Director identification numbers now law

In an effort to reduce the instances of phoenixing, where the controllers of a company deliberately avoid paying liabilities by shutting down indebted companies and transferring assets to another company, a new initiative of director identification numbers (DINs) has been passed and will come into effect in the near future. Currently, while the law requires that directors' details be lodged with ASIC, it is not a requirement that the regulator verify the identity of directors, which could lead to fraudulent use of stolen identities as well as other illegal activities. It is estimated that black economy and phoenixing activity in particular costs the economy between $2.9bn and $5.1bn annually. This includes creditors not receiving payment for goods and services, employees not receiving back wages or superannuation entitlements and the general loss of tax revenue for the government. The new DIN will require all directors to confirm their identity and will be a unique identifier for each person who is a director or elects to become a director. The identifier is permanently linked to the individual even if they cease to be a director, in other words, the DIN is not intended to be re-issued to another person and each person will only be issued with one DIN. It is intended that the DIN will provide traceability of a director's relationships across companies, enabling better tracking of directors of failed companies and prevent the use of fictitious entities. This will allow regulators with ASIC and external administrators to investigate a director's involvement in what may be repeated unlawful activity including illegal phoenixing. In addition to illegal phoenixing, the new DIN regime will also offer other benefits such as simpler more effective tracking of directors and their corporate history to reduce time and cost for administrators and liquidators, improving overall efficiency of the insolvency process, improve data integrity and security. Under the new regime, any individual wishing to become a director must apply for a DIN with the appropriate registrar before they are appointed as a director. However, under certain circumstances, such as a transitional time period, there will be additional time allowed for directors or potential directors to apply for the DIN. For example, during the first 12 months of the operation of the DIN regime, an individual that is appointed as a director has an additional 28 days to apply for a DIN. If a DIN is not applied for within the applicable timeframe, civil and criminal penalties may be imposed on directors. Further, any conduct that would be considered to undermine the DIN requirement will also be subject to civil and criminal penalties (eg deliberately providing false identity information, intentionally providing a false DIN, or intentionally applying for multiple DINs). For current directors, don't fret, there appears to plenty of time to get ready for this change. The legislation is currently not set to commence for nearly 2 years, although an earlier date may be proclaimed by the Governor-General so watch this space.

Get ready for changes to the JobKeeper

Businesses nervous about the state of the economy in the wake of a potential second wave can breathe a sigh of relief; the government has confirmed its intention extend the JobKeeper beyond the current legislated end date of 27 September with a few tweaks to eligibility and payment rates. While the government has extended the JobKeeper from 28 September 2020 to 28 March 2021, not everyone currently on the JobKeeper will be treated the same. Part of the changes include the introduction of a part-time rate to "better align the payment with the incomes of employees before the onset of the COVID-19 pandemic". The rates per fortnight for the following periods are: 28 September 2020 to 3 January 2021: full rate - $1,200; less than 20hrs worked (part-time rate) - $750. 4 January 2021 to 28 March 2021: full rate - $1,000; less than 20hrs worked (part-time rate) - $650. Employees who were employed for less than 20 hours a week on average in the four weekly pay periods ending before 1 March 2020 will receive the part-time rate from 28 September 2020. Businesses will therefore be required to nominate which payment rate they are claiming for each of their eligible employees. Payment by the ATO will continue to be made in arrears, and alternative tests are available where the employees' hours were not usual during the February 2020 reference period. In addition to the change in payment rates, businesses that want to continue claiming the JobKeeper payment beyond 27 September 2020 will be required to reassess their eligibility with reference to their actual turnover in the June and September quarters as well as satisfying existing eligibility requirements. To be eligible for the JobKeeper for the period 28 September 2020 to 3 January 2021, businesses will be need to demonstrate that their actual GST turnover has significantly fallen in both the June quarter 2020 (April, May and June) and the September quarter 2020 (July, August, September) relative to comparable periods (generally the corresponding quarters in 2019). Similarly, to be eligible for the second JobKeeper extension from 4 January to 28 March 2021, businesses will again need to demonstrate that their actual GST turnover has significantly fallen in each of the June, September and December 2020 quarters relative to comparable periods (generally the corresponding quarters in 2019). A 30% decline is considered significant (in line with existing eligibility requirements) for most businesses not including not-for-profits. As the deadline to lodge a BAS for the September quarter or month is in late October, and the December quarter (or month) BAS deadline is in late January for monthly lodgers or late February for quarterly lodgers, businesses will need to assess their eligibility for JobKeeper in advance of the BAS deadline in order to meet the wage condition (which requires them to pay their eligible employees in advance of receiving the JobKeeper payment in arrears from the ATO).

