Where a taxpayer’s method of accounting from a cash to an accruals basis in an income year, the taxpayer may make a capital gain when they receive payment for the provision of services carried out in the previous income year.

S. 118-20 will not apply to reduce the capital gain because no amount of the debt that was taken into account in working out the capital gain was included in assessable or exempt income under a provision of the ITAA 1997 or the ITAA 1936.

Facts
The taxpayer carries on a business of providing services to clients.

The taxpayer has previously accounted for the income of the business on a cash basis.

Due to the nature and growth of the taxpayer’s business, the taxpayer decides it is more appropriate for the business to convert to an accruals basis of accounting and so the taxpayer lodges a return on an accruals basis in the current income year.

There are outstanding debts owing to the taxpayer in relation to services rendered in the previous income year. and the taxpayer receives these amounts in the current income year.

These amounts were not included in the taxpayer’s assessable income in the previous income year because of the chosen method of accounting.

Reasons for Decision
A debt owed to the taxpayer is a CGT asset under S.108-5 of the ITAA 1997.
Under S.104-25(1), CGT event C2 happens when the ownership of an intangible asset ends by the asset being satisfied or discharged, and the taxpayer makes a capital gain if the capital proceeds from the ending of the asset are more that the asset’s cost base.

In this situation:
• the capital proceeds from discharging the debt are the amounts paid to the taxpayer by its debtors: and
• the first element of the cost base (and reduced cost base) of the debt is nil, as the provision
of services in not money paid, or other property given, to acquired the debt.
• Further, the market value substitution rule in S. 112-20 will not apply to treat
the debt as having been acquired for its market value (refer to ID 205/211).

Therefore, the taxpayer makes a capital gain on the receipt of the payment, and the amount of the capital gain is the sum received in respect of the outstanding debt.

An SMSF must open and maintain its own bank account, as it is required to keep its assets and money separate from that of other entities.

Facts
The trustees of the SMSF are members of a family.
The fund has a standard employer-sponsor and all the trustees work for the standard employer-sponsor in various capacities.
There are several unit trusts owned and operated by the SMSF and/or the trustees.
The trustees have stated that, for administrative simplicity and cost savings, unit trusts jointly owned by the SMSF and trustees as well as unit trusts owned solely by the SMSF all operate using the one bank account, held in the name of the SMSF.

Decision
Regulation 4.09A of the SIS Regulations states that a trustee of an SMSF must keep the money and other assets of the fund separate from any money and assets respectively:
• that are held by the trustee personally; or
• that are money or assets of a standard employer-sponsor,
or an associate of a standard employer-sponsor, of the fund.

The unit trusts are ‘associates’ of the standard employer-sponsor of the fund in accordance with S.12 of the SIS Act.

Keeping all of the unit trust’s money in the SMSF’s bank account, including those trusts jointly owned by the SMSF, is not in line with the requirements of regulation 4.09A and therefore constitutes a contravention.

If you are under 50 years old, for financial year 2013-14 concessional cap is $25,000

Contributions caps
For the 2014-15 financial year, the concessional cap for individuals who are 49 years old or over on 30 June 2014 is $35,000.

There is 15% tax payable by your fund on concessional (before-tax) contributions paid into a super fund. Your super fund usually reduces your super account by your share of this tax.

Concessional contributions may also be referred to as ‘before-tax contributions’.
Types of concessional (before-tax) contributions include:
• employer contributions, such as
• compulsory employer contributions paid by your employer
• any additional pre-tax super contributions your employer makes
• salary sacrifice payments made to your super fund
• other amounts paid by your employer from your pre-tax income to your super fund,
such as administration fees and insurance premiums
• contributions that you are allowed as an income tax deduction, such as contributions
you make if you are self-employed (to claim a tax deduction for your personal super
contributions, you must first complete a notice of intent to claim deduction in
the approved form and give it to your super fund)

If you decide to split your before-tax contributions and give some to your spouse, these contributions still count towards your concessional cap.

Non-concessional (after-tax) contributions

For financial year 2013-14 non-concessional contribution is $150,000.
Non-concessional contributions may also be referred to as ‘after-tax contributions’.

Types of non-concessional (after-tax) contributions include:
• non-concessional (after-tax) contributions that you or your employer makes on
your behalf from your after-tax income
• contributions your spouse (including a same-sex spouse) makes to your super fund,
unless your spouse makes the contributions because they’re your employer
• personal contributions that are not claimed as an income tax deduction
• excess concessional (before-tax) contributions that you have not elected to
release from your super fund
• contributions in excess of your capital gains tax (CGT) cap amount
• retirement benefits you withdraw from your super fund and ‘re-contribute’ to super
• most transfers from foreign super funds but excluding amounts included in your
fund’s assessable income.

Exclusions
Some personal contributions may be excluded from counting towards your non-concessional (after-tax) contributions cap for a financial year. Some of the exclusions include contributions:
• made from personal injury payments
• you have chosen to count towards your CGT cap amount that have not gone over your lifetime limit.

These types of non-concessional (after-tax) contributions will only be excluded if you meet all of the conditions. You must also specifically ask your fund to exclude them by providing your fund with a Capital gains tax cap election or Contributions for personal injury form before or when you make a contribution.