Category: Tax Audits

TAX AUDITS – Behaviours To Avoid

The ATO has recenty published a list of behaviours and characteristics that may attract its attention. In order to minimise the chances of ATO scrutiny, this section provides the details.

Capital Gains Tax

CAPITAL LOSSES
Broadly, the ATO is focussed on capital losses that on the face of it appear to be exaggerated, fabricated or misclassified; all with the aim or reducing taxable income. Specifically, the following attract the ATO’s attention:
  • For companies, if from the time the losses were incurred to the time they are used, other information indicates that the company had a change in ownership or there was a change in the type of activites being conducted
  • Capital losses that are artificially generated (for example, non-arm’s length transactions or through ‘wash sales’ where loss-making shares are sold and then bought back) with the express purpose to offset capital gains
  • Reclassifying capital losses as revenue losses with the aim of reducing taxable income
  • “Loss washing” whereby a taxpayer deliberately triggers a CGT event (e.g. sale) in order to bring to account an unrealised loss in a year in which a capital gain is made.
DISPOSAL
The ATO focusses on your reporting and payment obligations resulting from a disposal of a capital asset. It has particular concerns where the amount of a net capital gain reported on a tax return is less than the ATO believes it should be based on their external data sources. The following specifically attract ATO attention:
  • Entities that fail to meet their lodgement obligations
  • Companies claiming the 50% CGT discount (other than life insurance companies, the discount for holding a CGT asset for 12 months or more is not available to companies)
  • Entities that receive cash through a partial scrip-for-scrip rollover. By way of background, you may be entitled to a scrip-for-scrip rollover and avoid CGT where a company in which you owned shares was taken over and you received new shares in the takeover company
  • Entities which dispose of high-value assests but record small capital gains or losses on their tax retun
  • Entities that incorrectly access the Small Business CGT Concessions. (Note that despite the increase of the Small Business Entity turnover threshold from $2 million to $10 milliion (effective 1 July 2016) this does not apply for the purposes of accessing the CGT concessions. To access the concessions, generally businesses must have an aggregated turnover of less than $2 million, or have net assets to the value of less than $6 million).
Fringe Benefits Tax

MOTOR VEHICLES
The ATO focuses on situations where an employer-provided motor vehicle is used or made available for use. This may constitute a fringe benefit and require an FBT return to be lodged. Note that an employer-provided vehicle will be deemed to be avalable for private use – and therefore a fringe benefit may arise – where an employee keeps it at their residence overnight (even if it not used).
EMPLOYEE CONTRIBUTIONS
An employee contribution is an amount paid to an employer by an employee in relation to a fringe benetit, The contribution reduces the taxable value of a fringe benefit, and must be made by the employee from their after-tax income. These contributions will normally be assessable in the hands of the employer. The FBT legislation describes three types of employee contributions: 

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