Tax Facts – Excise

Excise duty is a tax on certain types of goods that are made in Australia including alcohol, tobacco, fuel and petroleum products.

Customs duty is imposed at an equal rate on imported alcohol, tobacco, fuel and petroleum products to ensure imported and local goods are treated consistently. These goods are referred to as Excise Equivalent Goods (EEGs).

Entities who manufacture or store excisable goods must hold an appropriate license.

MORE: See the Excise section of the ATO web site for more information.

Tax Facts – Capital Gains Tax

Capital gains tax (CGT) generally applies to CGT events that happen to CGT assets acquired after 19 September 1985. CGT is not a separate tax, it forms part of income tax.

CGT events

The most common CGT event is the disposal of an asset by selling it or giving it away. A full list of CGT events is available here.

CGT assets

A CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include:

  • Part of, or an interest in, a CGT asset
  • Goodwill, or an interest in it
  • An interest in a partnership asset
  • An interest in a partnership, that is not an interest in a partnership asset
  • Land and buildings
  • Shares in a company
  • Units in a unit trust
  • Options
  • Debts owed to a taxpayer
  • A right to enforce a contractual obligation
  • Foreign currency.

Where a taxpayer owns an interest in a CGT asset and then acquires a further interest, the interests remain separate CGT assets. Buildings, structures and other capital improvements to land may be treated as separate CGT assets to the land. A car is a CGT asset, but any capital gain made from it is exempt from CGT (the gain may be taxable under other provisions).

Special rules apply to some kinds of CGT assets, including collectables, personal use assets, certain investments, leases and options.

Working out a capital gain or loss

For most CGT events, a capital gain arises if the capital proceeds from the CGT event exceed the cost base of the CGT asset. Conversely, a capital loss arises if the reduced cost base of the CGT asset exceeds the capital proceeds from the CGT event.

The amount of a capital gain is reduced by the CGT discount if the taxpayer is an individual, trust or complying superannuation entity, and the taxpayer acquired the CGT asset at least 12 months before the CGT event. The discount percentage is as follows:

  • 50% for Australian resident individuals
  • 33 1/3% for complying superannuation entities and eligible life insurance companies
  • Special rules apply to foreign resident individuals.

Taxpayers can choose the indexation method, rather than the CGT discount, if that results in a lower capital gain. Companies are generally not eligible for the CGT discount, but can use the indexation method. Discount capital gains made by trusts can generally be passed through to presently entitled beneficiaries, who can claim the discount percentage as above. Where the trustee is taxed on a capital gain, the availability of the discount depends on the particular circumstances of the trust.

Capital losses can only be offset against capital gains, they cannot be offset against other income. Care should be taken when applying capital losses to ensure the optimum reduction of capital gains for the CGT discount and small business CGT concessions. A net capital loss in an income year is carried forward to be offset against capital gains in later income years.

Exemptions, rollovers and concessions

A wide range of exemptions and rollovers apply. In addition to the generally available exemptions and rollovers, small business entities are eligible for the small business CGT concessions.

International issues

On or after 12 December 2006, a foreign resident makes capital gains only on the disposal of taxable Australian property. Temporary residents are subject to the same CGT rules as foreign residents, however some specific rules apply. Special rules apply on becoming a resident or ceasing to be an Australian resident.

Tax Facts – Capital Allowances

Deductions for the decline in value of depreciating assets are available under the Uniform capital allowance (UCA) system. In addition to the rules for depreciating assets, deductions are allowed for certain other capital expenditure. Small business entities have the option of choosing simplified depreciation rules.

Land, trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.

The decline in value is calculated by spreading the cost of the asset over its effective life, using one of two methods:

  • Prime cost method – decline in value each year is calculated as a percentage of the initial cost of the asset
  • Diminishing value method – decline in value each year is calculated as a percentage of the opening depreciated value of the asset.

MORE: Australian Taxation Office (ATO) Decline in value calculator.

For most depreciating assets, taxpayers can either self-assess the effective life, or use estimates published by the ATO. Taxpayers can recalculate, either up or down, the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset.

Decline in value of cars is restricted to the car limit. From 1 July 2019, the luxury car tax threshold for luxury cars remains $57,581. Luxury car leases are treated as a notional sale and purchase, with decline in value restricted to the car limit.

The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1,000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.

Tax Facts – Australian Business Number

The Australian business number (ABN) is a single business identifier that allows businesses to deal with the Australian Taxation Office (ATO) and other government departments and agencies with one identifier.
An ABN is not compulsory and not everyone is entitled to an ABN. The following entities will need an ABN to comply with other tax obligations

  • Businesses with GST turnover of $75,000 or more must register for GST and need an ABN to do this
  • Non-profit organisations with GST turnover of $150,000 or more must register for GST and need an ABN to do this
  • Entities seeking to be endorsed as a deductible gift recipient need an ABN to obtain that status
  • Charities seeking exemption from income tax need an ABN.

Other eligible entities may choose to register for an ABN:

  • Companies registered under the Corporations Law
  • Business entities carrying on an enterprise
  • Trustees of self-managed superannuation funds should obtain an ABN for the fund.

If an entity makes supplies of goods or services to a business, the supplier entity generally needs to quote an ABN. If the supplier does not quote an ABN, the payer may need to withhold tax from the payment.

Tax Facts – Activity Statement

Businesses use activity statements to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Non-business individuals who need to pay quarterly PAYG instalments also use activity statements.

Activity statements are personalised to each business or individual to support reporting against identified obligations.

Activity statements for businesses may be due either quarterly or monthly. Generally, businesses can lodge and pay quarterly if annual turnover is less than $20 million, and total annual PAYG withholding is $25,000 or less. Businesses that exceed one or both of those thresholds will have at least some monthly obligations. Non-business individuals are generally required to lodge and pay quarterly.

Businesses or individuals with small obligations may be able to lodge and pay annually. Some taxpayers may receive an instalment notice for GST and/or PAYG instalments, instead of an activity statement.

The Australian Taxation Office (ATO) web site provides instructions on lodging and paying activity statements. Detailed instructions are provided for each of the different tax obligations: