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Market Essentials Report – March 2017

Posted on December 15, 2018

The topic that has had the market talking in February is the OECD’s warning that there is a near-20% risk of Australia entering a recession. They said the biggest risk is a housing “rout” that is non-negligible.

BIS Oxford Economics’ Robert Mellor flatly disagreed with the idea of a major downturn, as it’s based on a predicted rise in interest rates – something he doesn’t consider likely.

 

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Expenditure on a commercial website

Posted on December 15, 2018

Deductibility of expenditure on a commercial website.

The ATO has finally released a new ruling (TR 2016/3) dealing with the treatment of website expenditure. The previous ruling on this issue was withdrawn in 2009.

A website is considered an intangible asset consisting of software and the content available on the website to the extent it has no separate identity or value.

The ruling considers whether various expenses incurred in relation to websites would be revenue or capital in nature.

Expenditure incurred in developing a website is a capital expense, while expenditure in maintaining the website is of a revenue nature. The costs of modifying a website can be capital or revenue in nature, depending on the facts in each case. The more the modification relates to improving the profit yielding structure of the business, the more likely the expense will be capital in nature.

Capital expenditure incurred in relation to creating or modifying a website can be deducted under the depreciation rules if it is classified as in-house software. In-house software is defined as software, or the right to use software, that is mainly for the taxpayer (or their associate) to use in performing the functions for which the software was developed. The cost incurred in the development of in-house software may be deducted over 5 years from the time it is used or installed ready for use. Alternatively, the expenditure may be allocated to a software development pool or (if applicable) dealt with under the small business simplified depreciation rules (including the instant asset writeoff provisions).

Any expenditure that is capital in nature but does not form part of the cost of in-house software will form part of the cost base of a CGT asset. This means that deductions will not generally be available under the blackhole expenditure provisions in section 40-880.

The ruling contains a wide range of examples as well as a useful flowchart for characterising commercial website expenditure.

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Should your lawyer speak to your accountant?

Posted on December 15, 2018

Yes.

It may be a simple answer but more often than not a simple phone call between your trusted advisers will get you out of trouble.

Now you may have hired the best Lawyer in town but they can’t be expected to know every area of law and then tax on top of that. Just like your Accountant, easily the best in the business but they can’t be expected to know all the ins and outs of tax and then be able to provide legal advice as well. After all, there is a reason that the legal and accounting professions are separate.

We talk to many people who deal with property transactions of significant value and they know how complex the property law can be. As an example, you have bought land for $500,000, developed it and sold the new residential property for $1,500,000.  Your Lawyer has completed the contract stating that GST is calculated under the margin scheme. After discussions with your Accountant, it turns out that you aren’t entitled to apply the margin scheme as you haven’t met the conditions.

As the contract has been completed and signed, the $1,500,000 is now treated as taxable supply and you will need to report and pay GST on the total sale price. You are suddenly up for paying $136,364 of GST to the ATO instead of 1/11th on the margin as expected. If your Lawyer had contacted your Accountant, you could have factored in the excess GST of $45,455 in the selling price or charged GST on top of the $1,500,000 if sold to a registered buyer. The result is now a reduced profit….

Another example may be that your Lawyer is setting up a new Trust for your family structure in order for you to purchase land in NSW. Are they aware of the recent NSW land tax and duty surcharge implemented for Trusts with Foreign Beneficiaries? Would this apply to your new Trust? A quick call to your Accountant can help your lawyer to address the new law in the trust deed so that you can avoid potential costs.  Or perhaps your accountant may suggest a more appropriate alternative structure for your purchase?

Having your Lawyer and Accountant working together from the start will help ensure that the documents are prepared correctly, from a legal and tax standpoint, from day one, saving time and money from any possible amendments down the track.

So, next time you have engaged your Lawyer to undertake a project, ask them to speak to your Accountant. A 5 minute phone call now could save you time and money in the future.

By Sean Crowley

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