Tax time 2020: individuals

With the end of the financial year fast approaching, tax time is once again upon us. This year, however, is not an ordinary year as we all know. With the economic impacts of the COVID-19 pandemic followed by considerable government stimulus, there are some key matters individuals lodging their returns need to be aware of. If you're one of the 1.98m individuals accessing super early as a part of the COVID-19 early release scheme, breathe a sigh of relief as any money that has been accessed will not form a part of your assessable income. Therefore, those individuals that have withdrawn an average of $7,475 from their super will not have to pay tax on that payment. Another key difference this year is the introduction of the optional simplified method to claim work from home expenses. This method allows you to claim 80 cents for each hour you work from home to cover all deductible expenses from 1 March 2020 to 30 June 2020. However, if you were working from home before 1 March 2020 or if your documented actual expenses work out to be more than 80 cents per hour, you can still use the normal method to claim expenses related to working from home. Note that under the normal method you can claim electricity expenses associated with heating, cooling, lighting used for work, cleaning costs for a dedicated work area, phone and internet expenses, computer consumables (ie printer paper and ink), stationery, home office equipment (ie computer, printer, and furniture) either full cost or decline in value depending on the cost. Whichever method you end up choosing, you'll need to keep records. For the simplified method, you will need to keep a record of the hours you worked at home (ie timesheets or diary notes). For the normal method, you will need to keep a record of the number of hours you worked from home along with records of your expenses. For those individuals that were unable to work from home and had to take leave or were temporarily stood down, if the employer made any kind of payment, either regular or one-off, you will need to declare them as wages and salary on your tax return and pay tax at your normal marginal tax rate. This applies regardless of whether the payments are funded by the JobKeeper. In addition, if you've been made redundant or your employment terminated, any payment you receive may consist of a tax-free portion and a concessionally taxed portion which means that you could potentially pay less tax.

Additional cash flow boost coming your way

If your business is one of many that received the initial cash flow boosts as a part of the government's COVID-19 economic stimulus measures, prepare for more help coming your way. When you lodge your monthly or quarterly activity statements for June to September 2020, your business will receive additional cash flow boosts. The additional amount you receive will be equal to the total amount of initial cash flow boosts that you previously received and will be split evenly between your lodged activity statements. Therefore, quarterly payers will generally receive 50% of their total initial cash flow boost for each activity statement, while monthly payers will generally receive 25% of their total initial cash flow boost for each activity statement. For example, if your business lodges activity statements quarterly and you received an initial cash flow boost of $10,000, when you lodge your June to September 2020 quarterly activity statements your business will receive $5,000 for the quarter ended June 2020 and $5,000 for the quarter ended September 2020. Although, if your business lodges monthly activity statements, you will receive $2,500 for each month of June, July, August and September 2020. Beware however if your business has revised activity statements after lodgement, it may affect the amount of cash flow boost you may receive. You can check your statement of account through ATO online services for details on how your account may have been adjusted to work out how it will affect your cash flow boost payment. Remember, if you have not made payments to employees subject to withholding, you need to report zero for PAYG withholding when lodging your activity statements to ensure that you receive the additional cash flow boost payments for June to September 2020. It is important that you do not cancel PAYG withholding registration until you have received the additional cash flow boosts. To take advantage of the additional cash flow boost payments, make sure you lodge your activity statements by the due dates below: For quarterly lodgers, the due dates are:28 July 2020 for the April-June 2020 quarter; and 28 October 2020 for the July-September 2020 quarter. For monthly lodgers, the due dates are:21 July 2020 for June 2020; 21 August 2020 for July 2020; 21 September 2020 for August 2020; and 21 October 2020 for September 2020.
The ATO has recently released a guideline which provides a transitional compliance approach for complying super funds including SMSFs concerning the application of provisions in relation to certain non-arm's length expenditure (or where expenditure is not incurred) in gaining or producing ordinary or statutory income. Section 295-550 of the ITAA 1997 sets out rules as to when a complying super fund will derive non-arm's length income (NALI). Under the amendments to s 295-550, income is included in a superannuation fund's non-arm's length component and taxed at 45% if there is a related-party scheme and: non-arm's length expenses are incurred in gaining or producing that income; the fund holds a fixed entitlement to the income of a trust, derives income as a beneficiary of that trust and incurs non-arm's length expenditure in acquiring that entitlement or in deriving that income; or no expenses are incurred but the fund might be expected to have been incurred expenses if the transaction were on arm's length terms. A draft law companion ruling on non-arm's length income had been previously issued and was subsequently withdrawn. From the consultation feedback on the draft law companion ruling, the ATO's preliminary view on the issue was that certain non-arm's length expenditure incurred by a complying super fund may have a sufficient nexus to all ordinary and/or statutory income derived by the fund for that income to be NALI (eg fees for accounting services). A simple example to illustrate the complexity above would be where a trustee of an SMSF, who is also a partner in an accounting firm, contracts the accounting firm to provide services to the fund and the firm does not charge the fund for those services. For the purposes of s 295-550, the scheme involves the SMSF acquiring the accounting services under a non-arm's length arrangement. The non-arm's length expenditure (nil amount incurred for the services) has a sufficient nexus with all of the ordinary and statutory income derived by the SMSF in the relevant year the accounting services were performed. As such all the of the SMSF's income for the relevant year is NALI and potentially taxed at 45%. However, the ATO notes that as the above view was not explicitly stated in the initial draft law companion ruling which was subsequently withdrawn. Therefore, it is understandable that trustees of complying super funds may not have realised that amendments will apply to non-arm's length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in an income year. As such, pending the finalisation of the draft law companion ruling, the ATO will not allocate compliance resources to determine whether the NALI provisions apply to a complying super fund for the 2018-19, 2019-20 and 2020-21 income years.

