Is the ATO blocking you?

Have you tried to contact the ATO and were unable to get through to speak to an officer or was outright blocked? Well, you're not alone, according to the latest figures released (year to date 31 December 2019), the ATO failed at its target of answering 80% of general calls within 5 minutes, while blocking almost 500,000 calls. For the year to 31 December 2019, the ATO answered a total of around 3.7m calls within the 5-minute target. 252,196 calls, almost 7%, were abandoned, and 491,186 calls, almost 13% were blocked. During tax time, a total of around 3m calls were answered within the 5-minute target. 207,741 calls, around 6%, were abandoned, and 485,348, or 16% of calls were blocked. According to the ATO, it blocks calls from "entering the ATO environment" when inbound calls are expected to significantly exceed its capacity. While the ATO says blocking calls minimises the risk of taxpayers queuing for excessively long periods of time then subsequently abandoning the call without receiving service, it is cold comfort for those whose calls were blocked. It is unknown how long calls are being blocked during these peak periods as the ATO does not provide data on this measure, but this should be of particular concern for taxpayers in areas with unstable or poor phone reception and those who are calling during busier times such as after a natural disaster or during tax time. For the prior year (2018-19), the ATO met and exceeded their target with 81% of calls answered within 5 minutes and goes up to 87% during tax time. Almost 6m calls were answered by the ATO in that year with only 6% of calls abandoned (384,648) and 6% (372,270) calls blocked. Just in relation to tax time, around 2.5m calls were answered, with 5% (133,816) calls abandoned and 2% (56,292) calls blocked. Looking at the data, there appears to be a worrying increase in the percentage of calls being blocked from 2018-19 to 2019-20 during both tax time (2% vs 16%) and over the year (6% vs 13%), however, the effect is much more pronounced during tax time. While the ATO does not provide a cause as to why more calls are being blocked, it could be a combination of more calls to the ATO and static staffing levels. If you've been blocked, or are unable to reach the ATO, contact us. According to ATO data, 90% of tax practitioner calls were answered within 2 minutes and zero calls were blocked. We can help you get through to the ATO and get the answers you're looking for.

Scam targeting natural disaster victims

Victims of the recent natural disasters beware, there is an SMS scam circulating that purports to give you "an 8% bonus" on your 2020 tax return. The scam urges victims to start the process by filling out a form and provides a link to a what looks like the genuine myGov website. According to the ATO, this website is fake and this scam is a classic case of scammers impersonating the ATO in an effort to collect personal information including names, birth dates, addresses, emails, phone numbers and online banking login details. Once this information is obtained, scammers can use it to commit identify theft, including porting your phone, accessing your bank account, obtaining a loan in your name, lodge tax returns, steal your superannuation, commit other types of fraud or they could on sell the information to others to commit these offences. The ATO notes that over the past few years, it has seen an increasing number of reports of scammers contacting members of the public pretending to be from the ATO by SMS, email and phone. The scams are also becoming more sophisticated, such as the use of software to imitate ATO phone numbers, and the use of a three-way conversation between the scammer, the victim and another scammer impersonating the victim's tax agent. If you receive a call from someone saying they are from the ATO but aren't sure, the best course of action is to hang up and call the ATO back on the appropriate number listed on its website, or call your tax agent on their listed number to seek advice. While the ATO does send SMS, emails and calls taxpayers, remember, the ATO would never: send an SMS or email asking you to click on a hyperlink to log into myGov or other government websites; ask for personal identifying information in order to receive a refund; use aggressive or rude behaviour, or threaten you with immediate arrest, jail or deportation; project its number onto caller ID; request a payment of a debt via cardless cash, iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency, or direct credit to a personal bank account. If you've fallen victim to this or other tax-related scams, there's no shame, with increasingly sophisticated scams in play, last year over 15,000 people reported to the ATO that they provided scammers with their personal identifying information. The sooner you notify the ATO, the better the outcome.

