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Business grins and bears changing face of taxation

THIS time two years ago we were still getting used to adding 10 per cent to the cost of most goods and services, and businesses were yet to experience the thrill of their first BAS. Today, GST and BAS are part of our lives, but there is no time to relax – the tax changes continue to roll on.

If your business structure consists of a company that owns 100 per cent of another company, trust or partnership, as of July 1 you may be able to consolidate to form a single entity for income tax purposes. This would mean lodging only a single income tax return and only paying a single set of PAYG instalments.

Consolidation, which the Australian Tax Office tells us was designed to reduce compliance costs, is optional, but be aware that there is no going back if you decide to consolidate.

The imputation system also changed on July 1, when a ‘simplified imputation system’ was introduced.

While generally the same outcome will be achieved under the new system, there are now simpler rules, increased flexibility in franking distributions, and consistent treatment across entities receiving franked distributions.

New thin capitalisation rules were also introduced on July 1. They can apply both to foreign controlled Australian investments and to Australian entities investing overseas.

The new rules aim to limit the amount of debt that can be used to fund those Australian operations or investments. When the entity’s debt-to-equity ratio exceeds certain limits, the rules work to disallow the debt deductions that an entity can claim against Australian assess-able income.

International tax in general has recently been highlighted as possibly the next big area for reform. The Federal Treasury is expected to release a paper on the international tax review in the second half of this year.

Superannuation reform is another popular area. A select committee, chaired by John Watson, is currently conducting an inquiry into the adequacy of the tax arrangements for superannuation. It is expected to report to the Senate on Sept-ember 28.

The Federal Government proposed splitting superannuation contributions between couples before last year’s election, and treasury has now released a consultation paper suggesting three possible approaches.

Submissions close on August 26 and it is expected that married and de facto couples will be eligible to split contributions they make after July 1 2003.

A new tax watchdog should be in place by the end of the year. The Inspector General of Taxation will be an independent adviser who will identify systemic problems in the tax administration system. The necessary legislation is expected to be introduced in the spring sitting of parliament.

Between now and October 31, most Australians will be lodging their income tax return and, as usual, there are a few changes from last year’s return.

You can now choose to pool many low value depreciating assets.

The cost of feasibility studies may now be deductible.

Depreciation has changed its name and is now known as ‘deduction for decline in value’.

If you received dividends from a listed investment company in 2001-2002, which included a capital gain amount, you may be entitled to a tax deduction.

If you are obliged to work in an environment where you are exposed to the harmful effects of the sun, a deduction can be claimed for the cost of sunscreen lotion, sunglasses and hats that you have used to protect you.

If, after June 30 2001, you or your spouse had a baby or gained legal responsibility of a child aged under five you may be entitled to the baby bonus.

Expected target areas for ATO attention this year are clothing, cars and other work-related expenses.

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