Maxim Group

September 2007

Volume 2 Issue 8

 

Maxim Insight

Wash Sales

The Tax Office recently released a draft taxation ruling regarding the application of the anti-avoidance rules to arrangements known as ‘wash sales’.

Broadly, a wash sale is an arrangement in which the sale of an asset occurs where there is no long term intention on the part of the seller to cease holding the asset (i.e. the taxpayer continues to be exposed to the economic risks of ownership of the asset).

This situation may occur where a taxpayer disposes of or deals with a CGT asset in such a way as to give rise to a capital loss or allowable deduction, and then shortly after this event, re-acquires the asset. Alternatively, an asset with an unrealised loss may be sold to a related entity to crystallise the loss.

The ruling indicates that if the Commissioner believes that a wash sale has occurred, he may cancel all the tax benefits attached to the sale. The Commissioner will look at all the facts and circumstances surrounding each sale to determine whether they demonstrate that the taxpayer entered into the sale with the purpose of gaining those benefits.

 

Car Fringe Benefits

The Tax Office recently released an interpretative decision regarding whether journeys that result in minor benefits, which are exempt under the operating cost method, will be treated as business journeys when calculating the business use of a car.

Under the operating cost method, the taxable value of the benefit is based on the operating cost of the car during the period in which the benefit arises. This method requires that employers keep substantial records to show the operating costs of the car over a period, and the proportionate business and non-business use of the car. The proportion of business use is based on the number of business-related kilometres travelled during the year.

The Tax Office has indicated that non-business travel that results in a minor benefit for FBT will still be treated as business use for the purposes of calculating the taxable value of the fringe benefit.

By including this minor exempt benefit as business travel, the ratio of business kilometres to total kilometres of the car is increased, and hence the business use percentage also increases.

Tip: when calculating car fringe benefits it is important to keep a logbook for 12 continuous weeks throughout the year, which represents the average use of the car. The logbook should also detail what the business travel was, including travel dates and times.