Policing the tax man

Do you know who to turn to when you have a complaint about the way you've been treated by the Tax Office? Whether you're an individual or business, the Inspector-General of Taxation and Taxation Ombudsman (IGTO) should be your first port of call. The department has two distinct, yet intertwined functions. As the Taxation Ombudsman, the IGTO provides all taxpayers with an independent complaints investigation service. One of the main roles of the IGTO is that it must investigate complaints by taxpayers (or their representatives) where a Tax Official's actions of inactions, decisions or systems have affected them personally. As the Inspector General of Taxation, it also conducts reviews and provide independent advice and recommendations to the Government, ATO and other departments. In the first quarter of 2019-20, the IGTO received 909 complaints, a 14% increase over the same period in 2018-19. 82.4% of the complaints received were from self-represented individuals and approximately 10-12% of the individuals being small business taxpayers. Represented taxpayers were largely represented by a family member or friend, with around a third being represented by an accountant or tax practitioner. The top 5 issues raised in complaints for the first quarter remains largely the same as the previous year, that is, debt collection, payments to the taxpayer, lodgement and processing, communications, and audit and review. According to the IGTO, issues surrounding debt collection have featured consistently among the complaints lodged since the assumption of the Tax Ombudsman service. While the IGTO has direct access to ATO officers, records and systems, it cannot investigate how much tax needs to be paid, provide advice regarding structure of tax affairs or assist with decisions made by other government agencies apart from the Tax Practitioners Board. Examples of what the IGTO can investigate and assist taxpayers with include the following: extension of time to pay; review the ATO's debt recovery action; investigate delays with processing tax returns; follow up on delays in responses; confirm whether relevant information has been considered for your matter; better understand the actions and decisions taken by the Tax Office; and identify other options you may have and the agencies that can help you. Taxpayers can approach the IGTO at any stage of their dispute with the Tax Office, although it is recommended that they first approach the ATO officer/manager assigned to their case, followed by the complaints section of the Tax Office, before lodging an IGTO complaint. Complaints can be made online, via phone or post, and services are offered in languages other than English as well as for hearing, sight or speech impaired.

Insurance payouts: are they taxable?

In recent months, parts of Australia have been battered by a combination of fire and floods. As people try to piece their lives together in the aftermath, insurance payouts go a long way in helping rebuild homes and replace lost items. However, you'll need to beware if you receive an insurance payout in relation to your business, home business or rental property, as there may be tax consequences. While insurance payouts relating to personal property (including household items, furniture, electrical goods, private boats and cars) and your main residence are not taxed. If you keep a home office or run a business from home, and you receive an insurance payout in relation to the property being damaged or destroyed, there may be CGT consequences. Similarly, if you have a rental property or rented out a room of your main residence which later becomes damaged or destroyed and is subject to an insurance payout, you will need to include the insurance payout amount when you work out whether you have a capital gain or loss. This applies even if you were casually renting out a room, your home, or (part of) your farm as short stay accommodation. For those operating a business, the tax consequences of an insurance payout are even more complicated depending on what the money received is for. For example, destroyed business premises would have CGT consequences, while any insurance amount you receive for repair of damage will need to be included in your assessable income. If an amount is received in relation to damaged or destroyed trading stock, it must be included as assessable income. For any depreciating assets used in generating assessable income (ie office equipment), you will need to calculate the difference between the amount received from insurance and its book value at the time it was destroyed. Any excess would need to be included as assessable income while a deduction can be claimed for any losses. For depreciating assets in the low-value pool, you will need to reduce the closing pool balance by the amount of insurance payment you receive. In addition, the tax treatment will need to be modified if an asset was partly used to produce assessable income and in a low-value pool. The tax treatment of insurance payments for work cars are similar to that of depreciating assets described above, except if you used the logbook method for claiming car expenses. Businesses that correctly informed their insurer of their GST status when they took out the insurance will not have to pay GST on the insurance payment and may be entitled to GST credits for purchases that are made with the payment.

