ATO compliance on “schemes”

Grahame Allen • May 17, 2020

The ATO has released its practical administrative approach to businesses claiming the JobKeeper payment. Generally, it notes that it would only apply compliance resources to what would amount to a "scheme" in terms of the entity and its external operating environment. For example, if an entity's business has not been significantly affected by external environmental factors beyond its control and/or the payments are in excess of those that would maintain pre-existing employment relationships. The integrity measure contained in the JobKeeper payment legislation ensures entities that enter into contrived schemes do not obtain a payment they would otherwise not be entitled to. It is aimed at contrived and artificial arrangements that technically satisfy the eligibility requirements but have been implemented for the sole or dominant purpose of accessing the JobKeeper payment. Where that is the case, the ATO has the power to determine these entities were never entitled to the payment. In addition, it will also be able to recover any overpayments and has the power to impose significant penalties and interest. To determine whether or not a certain arrangement is a "scheme", the ATO will largely consider the substance of the outcome achieved rather than the type of arrangement entered into. According to the ATO, some examples of schemes to obtain the JobKeeper payment which may pique its interest include: company deferring the making of supplies/payments of cash/issuing of invoices to third parties to lower the projected GST turnover in order to meet the decline in turnover threshold; company bringing forward the making of supplies to artificially lower the GST turnover in a particular quarter to obtain the JobKeeper payment; company transferring assets that are leased to third parties to a related party to reduce GST turnover; a group of entities in which the service company reduces the service fee charged to the operating company to meet the decline in turnover test (depending on the circumstances of the reduction); a group of entities in which the service company stands down employees/reduces their work hours to the operating company resulting in reduced service fees to meet the decline in turnover test; parent company of a corporate group that reduces management fees or manipulates the timing of the management fee. Whilst it is not an exhaustive list, it does provide a useful guide in what the ATO considers to be a scheme. In particular, there are two examples which points out that a reduced service fee within a group of companies does not necessarily mean that there has been a scheme. From the ATO's point of view where an entity has been significantly affected by the external operating environment that is beyond their control and applies for the JobKeeper payment in response to the impact (satisfying the criteria), it is unlikely to devote compliance resources to those cases.

ASIC warns consumers to beware of cold callers

By Grahame Allen • 10 May, 2024
ASIC has issued a warning to consumers to remain vigilant against high-pressure sales tactics and deceptive online advertisements used by certain cold calling operations offering unsuitable superannuation switching advice. This type of high-pressure sale tactics has been a blight on the superannuation/financial services landscape since 2020 when ASIC first started taking action against various AFS licensees. Following an extensive review, ASIC has uncovered a worrying trend where cold callers, after procuring personal details from third-party data brokers or through online baiting techniques (eg running competitions for prizes such as phones or gift cards or using certain online comparison websites), have been aggressively pushing consumers to switch their superannuation funds. These callers often have ties to a minority of financial advisers who then suggest moving the consumers' funds into superannuation products that carry hefty fees. ASIC has expressed particular concern about these practices, noting that individuals aged between 25 to 50 - the primary targets of these operations - are at risk of significant retirement savings depletion. This may be due to either reduced super value owing to unsuitable investments, excessive fees and/or other charges. In addition, ASIC has also observed a substantial flow of super savings into high-risk property managed investment schemes. These schemes are either channelled through super products offered by APRA-regulated funds or SMSFs, with subsequent kickbacks going to the cold calling entities. ASIC has reiterated its commitment to safeguarding consumers and urged financial advice licensees and superannuation trustees to intensify their efforts in rooting out the nefarious elements causing consumer detriment. It notes that it will continue to take appropriate action, including enforcement action, to deter cold calling. For financial advice licensees, ASIC suggests that they improve their monitoring and supervisory systems to identify and address any concerning behaviours, ensuring their advisers are prioritising their clients' best interests. It also expects super trustees to be proactive in preventing the erosion of superannuation balances and mandating the implementation of stringent systems to oversee the deduction of financial advice fees from member accounts. In its ongoing efforts to combat these unscrupulous practices, ASIC has reviewed how trustees oversee advice fee charges and plans to publish a report detailing its key findings. In addition, to raise public awareness, it has launched a campaign advising consumers to hang up on cold callers and scroll past social media click bait offers to compare and switch super funds. ASIC notes that a typical super cold calling experience does involve receiving a statement of advice (SOA) prepared by a financial advice firm – often one that the cold caller has an existing arrangement with – it is usually “cookie cutter” advice that is expensive, unnecessary and does not consider a consumer’s individual needs, and may eventually leave individuals in a worse financial position. It reminds consumers that quality financial advice takes weeks, not days to prepare. Consumers who believe they have received financial advice that was not appropriate for their circumstances are able to initiate a complaints process, which includes contacting the business before contacting AFCA (an independent complaints body). Consumers who believe they have been a part of a scam should report it to their super fund at the first instance, and also to Scamwatch and ASIC.

