We recently sat down with Suzie Boulous, Partner at Brown Wright Stein Lawyers, as she provides some tips on the most common issues in tax ahead of her upcoming presentation at the Comprehensive Legal Update for Your Commercial Clients, where will delve further into the topic.
In your experience, what are some of the common pitfalls relating to land tax? Any useful tips or takeaways?
Some of the common pitfalls relating to land tax include:
- using the main residence to derive income. This can have CGT implications too. It’s important to understand where to draw the line between incidental business purposes and activity that means you lose the land tax exemption. Subletting rooms in the era of the AirBnB economy is a latent trap and will be easy for the revenue authorities to cross-check as technological capabilities allow for greater data sharing;
- where homes are on more than 1 title – the question is, can you still claim land tax (and CGT) main residence for both? Take care if a garage or car space is on a separate title, particularly if it is on a parcel that is not joined or connected with the area on which the living accommodation is constructed;
- primary production exemption – using this exemption while land banking is subject to greater scrutiny, particularly if the land has a residential zoning. It is important to consider whether the primary production is a dominant use. For both land tax and income tax, you may need to look at the scale of the activities and commercial purpose of the land use;
- failure to register – NSW Revenue are allowing taxpayers to tidy up their land tax affairs and if a voluntary statement is made, may forgo all but the last few years of potential tax.
What’s one thing you can recommend in terms of processes or best practices to have in place to deal with the tax risks associated in becoming a director?
A prospective director should identify areas of operational and strategic tax risk, and prepare mitigation and escalation plans.
For an individual looking to become a director, it is best practice to carry out due diligence into the company and its affairs before accepting the role. That due diligence should include an enquiry into:
- the tax paid by the company;
- the tax collected by the company,
- the company’s attitude towards tax (for example, what approach does the company take on tax matters and what resources does the company rely on?);
- the solvency of the company; and
- other matters that may have a bearing on the tax responsibilities and liabilities of the company.
I would suggest that this due diligence be carried out with the assistance of legal and financial advisers.
From a company perspective, corporate responsibility is essential to the proper administration of the company. The ATO has spent significant time and resources focusing on corporate governance and the tax framework adopted within corporations.
At a board level, it would be best practice to have a tax strategy or framework in place that the directors can implement, oversee and hopefully build on as time progresses.
The tax strategy will assist the company and its board with transparency as well as the onboarding process for new directors.
Are there any issues to trends that might be coming in the future in tax that you think practitioners should keep on their radar?
Technology is one of the more prominent disruptors in the tax field.
The rise of real time reporting as an example of the digitisation of the tax administration process, means that information and client data is more readily available to banks, employers and the ATO. Advisers will need to upskill to understand and engage with these new technologies in order to assist clients with navigating through their tax compliance obligations. Some of the new skills may stretch beyond the traditional parameters of client engagement. From an adviser perspective, risk management and professional compliance will need to be considered in relation to these changes.
Furthermore, as we become more reliant on automated processes for standard tax work, such as the preparation of tax returns, practitioners should consider using this as an opportunity to recalibrate their focus by allocating resources towards upskilling and education and focusing on providing strategic tax advice to clients so that the value of the service offering extends beyond the digital capabilities.
Suzie Boulous is a Partner at Brown Wright Stein Lawyers. She joined our firm as a graduate in 2007 and was admitted as a solicitor in the same year. Since then, Suzie has focussed on building collaborative relationships with her clients and their professional advisers. Connect with Suzie via email or LinkedIn