Recently, there have been a few important decisions in the tax area.  I'll keep this short because you need to be aware of their importance, although not necessarily all the facts.

GST and Going Concern Rule

A taxpayer purchased a property GST-free under the going concern rule.  However, he proposed to change the use from a commercial residency with leases in place (which made them eligible for the concession) to residential accommodation, so an increasing adjustment was imposed (that is, he had to pay the GST and could not claim it back because it was residential).  It is necessary to assess the type of supply (income) that will be made in the future by the purchaser, and if to be used for an input taxed purpose (including residential) then the GST on purchase is borne and paid by the purchaser.

Ý   In any contract claiming GST free as a going concern, watch for issues like change of use, and the acquisition of 'all necessary items to continue the business'.

GST and Start up Enterprises

To be able to claim GST on a start up business, the taxpayer must be able to show that activities have been undertaken consistent with business (not just a structure for a potential opportunity) and that the activities were consistent and appropriate for the type of enterprise.

CGT and Dates

CGT is triggered by the date the contract is signed, not when it settles.  However, the ATO has successfully claimed that the date of a Heads of Agreement should be used when the Agreement commits to the sale.  This could impact on the year in which the CGT would be taxable, or whether or not the concessions could be claimed under the maximum assets test, the retirement exemption, and the small business rollover.

CGT and Maximum Net Asset Value Test (MNAV)

For CGT concession purposes, the taxpayer's MNAV must not exceed $6m.  In this case, the taxpayer's loan offset deposit was $1.2m and the loan was $1.0m.  The ATO separated the two, calling the $1.2m an asset but excluding the $1.0m loan as being private (for his home).

Ý It is vital to check entitlement to the CGT concessions before selling, and again before lodging tax returns.

Ý It is also critical to 'properly' value assets, the ATO uses the Valuer General it if is not satisfied that the taxpayer value is based on sound principles (like valuations of business and real estate).

The key principle to take from this is that the ATO will rigidly check that concessions and claims have been properly made, so contracts of sale etc., need to be considered well before signing.

Trust Resolutions by 30 June

The ATO found general compliance was not good so it plans to continue reviews of trust resolutions, especially in field audits.

Ý Trust Resolutions for distribution of profits must be completed by 30 June each year.