New measures to combat illegal phoenixing

Many of you have heard of illegal phoenixing but are not sure of what exactly it encompasses. While there is no legislative definition of illegal phoenixing or phoenixing activity, at its core, it is the use of serial deliberate insolvency as a business model to avoid paying company debts. In a report in 2018, it is estimated that potential illegal phoenixing has an annual direct cost to businesses, employees and governments of between $2.85bn and $5.13bn.

It is no wonder then the government has been on the war path to stamp out the practice. Specific measures targeting illegal phoenixing has recently been passed including:

  • new criminal offences and civil penalty provisions for company officers that fail to prevent the company from making "creditor-defeating dispositions" and other persons (including pre-insolvency advisers, accountants, lawyers, other business advisers etc) that facilitate a company making a "creditor-defeating disposition".
  • liquidators and ASIC can seek to recover the assets for the company's creditors, and in some cases, creditors can recover compensation from a company's officers and other persons responsible for making a "creditor-defeating disposition".
  • preventing abandonment of companies by a resigning director or directors, leaving the company without a natural person's oversight. Practically, under the new laws, a director cannot resign or be removed by a resolution of company members if doing so would leave the company without a director (unless the company is being wound up).
  • if the resignation of a director is reported to ASIC more than 28 days after the purported resignation, the resignation is deemed to take effect from the day it is reported to ASIC. However, a company or director may apply to ASIC or the Court to give effect to the resignation notwithstanding the delay in reporting the change to ASIC.
  • the Commissioner of Taxation can now collect estimates of anticipated GST liabilities (including LCT and WET liabilities). The Commissioner can also recover director penalties from company directors to collect outstanding GST liabilities (including LCT and WET) and estimates of those liabilities.
  • Commissioner of Taxation can also to retain a refund to a taxpayer that has other outstanding lodgements or information that needs to be provided.

Legitimate businesses need not fret, safe habour provisions for genuine business restructures and 

Changes to student loans

With the average annual cost of an undergraduate degree for Australian students hovering around the $10,000 mark, a 3-year degree could easily cost upwards of $30,000 depending on what you're studying and where you're studying. In the current employment market, rife with short-term employment and contracting whilst at the same time maintaining the requirement for higher qualifications, an average university student could easily end up with a much larger than average debt due to changing courses, units of study, or degrees. To help these students, the new year ushers in a welcome student loan change in the form of a new combined, renewable HELP loan limit. The combined HELP loan limit replaces the current FEE-HELP limit and is a cap on what university students can borrow to cover the cost of tuition. If you're a university student with an existing FEE-HELP, VET FEE HELP and/or VET Student Loan, the debt will be carried over and count towards your new HELP loan limit. Any previous HECS-HELP debt will not be included in the HELP loan limit, but new HECS-HELP loans commencing from 1 January 2020 will be included. The new combined HELP loan limit is an increase on previous cap, which means that most students will have access to additional funds up to a limit of $106,319 for 2020. While medicine, dentistry, and veterinary science students may have access to additional funds for their study up to a maximum of $152,700 for 2020. Remember, the limit is indexed to increase on 1 January (with CPI) every year so if you're close to the limit, it may be good practice to check to see if you're entitled to borrow extra at the beginning of each year of study. Another thing to note is that the new combined HELP loan limit is renewable. That is, any repayments you make on your HELP debt will increase your available balance, up to the limit. Both voluntary and compulsory repayments will credit your HELP balance. However, any PAYG repayments will not credit your HELP balance until you complete your tax return for the year, and it is processed by the ATO. This change is in addition to other changes introduced in 2019 relating to the minimum HELP repayment threshold. Both the repayment threshold and the repayment rate were lowered so that only those earning below $45,881 escaped any form of repayment. Based on the median starting salary for female undergraduates (ie those with Bachelor degrees) of $60,000, the repayment rate would be 3% which would equate to a yearly payment of $3,189.57 if the full HELP loan limit of $106,319 was used.

