*** Div 7A, service trusts and other issues. Is the Tax Office widening its crackdown on lawyers and accountants?
… This morning, I would like to talk a little about our progress and future directions for our work in the legal and accounting industry.
I would also like to ‘report back’ to you on our progress on some of our Division 7A Deemed Dividends work.
Some time last year one of my officers advised an accounting firm that Division 7A may apply to the circumstance of a private company being presently entitled to a share of income of a trust estate, without that entitlement being satisfied by a payment from the trustee.
The accounting firm subsequently approached me and expressed their doubts as to the correctness of the view expressed by my officer.
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*** Recipient of Youth Allowance entitled to deductions
What is the issue?
Was the taxpayer entitled, as a recipient of the Youth Allowance, to deduct from her assessable income the costs incurred in the course of her study, for the participation in which she received the Youth Allowance?
What was the outcome?
The Court found that:
- the expenses claimed by the applicant were deductible in accordance with s 8-1 of the ITAA;
- the outlay of fees to enrol in a course to qualify for Youth Allowance was incurred as a necessary incident of pursuing a particular course of study;
- although the deductions were claimed by the taxpayer as “self-education expenses”, they are not to be characterised in the same way as similarly described expenses discussed in Finn’s Case or in Hatchett’s Case.
What is the impact of the decision on your firm’s practices?
The decision should force a change in internal practice procedures in relation to recipients of Youth Allowance:
- firstly – practitioners need to identify recipients of Youth Allowance and then advise them to retain records to substantiate claims for “self-education expenses”;
- second – practitioners need to incorporate claims for deductions for “self education expenses” for taxpayers in receipt of Youth Allowance;
- third – by adapting trust distributions made to recipients of Youth Allowance to allow for the resultant deductions now available.
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** What activities constitute carrying on an enterprise?
What is the issue?
Was Swansea carrying on an enterprise as it acquired pieces of art and antiques?
Was there sufficient evidence for the Tribunal to conclude that Swansea was carrying on an enterprise?
What was the outcome?
The Full Court concluded that:
- Swansea was conducting business and commercial activities in accordance with a pre-formulated policy and investment strategy:
- specialist consultants were retained;
- detailed records were kept;
- budgeting, insuring, storage and protection of the assets was carried out on a business like basis;
- the sums involved in the investment were millions of dollars.
- it was open to the Tribunal to conclude that objectively viewed Swansea’s purpose was to acquire and to hold artwork and antiques with a view to turning these to account when the circumstances were right in order to derive a profit;
- the Tribunal was therefore entitled to conclude that Swansea was carrying on an enterprise; and
- there is nothing in the legislation that indicates that investment activities would not amount to the carrying on of an enterprise.
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