Navigating complexities of crypto investments: SMSFs

By Grahame Allen • 03 May, 2024
The digital currency landscape continues to be treacherous terrain for Self-Managed Super Fund (SMSF) trustees, with a growing number of reports indicating significant losses due to a variety of factors, including scams, theft, and collapsed trading platforms. As the allure of high returns from crypto investments tempts many, the ATO is emphasizing the need for increased vigilance and education to safeguard superannuation benefits. The ATO has identified several causes of crypto investment losses: Trustees are being duped by fraudulent crypto exchanges, which promise high returns but are designed to siphon off investors' funds. Cybercriminals are increasingly targeting crypto accounts, hacking into them to steal valuable cryptocurrencies. A number of crypto trading platforms, particularly those based overseas, have collapsed, leaving investors with significant losses. Some trustees find themselves permanently locked out of their crypto accounts due to forgotten passwords, losing access to their investments. Scammers impersonating ATO officials are tricking individuals into revealing wallet details under the guise of investigating tax evasion, leading to losses. The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing. Resources such as the ACCC's Scamwatch and ASIC's MoneySmart provide valuable information on recognising and avoiding scams. Moreover, the ATO highlights that many crypto assets are not classified as financial products, meaning that the platforms facilitating their trade often lack regulation. This increases the risk of loss without recourse. For those SMSF trustees faced with the loss of a digital wallet, the first step is to determine whether the loss is simply one of lost access or if there is loss of evidence of ownership. In either case, meticulous record-keeping is the key to navigating the situation. The ATO allows for the claim of a capital loss if trustees lose their crypto private key or if their cryptocurrency is stolen. However, to substantiate such a claim, trustees must provide comprehensive evidence, including the date of acquisition and loss of the private key, the associated wallet address, the cost to acquire the lost or stolen cryptocurrency, and the amount present in the wallet at the time of loss. Additionally, proof that the wallet was under the trustee’s control, such as transactions linked to their identity or hardware that stores the wallet, is essential. It is important to note that while some may still consider cryptocurrency to be private and anonymous, and may baulk at reporting gains made, the reality is much different. The ATO has the ability to track cryptocurrency transactions through electronic trails, in particular where it intersects with the real word. In addition, through data matching protocols, the ATO requires cryptocurrency exchanges to furnish them with information on transactions, making it possible to trace and tax crypto trades. Trustees are therefore encouraged to report all transactions. For SMSFs that run businesses and accept cryptocurrency as payment, the approach to accounting is akin to dealing with any other asset, the value of the cryptocurrency needs to be recorded in Australian dollars as a part of the business’ ordinary income. In addition, where business items are purchased using crypto, including trading stock, a deduction is allowed based on the market value of the item acquired. SMSFs that run businesses should also be aware that there may be GST issues with transacting in crypto.

Trust reporting changes from 1 July 2024

By Grahame Allen • 26 Apr, 2024
Changes to simplify reporting for trustees and beneficiaries are commencing from 1 July 2024 as a part of the Modernisation of Trust Administration Systems (MTAS) project. From that date, labels in the statement of distribution, which is a part of the trust tax return, will be modified, a new schedule will be introduced for all trust beneficiary types, and new data validations will be added. Looking at each of these changes in depth, from the 2023-24 income year and onward, four new capital gains tax (CGT) labels have been added into the trust tax return statement of distribution. These changes will enhance the ability of trustees to appropriately notify beneficiaries of their entitlement to income and support the calculation of the CGT amount in individual tax returns. The ATO recommends that all beneficiaries obtain copies of the trust statement of distribution as it relates to their individual entitlements. This will allow beneficiaries to include the correct information in the new trust income schedule. The trust income schedule instructions will demonstrate how the information on the tax statement provided should be reported on the trust income schedule. This also includes trust income from a managed fund. It should be noted that beneficiaries will still need to complete existing trust income labels in beneficiary income tax returns as this new trust income schedule will not replace any existing trust income labels. Individual beneficiaries who lodge via MyTax will receive prompts about the additional reporting of trust income. In addition to these reporting changes, the ATO has reminded trustees that where beneficiaries’ entitlements reflected in trust resolutions are subsequently changed by either arguing the resolution as invalid, defective or made at a different time, it should be notified as an affected party where the change triggers tax consequences. For context, to ensure that beneficiaries are presently entitled to trust income, discretionary trusts are usually required to make a resolution by 30 June of any specific income year. For those specifically entitled to a capital gain, trustees of discretionary trusts must make a resolution in respect of that capital gain by 31 August following the income year in which the capital gain is made. According to the ATO, high-risk behaviours by trustees can include altering trust resolutions after tax returns are lodged, failing to inform the ATO of errors in trust deeds or their administration, and making decisions that affect the tax liabilities of a trust, such as early vesting, without notifying the ATO. These actions can lead to disputes over entitlements, amended assessments, and the potential for tax fraud or evasion charges if the issues are not promptly and transparently addressed with the ATO. The ATO notes that it is critical for trustees of trusts to maintain open and honest communication with the ATO, as failure to do so may lead to serious consequences, including the possibility of amended tax assessments for fraud or evasion (which are not limited by the standard four-year review period) and the imposition of significant penalties. The need for trustees to promptly advise the ATO of any mistakes in the trust deed or in the administration of the trust to prevent legal and financial complications cannot be overstated.
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