Don’t forget the instant asset write-off

With businesses all around the country starting back up after the COVID-19 pandemic, many, including the federal government are hoping to trade their way out of a potentially prolonged recession. Businesses that are in relatively good shape can help the economy and themselves at the same time by purchasing any needed capital assets and taking advantage of the instant asset write-off now.? From 12 March 2020 until 31 December 2020, the instant asset write-off threshold amount for each asset has been increased from $30,000 to $150,000. Which means that businesses are able to purchase an asset up to the value of $150,000 and claim the entire amount (or the business-use portion) as a tax deduction provided it is first used or installed ready for use between those dates. Any businesses with an aggregated turnover of less than $500m is eligible.? You'd better be quick though, on 1 July 2020, the instant asset write-off threshold will revert back down to $1,000 and only small businesses with an aggregated turnover of less than $10m will be eligible. This means that the difference in timing could cost your business a large deduction in the current financial year. However, not all assets are included in the instant asset write-off, a small number of assets are excluded and there are special rules for the purchase of a car.? For example, if your business purchases a luxury passenger car costing $100,000 on 5 June 2020, while the instant asset write-off threshold is $150,000, you are not able to deduct the entire cost of the car. The cost of car for depreciation is limited to the car limit for the year. For the year ending 30 June 2020, the car cost limit for depreciation is $57,581, therefore, you will only be able to deduct $57,581 under instant asset write-off and cannot claim the excess cost under any other depreciation rules.? If, in the above example, your business instead purchases a work ute which isn't designed to carry passengers and has been set up with all the trade tools in the tray for use in your business, the car cost limit for depreciation would not apply. So, if the ute was purchased for $70,000 on 5 June 2020, your business is able to claim the full deduction of $70,000.? It is also important to note that your business can claim the instant asset write-off on multiple assets, as long as the cost of each asset is less than the threshold. Whether or not GST is included or excluded from the threshold largely depends on if your business is registered for the GST. For any assets that cost the same or more than the relevant instant asset write-off threshold, it will usually need to be depreciated according to either simplified depreciation rules or general depreciation rules, depending on which one the business uses and the type of asset.? 

ATO data-matching: ride sharing

Amidst the Coronavirus pandemic, many routine things have slipped under the radar, one of which is the various data-matching programs still going on at the ATO. One of the more significant data-matching programs currently occurring is on ride sourcing or ride sharing. Ride sourcing or ride sharing is any ongoing arrangement where you make a car available for public hire to passengers through a third-party digital platform for a payment or fare. Think Uber, Lyft or many other ridesharing apps. Under this program, the ATO will be acquiring data from ride sourcing facilitators to identify individuals providing these services for the 2019-20 to 2021-22 financial years. The data that will be collected include: identification details – driver identifier, ABN; driver name, birth date, mobile phone number, email address; address; transaction details – bank account details, aggregated payment details (gross fares, bet amount paid to driver, and all other income to which GST may or may not apply to) of all payments received in the relevant period. It is expected that records relating to approximately 250,000 individuals will be obtained in each financial year. The data acquired will then be matched to certain sections of ATO data holdings to identify individuals. These individuals may then be provided tailored information to help them meet their tax and super obligations, or to ensure compliance with tax law (including registration, lodgement, reporting and payment). While one of the main objectives of the data-matching program is to promote voluntary compliance and increase community confidence in the integrity of the tax and super system. The ATO notes that the data may also be used as part of methodologies by which it selects taxpayers for compliance activities. It is important to note that while the ATO is obtaining data from various ride sourcing facilitators, none of the facilitators are named. It says identifications of the facilitators/providers working with the ATO has the potential to cause commercial disadvantage given the immaturity of the industry and evolving nature of the market. As such, the ATO says it is adopting a principles-based approach to ensure fairness and transparency. New and existing ride sourcing facilitators will also be reviewed periodically against the eligibility criteria, and if required, will be included in the program. In addition, any data collected will not be used to initiate automated action or activities.

