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ATO targeting mischaracterised lifestyle assets and private pursuits

The Australian Tax Office (ATO) is targeting privately owned and wealthy groups that display specific behaviours and characteristics in relation to their tax affairs and lifestyle.

A large focus is currently on lifestyle assets and private pursuits that generate deductions or are mischaracterised as business activities. The ATO is also looking at those assets and pursuits which are incorrectly accounted for in terms of Division 7A or Fringe Benefits Tax (FBT).

Activities that attract the Tax Office’s attention include:
– private aircraft ownership or activities
– art ownership and dealings
– car or motorbike racing activities
– luxury and charter boat activities
– enthusiast or luxury motor vehicles
– grape growing and other farming pursuits
– horse breeding, racing and training activities
– holiday homes and luxury accommodation provision
– sporting clubs and other activities involving the participation of principals or associates of principals of private groups.

The ATO is addressing the following tax risks:

Income tax
– Entities claiming deductions from ownership lifestyle assets or private pursuits against other income derived by the entity but not carrying on a business.
– Individuals disposing of assets and not declaring the revenue or capital gains on those disposals.
– Entities incorrectly apportioning deductions where assets have been used privately or periods not available for rent or hire.
– Division 7A – individuals purchasing assets through their business entities but applying assets to the personal enjoyment of a shareholder or associate of a private company giving rise to a deemed dividend.

FBT
– Individuals purchasing assets through their business entities but applying those assets to the personal enjoyment of an employee or associate giving rise to a FBT liability.

GST
– The purchasing of assets or expenditures concerning private pursuits for personal use through their business or related entities and claiming input tax credits they are not entitled to claim.

Superannuation
– SMSF’s acquiring assets but applying them to the benefit of the fund’s trustee or beneficiaries.

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News

Income stream within an SMSF

March 18, 2019

One of the best ways to ensure regular, flexible and tax-effective income as a pensioner is through an income stream from your SMSF. As a member, you can receive an income stream in a reoccurring series of benefit payments from your super fund.

Income streams from an SMSF are usually account-based, which means that the amount allocated to the pension comes directly from a member’s account. Once an account-based pension commences, there is an ongoing requirement for the trustees of the superannuation fund to ensure the pension standards and laws are met.

Standards that must be met in order for SMSFs to pay income stream pensions include:

SMSF trustees may need to amend fund trust deeds to meet the minimum pension standards. For more information on how to do this, you should consult a legal adviser. Records must be kept of pension value at commencement, taxable elements of the pension at commencement, earnings from assets that support the pension and any pension payments made.