Super guarantee loophole closed

The concept of super guarantee should be a very familiar to everyone, particularly anyone who is an employee, as it makes up the bulk of future retirement income. You may not know the particular name, but you would know about the requirement for employers to contribute 9.5% of your salary or wages into a nominated super account. You could also be salary sacrificing an amount of your salary and wages to put extra into your super. Did you know that, previously, salary sacrificed amounts counted towards employer contributions which meant a potential reduction in an employer's mandated super guarantee contributions. In addition, employers were also able calculate super guarantee obligations on a lower post salary sacrificed earnings base. Depending on the type of employment agreement you have with your employer, if you salary sacrificed an amount equal to or exceeding the super guarantee that the employer was required to pay, your employer could've potentially not made any additional contributions under the super guarantee. Therefore, employees who salary sacrificed could've unknowingly been short-changed and end up with lower super contributions as well as a lower salary to the tune of thousands. However, this all changed from 1 January 2020, from that date, amounts that an employee salary sacrifices to superannuation cannot reduce an employer's super guarantee charge, and do not form part of any late contributions an employer makes that are eligible to be offset against the super guarantee charge. From that date, to avoid a shortfall in super guarantee charge, employers must contribute at least 9.5% of an employee's ordinary time earnings (OTE) base to a complying super fund. OTE base consists of their OTE and any amounts sacrificed into superannuation that would've been OTE, but for the salary sacrifice arrangement. If the employer does not contribute the full amount of the super guarantee, they will have a super guarantee shortfall which is subject to a non-deductible penalty (super guarantee charge). The amount of shortfall is calculated by reference to their employee's total salary or wages base, which includes any amounts sacrificed into superannuation. There's been many prominent cases in the media of employees being paid the incorrect amount of wages and super by a range of employers. If you're unsure whether you've been short-changed in terms of super contributions from your employer, we can help you work that out.

With the transition to Single Touch Payroll almost complete for all employers within Australia, the ATO now has considerably more information to identify superannuation guarantee non-compliance in real time. Employers that do not make sufficient quarterly superannuation contributions for each employee by the due date will be liable to the superannuation guarantee charge (SGC), a penalty which is not deductible to the employer.

Generally, SGC equals the superannuation guarantee shortfall, which is made up of the total of the individual super guarantee shortfalls for all employees for the quarter, an interest component of 10% per annum and an administration component of $20 per employee per quarter. If an employer has a shortfall, they are required to lodge a superannuation guarantee (SG) statement by the 28th day of the second month following the end of the quarter.

Where the employer lodges their SG statement late or fails to provide information relevant to assessing liability to SGC for the quarter, they may be subject to an additional penalty of 200% of the amount of SGC. This additional penalty is automatically imposed on the employer by superannuation law.

While the ATO does not have discretion to remit or waive the interest and administration components of the SGC, it does have discretion to remit some of the additional 200% penalty provided the employer satisfy certain conditions. According to information released by the ATO, penalty relief will only be applied on limited circumstances where it is considered that education is a more effective option to positively influence behaviour (ie an employer with SG knowledge gaps that has led to non-compliance).

In addition to the above, an employer is only eligible for penalty relief where they have a turnover of less than $10m and they:

  • do not have a history of lodging SG statements late;
  • have lodged no more than 4 SG statements after the lodgement due date in the present case;
  • have no previous SG audits where they were found to have not met their SG obligations; and
  • have not previously been provided with penalty relief.

The percentage of penalty remission depends entirely on an employer's degree of compliance. For example, where there is severe/repeated disengagement or where the ATO is of an opinion that the employer has engaged in a phoenix arrangement, there will be no remission of additional penalty. On the other side of the spectrum, where an employer lodges an SG statement after the due date but before any ATO contact, the additional penalty may be reduced to 20% of SGC.

The ATO may also consider other relevant facts of circumstances to further increase penalty remission, including natural disasters, incorrect advice by the ATO, key system outage, ill health of key employees or the lack of business experience of principals.

More help for first home buyers

With the advent of the new year, a new measure is now in effect to give first home buyers a leg up on the property market. Starting 1 January 2020, couples that earn less than $200,000 combined, and singles that earn less than $125,000, who have never owned a property and are Australian citizens may apply for the First Home Loan Deposit Scheme (FHLDS).