ATO compliance on “schemes”

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.

Residency implications of COVID-19

COVID-19 pandemic has wrought havoc on a global scale, causing almost every country around the world to lockdown their population and close their borders. This has drastically affected international travel and movement across borders, which is causing unintended consequences for individuals that are not Australian residents for tax purposes. One of the most common scenarios is an individual who is not an Australian resident staying in Australia longer than expected due to not being able to return to their home country. According to the ATO, if you're in Australia temporarily for some weeks or months, you will not become an Australian resident for tax purposes as long as you usually live overseas permanently and intend to return there as soon as you are able to. In those cases, the individual would only be assessable on income from Australian sources subject to the application of double tax agreements (DTAs) between Australia and their home country. A tax return would only need to be lodged if the individual earns salary or wage income that is assessable in Australia. However, a temporary resident could become an Australian resident for tax purposes if they end up staying for a lengthy period and/or do not plan to return to their country of residency when they are able to do so. In those situations, the individual could be assessed on all Australian-sourced and foreign-sourced income including salary, wages, and investments. The ATO notes that the issue of residency depends on the unique individual circumstances of each case with a range of potential tax outcomes. Another likely scenario is a temporary resident who usually works overseas continuing to earn salary and wages through their foreign employer by working remotely. Whether or not this income is assessable depends on the source of income and DTAs. The ATO notes that usually the place where the employment is exercised is very significant when deciding the source of employment income. However, it accepts that COVID-19 has created a special set of circumstances and short-term working arrangements of three-months of less where a non-resident usually works overseas but instead performs the same employment in Australia will not have an Australian source. For working arrangements lasting longer than three-months, the ATO will consider the facts and circumstances in deciding whether the employment is connected to Australia. In all scenarios, DTAs may determine that in certain circumstances, employment income derived from performing employment duties for a short period in Australia by an individual who is a resident of a foreign country (after applying DTA tie-breaker rules) will not be taxed in Australia. Each DTA is different, therefore, depending on your home country, the taxation outcome may be different.
SMSFs entering into arrangements which involve the purchase and development of real property for subsequent disposal or leasing should beware, the ATO is keeping a close eye on these types of agreements, irrespective of whether they are with related or unrelated parties. As outlined in a recent regulator bulletin, the ATO is concerned with an increasing number of arrangements which the investment activity in developing real property is undertaken utilising joint venture arrangements, partnerships, or investments through ungeared related unit trusts or companies.

 Whilst property development can be a legitimate investment for SMSFs, provided it complies with Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994; the ATO's concern centres around inappropriate use of these investments to divert income into the superannuation environment, ventures that could be detrimental to retirement purposes, or arrangements used to manipulate a members' transfer balance accounts. The regulatory issues that can arise in development of real property that is causing particular uneasiness for the ATO include: 

Sole purpose test – does the arrangement mean the SMSF is maintained for a purpose outside those permitted. operating standards – meeting record-keeping requirements and ensuring assets are appropriately valued and recorded at market value and keeping SMSF assets separate from members' assets; loan/financial assistance – whether direct or indirect support is provided a member or their relative; 

LRBAs – if there is a borrowing, does it meet the requirements to be exempt from the prohibition on borrowing for limited recourse borrowing arrangements; potential contravention of in-house asset rules; issues with acquiring assets from a related party; 

Payments out of the SMSF – does the payment constitute an illegal early release of superannuation; and whether investments are maintained on an arm's length basis and if not whether the terms and conditions of the transaction are not more favourable to the other party than would be expected in an arm's length dealing. In addition to the above, trustees of SMSFs should also be familiar with other income tax matters which may arise in these arrangements including non-arm's length income (NALI) provisions, and the general anti-avoidance rules. The ATO notes that particular care should be taken where an arrangement involves related parties. To complicate things further, purchase and development of real property would also most likely involve GST matters such as registration, correct reporting and in some cases the application of the margin scheme. The ATO notes that it will be monitoring development arrangements involving SMSFs, particularly those that include LRBAs and related party transactions to ensure that there are no contraventions to superannuation law. It warns trustees and members of SMSFs that there may be significant adverse consequences including the forced sale of assets or the winding up of an SMSF should contraventions occur.

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