Bonus Article, Regulatory Roundup November 2019

Draft guidance directs that capital gains are not to be included in FITO limit

A draft taxation determination has been issue by the ATO to clarify that capital gains are not included when calculating the foreign income tax offset (FITO) limit.

TD 2019/D10 says the FITO limit calculation involves a comparison between Australian tax actually payable and the Australian tax that would be payable if certain income, and deductions reasonably related to that income, were disregarded. Generally, the higher the amount of income captured, the higher the FITO limit.

The draft determination states that if a taxpayer made a capital gain in respect of which you have not paid any foreign income tax, no amount in respect of that capital gain will be included. The ATO states that amounts are included if they are amounts of “ordinary” or “statutory” income from a source “other than an Australian source”.

But it adds that a net capital gain does not have a source. “It is a product of capital gains and capital losses made during the income year from Australian and non-Australian sources, the application of unapplied net capital losses from earlier income years, and applicable discounts.”

The ATO says that when the final determination is issued, it is proposed to apply both before and after its date of issue (with the usual allowances for dispute settlements).

To claim vehicle expenses, odometer records are not strictly “set-and-forget”

The rules for individuals making claims for vehicle expenses (which apply to both employees and non-employees) state that taxpayers are required to substantiate claims for a vehicle that is used for income producing purposes.

Remember however that unlike other work-related expenses, the $300 substantiation threshold does not apply to claims made for car expenses.

There are two methods to choose from (from the 2015-16 income year) — the log book method, or the cents per kilometre method (currently 68 cents).

For each car used in deriving assessable income, only one of these two methods can be used to substantiate claims in an income year. Each method may or may not result in higher or lower claims, but importantly each has different record keeping requirements.

With regard to the log book method, the relevant section of the law says: “You must keep odometer records for the period when you held the car during the income year” (our emphasis). Another section of the same law deals with keeping odometer records for a car for a period. This states that a car’s odometer readings should be made at the start and at the end of the period (us again), with the following information also recorded:

  • The car’s make, model and registration number
  • The engine capacity expressed in cubic centimetres

Additionally, in regard to the 12-week period, the rules say: “If you want to use the ‘log book’ method for two or more cars for the same income year, the log books for those cars must cover periods that are concurrent.”

LRBA amounts now included in TSB calculation

The calculation of an individual’s total superannuation balance (TSB) will now include, in certain circumstances, the outstanding LRBA amount attributable to each member’s interest where the fund has an LRBA that was made under a contract entered into on or after 1 July 2018.

This will apply if:

  • the LRBA is with an associate of the SMSF — in this case all members of the fund whose interest is supported by the asset purchased with the LRBA must include their portion of the outstanding balance of the LRBA amount in their TSB calculation
  • a member of the fund met a condition of release with a nil cashing restriction — in this case, the member must include the outstanding LRBA amount attributable to their super interest in their TSB calculation.

This change doesn’t include the refinancing of an LRBA that was made under a contract entered into before 1 July 2018, where both the following apply:

  • the new borrowing is secured by the same asset or assets as the old borrowing
  • the refinanced amount is the same or less than the existing LRBA.

The change is spelt out in Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019, which has now become law, with an effective date of 1 July 2018.

Testamentary trust change proposed
Treasury has released exposure draft legislation that targets an “unintended consequence” involving testamentary trusts that allows some taxpayers to inappropriately obtain a concessional tax treatment.

The measure spells out that minors will be taxed at adult marginal tax rates (not the higher rates for minors) only in respect of income a testamentary trust generates from assets of the deceased estate, or the proceeds of the disposal or investment of these assets.

If passed without amendments, the change will apply from 1 July 2019.

SMSF status report
The ATO’s Self-managed super fund quarterly statistical report – June 2019 is now available. Highlights include that there are now more than 1.125 million SMSF members, 599,678 funds, a total estimated asset total of $748 billion. Average assets sit at $1.3 million per fund, and $679,000 per member.