What the Federal Budget means for SMEs? PART 1

This is the first of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

DIVISION 7A - PERSONAL USE OF COMPANY-OWNED ASSETS (CARS, BOATS, HOLIDAY HOMES, ETC)

Division 7A applies where the business is operating under a corporate structure. 

Div 7A basically says that any monies withdrawn by individual owners should be treated as a "deemed dividend" unless it can be proven that it is a "loan" with an appropriate interest rate and documentation. 

The government has indicated that it is thinking of including the personal use of company assets as an infringement of Div 7A as well.

Example

Say, an individual owner uses the company-owned car on the weekends (ie. 2 out of the 7 days of the week). 

The new rule says that 2/7 of the "market value" of the car use should be considered a "payment" to the owner as per Div 7A. 

So, proper documentation needs to be drafted to show that the "personal use" portion of the car is a "loan" and not a dividend payment. This is regardless of the fact that there has not been any real CASH movements.

There will issues with how the "market value" of the use of the assets will be calculated, etc. 

SUMMARY

We will update everyone as soon as the new guidelines are released. 

But, in summary, if you use your company assets for personal purposes, it may now fall under Division 7A. This includes vehicles, housing, and other assets.

This will mean that some SMEs may have to speak to their tax/legal advisers to re-evaluate their business structures.

END OF PART 1 

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 2

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

ATO ALERT: Data-matching program targeting car sales

Grim news for those caught under this new data-matching program started by the ATO.

The ATO will be reviewing all car sales  over $10,000 that was made in the 2007 / 2008 financial year. Apparently, 1.7 million sales records fall under this category. The information has been provided to the ATO via the motor registries around Australia.

The previous crackdown in 2008 was for "luxury" car sales over $57,000. In that case, a whooping 70% of investigations yielded a tax liability for the ATO. A very good return on investment, indeed..! 

So, no surprise that its now chasing after the "middle-class".

WHO DOES IT AFFECT?

1. Employers who have provided their employees with car benefits. 

Any benefit provided to your employees outside of wages & salaries is subject to the Fringe Benefits Tax (FBT) rules. 

The ATO will be catching out any employers who have not been declaring FBT on car benefits to employees.

2.  Persons who appear to be living beyond their financial means. 

If you declare a taxable income of only $10,000 but buys a car worth $30,000, then that's suss...!

The ATO will be investigating you to see whether or not you have been paid in cash and not declaring it.

3. Persons who buy and sells cars regularly for profit. 

There is a strong distinction between "car enthusiasts" & "car dealers". Its the ol'  hobby vs. business argument. It's commonsense at the end of the day. 

If you are turning over 50 cars a year, you may be classified as a business..!! The ATO will be looking at classifying those profits as undeclared capital gains on sale.

If you fall under any of the above, it might be a good idea to see a tax accountant to suss out potential liabilities, etc.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

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