The romantics of the Australian Tax Office have changed their official definition of “love”, toughening rules for the wiping of costly debt in time for Valentine’s Day.
Since 1996, a non-binding ATO guidance has allowed corporate debt to be forgiven by creditors because of “their natural love and affection” for debtors – avoiding any negative tax implications involving matters of the heart.
Commonly used in business break-ups and family law cases, the guidance was changed in 2019, because it no longer represented the view of the ATO.
Now new draft rules under private company benefits and division 7A of the Tax Assessment Act specify that private companies are incapable of love.
The latest ATO determination says love is defined as “strong emotions of caring, fondness and attachment that arise in consequence of ordinary human interaction”.
It specified the term’s legal meaning refers to goodwill towards, or emotional attachment to, another person, particularly the relationship between a parent and their children.
Love and affection will only be determined on a case-by-case basis, with past dealings, existing relationships and future intentions all considered in tax matters.
The romantic definition is contained in a draft ruling, subjected to public comment. The process is expected to be completed by March this year.
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Murray Howlett, director of taxation services with chartered accounting firm Pilot Partners, warned taxpayers to think carefully about where to send their Valentine’s Day card this year.
“According to the ATO, love can only exist between people, it can’t exist between you and a company, because a company has no emotions,” he said.
“The same applies for your family trust.
“In the past there was a general acceptance that if you felt love for someone else it could influence the company and an acknowledgment that directors could make decisions on financial matters because of their emotions.”
Mr Howlett said that was no longer the case.
“Just remember when you’re heading out this Valentine’s Day, you’ll need to think twice if you’re going to buy flowers for your family trust,” he said.
Following the public comment period, the ATO is now considering expanding its rules to include the status of debtors and how the exemption applies to partnerships.
Valentine’s Day is already a costly proposition for Australians.
The Commonwealth Bank estimates Australian lovers spend more than $23 million demonstrating their love on February 14, including more than $13 million on romantic dinners, $7 million on alcohol and $3.2 million on flowers.
The Valentine’s effect is worth a fivefold increase in trade for flower sellers, when compared with an average day of sales in the month of February.
Australian lovers aged 26-35 account for the largest share of Valentine’s Day spending, at 38 per cent, ahead of those 18-25 at 20 per cent.
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