The FHLDS provides a guarantee that will allow 7,000 lucky eligible first home buyers on low and middle incomes to purchase a residential property with a deposit of as little as 5%. Under the scheme, Australian permanent residents will not be eligible, and if you're applying as a couple, both will need to be Australian citizens.

To be eligible, you must meet the income criteria above, be over 18, and move into the property within 6 months from the date of settlement, or if later, the date an occupancy certificate is issued and continue to live in that property for so long as your home loan has a guarantee under the scheme. In other words, investment properties are not supported under the scheme and if you don't live in the purchased property, or if you move out of the property at a later time, your home loan will cease to be guaranteed by the scheme. At which time, you may be required to pay bank fees/charges/insurance that would've otherwise applied had you not been a part of the FHLDS.

The scheme also caps the maximum property purchase price to ensure that only modest homes are covered. For example, in an NSW capital city or a regional centre, the maximum value of property that is covered under the FHLDS is $700,000. For a Victorian capital city or regional centre the maximum is $600,000. That figure falls to $400,000 for WA, SA and Tasmanian capital cities. Queensland capital city and regional centre has a cap of $475,000.

Under the FHLDS, eligible singles or couples are able to purchase existing dwellings, house and land packages, land and separate contract to build a home, "off-the-plan" purchases, and eligible building contracts. However, each category has its own criteria which must be satisfied, for example, for "off-the-plan" purchases, the settlement date of your home loan must occur within 90 days of your home loan becoming guaranteed under the scheme.

Initially 10,000 places were released on 1 January, but 3,000 potential first home buyers have already been registered under the FHLDS by participating banks. If you miss out on the 7,000 that is currently available due to the need to gather the necessary financial information to support your application, don't fret, another 10,000 will be released from July 2020. 

The ATO has recently withdrawn Draft Miscellaneous Taxation Ruling MT 2018/D1 on the time limit for claiming input tax credits and fuel tax credits. Generally, under s 93-5 of the GST Act, the right to claim an input tax credit expires after 4 years and commences on the day on which the entity was required to lodge a return for the tax period to which the input tax credit would be attributable. Section 47-5 of the Fuel Tax Act has a similar provision which limits claims to 4 years after the date which taxpayers were required to give the Commissioner a return. 

The withdrawn draft ruling created much controversy for its strict stance on the four-year time limit rules for claiming the credits. The effect of the draft ruling was that if the Commissioner's decision on an objection or amendment request is made outside the 4-year period (but the request by the taxpayer is lodged within the 4-year period), the taxpayer would not have been entitled to the tax credits even if the decision is favourable to the taxpayer.

After the draft was issued however, the Federal Court in Coles Supermarkets Australia Pty Ltd v FCT [2019] FCA 1582 did not quite agree with the ATO stance. It accepted Coles' submissions that s 47-5 is only intended to prevent an ongoing entitlement to claim credits in a later return where a return has not been lodged or credits not claimed. The Court noted that once a return has been lodged and objected to, there is no scope for the operation of s 47-5 to disentitle a taxpayer to fuel tax credits as the right of the Commissioner and taxpayer are protected by various sections of the TAA. 

In a decision impact statement following the judgement, the ATO acknowledged that the Court's observations were contrary to its views and conceded that MT 2018/D1 was no longer current and was withdrawn. While the Coles decision only refers to fuel tax credits, given the similarity of the provisions between fuel tax credits and the GST Act, and the Court's observations regarding the right of the Commissioner and taxpayer being protected by TAA, it would stand to reason it would also apply to input tax credits. Thus, the ATO is planning to issue a new ruling that takes into account the Federal Court's observations in early 2020.

In the meantime, taxpayers will no longer be automatically denied input tax credits and/or fuel tax credits where the Commissioner makes a decision on an objection or requests for amendment outside the 4-year period. Any taxpayer that the draft ruling has affected may contact the ATO for further advice.

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