the calculated input tax credits relating to the sale.
          “substantial”. The Tax Office has issued a tax ruling outlining        Summary
          what is substantial renovations. Some examples are where               As shown in the material above, there are many factors to
          interior walls are removed, new kitchen installed and houses           consider when buying and selling real property.
          exterior changed from timber to brick.
                                                                                 The ATO have provided guidance in the form of tax rulings
          Cosmetic improvements such as painting, general repairs and            and other material but each situation will be different, so it
          landscaping are not seen as “substantial”.                             is important that you discuss any transaction involving real
                                                                                 property with us prior to the finalisation of the transaction.

          A claim must be made within 4 years of the end of the tax period       some circumstances whereby the 4 year limit does not apply, for
          to which an entitlement relates to be eligible for refunds.            example where a valid tax invoice is held and a GST input tax
          Therefore, a taxpayer who lodged a quarterly activity statement        credit has not been claimed. This claim could be made in the
          for the September 2000 quarter would have until September 30,          current BAS, rather than revising a previous activity statement.
          2004 to claim a GST refund (and also luxury car tax or wine tax        This time limit can be extended where fraud or tax evasion is
          credits and indirect tax overpaid on importations). There are          present, to allow for any debt to be recovered.

      S   P    R    I    N    G         2    0    0    4                                                                       Chartered Accountants

          For many years JR has provided accounting services and                             AEIOU will open its first centre in January 2005 with an initial
          financial support to various charitable causes.                                    intake of 10 children. The cost of education is high, requiring
          This year, the partners and staff of JR have stepped up their                      specific purpose-built facilities and specialised teachers.
          charitable contribution and will assist in the establishment                       JR has undertaken to sponsor two families for their first
          of a new charity – AEIOU (Autism Early Intervention                                year costs as well as providing technical support to the
          Outcomes Unit).                                                                    Charity itself.
          AEIOU has been formed by Dr James Morton and his wife                              Any clients or other friends of JR who would like further
          Louise with the charter of providing early education (ages 1 –                     information on AEIOU, or may like to support our efforts to
          5) to children with Autism.                                                        help launch this much-needed facility, please contact Louise
          Research in the USA demonstrates that such programs greatly                        Morton on 1-800-283-800 or Peter Camenzuli and Nigel
          increase the autistic child’s ability to receive a normal                          Fischer at JR.
          education and integrate better into society. There is currently
          no government support for such programs.

          Congratulations To:
          Congratulations to Sarah Davies & Mark Siganto on their wedding on September 18, 2004. The happy couple honeymooned
          in Thailand.
          Congratulations to Tracey and Yancey Norris on the birth of their first baby, Hugh, who was born August 30. Both parents and
          baby Hugh are doing well.
          Professional Appointments:
          Kirsten Gafney – Business Services
          Kirsten joined JR on May 31 after 18 months at a smaller Brisbane Accounting Firm.
          Cole Wilkinson – Business Services
          Cole moved to Brisbane from Armidale NSW and joins the firm as an undergraduate.
          James Field – Business Services
          James joined JR in July as a graduate and had previously been studying Honors at UQ.

                                                  For all your queries contact one of our specialist team on 3222 8444.

          Privacy Statement If you do not wish to receive this newsletter in future please contact our privacy officer:
          Jocelyn Horton Johnston Rorke GPO Box 1144 BRISBANE QLD 4001 / Phone: (07) 3222 8444 / Fax: (07) 3221 7779 / Email:
          Johnston Rorke complies with the requirements of the Privacy Act 1988 and the National Privacy Principals. In summary, we will collect certain personal
          information from you, or your staff during the course of our engagement and we will comply with the requirements of the Act in relation to the collection, storage,
          use and protection of such information. Our detailed privacy policy is available on our website,
          The information provided in this newsletter is a guide only and should not be relied upon as advice from Johnston Rorke.


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