The Government has introduced legislative changes to protect deductions claimed by investors in forestry managed investment schemes where the four-year holding period requirement to claim the deduction is failed for reasons genuinely outside the investor’s control. The change will assist investor’s in schemes which are wound-up or insolvent.

The Government has presented a Bill in Parliament which proposes to introduce an income test to restrict eligibility to the entrepreneurs’ tax offset. The offset presently provides a 25% tax offset on the income tax liability of small businesses that have an annual turnover of $75,000 or less, phasing out from a turnover of $50,000. The proposed test will restrict access to the offset for single individuals with income of over $70,000 and for families with income of over $120,000.

The Tax Office has issued a Taxpayer Alert warning taxpayers about uncommercial arrangements designed to create or increase an entitlement to a reduced input tax credit during a company’s float, merger or acquisition. Under the arrangement, a company involved in a takeover would use a related associate entity to obtain all services required for the takeover. The associate would then invoice the company for the services and the company would then claim the credit that it would not normally be entitled to if the services had been acquired from another service provider.

The Government has flagged possible action to combat fraudulent phoenix activities which the Tax Office says are costing the country around $600 million a year in lost revenue.

The Assistant Treasurer, Senator Nick Sherry, said the activity has been prevalent in the building construction industry, hospitality, cleaning services, and is spreading into other sectors. Senator Sherry said possible action may include changing the law so that directors engaged in phoenix activities cannot avoid being personally liable for paying tax that is owed and superannuation guarantee for employees.

Taxpayers who make a net loss in a business activity may, under certain circumstances, claim that loss by offsetting it against their income from other sources. This is restricted by what’s known as the ‘non-commercial losses rule’. Key changes were introduced late last year to further tighten the rules to restrict access by individuals with an adjusted taxable income of $250,000 or more. The changes apply from the 2009/10 income year.

Despite this, taxpayers who exceed the income threshold can, in limited circumstances, still access the benefit by requesting that the Commissioner exercise his discretion to do so. The Tax Office has released an application form and an evidentiary checklist to assist in this process.