Certified Accountants, Taxation, Financial advice, LBA Partners, Woree, Cairns, Queensland, Australia, Business, Planning

Accessing super from age 60 to 65

Fri, 30 Aug 2024 06:17:55 GMT

From 1 July 2024, the rules for accessing superannuation became somewhat simplified: the preservation age when you can begin to access your benefits is now effectively age 60. However, until you reach age 65, there are still potential restrictions on how you can access your super. You’ll need to “retire” before you can make lump sum withdrawals from your super account or move it into the favourable “retirement phase” when investment earnings within the fund become tax-free. If you’re aged between 60 and 65 and wish to access some of your super, now is a good time to re-examine the rules. 60 is the new threshold For anyone born after 30 June 1964, preservation age is simply age 60. You may recall that some members could previously begin to access their superannuation at various stages between 55 and 59 years. Those lower preservation ages applied for older Australians who are now all over 60 and who have already attained their preservation age. Therefore, those rules regarding ages 55 to 59 are no longer an active consideration. How much super can I access? If you are between 60 and 65 years old but haven’t yet retired, you can commence a transition to retirement income stream (TRIS). This allows you to receive a regular income of between 4% and 10% of your pension account balance each year. If you want to access more of your super, or withdraw it as a lump sum, you’ll need to satisfy a further condition of release. This includes: reaching age 65; or “retirement”. Meeting these conditions also becomes relevant for tax purposes. While TRIS payments to a person aged 60 or over are generally tax-free – regardless of whether they are retired or not – the TRIS itself does not move into the “retirement phase” until a further condition such as retirement (or reaching age 65) is met. This means that while you may start a TRIS, the TRIS will not qualify for the tax exemption on the investment earnings from fund assets that support the TRIS until you meet one of those further conditions. What does “retirement” mean? To satisfy the “retirement” condition, the first key requirement is that an arrangement under which you were gainfully employed must have come to an end. If you had already reached age 60 when that position of gainful employment ended, there are no further requirements, and your future work intentions are not relevant. However, if you had not yet reached aged 60 when that position ended, the trustee of your fund must be reasonably satisfied that you intend never to again become gainfully employed, either on a full-time or a part-time basis. For these purposes, “part-time” means working for at least 10 hours per week. This means you could intend to work for less than 10 hours per week and still meet the “retirement” condition. Planning is key Any withdrawal strategy should be carefully planned beforehand to ensure you understand the implications of accessing your super. There are many factors to consider, such as: the ongoing requirement to withdraw minimum pension amounts each year if you start a pension; implications for your transfer balance account; and interaction with the Age Pension. Contact our office if you need help understanding your eligibility for accessing your super, or to begin a discussion about your long-term retirement planning.

Super guarantee a focus area for ATO business debt collection

Fri, 16 Aug 2024 06:08:43 GMT

The ATO has revealed its focus areas for this year, with business debt collection identified as a key strategic priority. In its Corporate Plan 2024–25, the ATO says that it will have “an increased focus on business debt including superannuation guarantee, pay as you go withholding and goods and services tax”. This is a timely reminder for all businesses to ensure they’re meeting their obligations. Superannuation guarantee (SG) remains an important compliance focus. The most recent ATO statistics show that although 94% of employers are meeting their SG obligations without ATO intervention, the ATO still raised over $1 billion in SG charge liabilities in the 2022–23 financial year. That figure reflects a lot of extra super liability for Australian businesses that could have been avoided if they had paid the required SG contributions on time. To ensure your business doesn’t incur these extra liabilities, you must pay SG contributions for your employees and eligible contractors on time and to the correct fund. The quarterly due dates are as follows: Q1 (1 July – 30 September): 28 October; Q2 (1 October – 31 December): 28 January; Q3 (1 January – 31 March): 28 April; and Q4 (1 April – 30 June): 28 July. Some important things to remember include: Some contracts and awards may require you to pay contributions more regularly than quarterly. If you make contributions to a commercial “clearing house”, the contribution is considered to be paid when it’s received by the employee’s fund, not by the clearing house. However, if you use the ATO’s Small Business Superannuation Clearing House, the contribution is “paid” when received by that clearing house. From 1 July 2026, employers will need to pay SG at the same time as salary and wages (commonly known as “payday super”). What if my business misses an SG payment? Taking action promptly is essential to accessing the ATO’s support services and minimising your exposure to penalties. The ATO says that it’s willing to work with employers who want to put things right. When you miss a payment, you must lodge an SG charge statement with the ATO within one month of the missed quarterly due date. Lodging on time is important, as failing to do so will incur a further penalty known as a “part 7 penalty”, which can be up to 200% of your SG charge liabilities. Also, when you lodge on time, you may then be able to set up a payment plan to pay your liabilities in instalments. You can ask the ATO for an extension to the lodgement date, but you must do this before the due date. You’ll also need to pay the SG charge. This charge is more than the amount of contributions you would have paid if you had paid them on time, and it’s not deductible. The charge comprises: the amount of the missed contributions (but calculated on salary and wages, including overtime, which is more than the usual “ordinary time earnings” basis for on-time SG contributions); interest of 10% pa (which accrues from the start of the relevant quarter); and an administration fee of $20 per employee, per quarter. This is paid to the ATO, not your employee’s fund. General interest charge will accrue on any outstanding SG charge, and the ATO may also issue a director penalty notice if it remains unpaid. We’re here to help Mistakes happen, but getting on top of problems early will lead to a better outcome for your business. Contact our office for expert assistance in addressing your business’s SG obligations.

Claiming the tax-free threshold: getting it right

Fri, 09 Aug 2024 01:06:45 GMT

If you’re an Australian resident for tax purposes, you don’t have to pay income tax on the first $18,200 you earn each year, from any source. This is called the “tax-free threshold”. If you have multiple income sources, it’s important to consider which one you’ll claim it for. The ATO advises claiming the tax-free threshold once from your “main” payer – typically the job, gig or payment that pays you the most during the year. That payer will not withhold income tax from the first $18,200 they pay you but will withhold tax from payments once your earnings go over the threshold. At the end of the financial year, the ATO calculates your total income and tax withheld. If not enough tax has been withheld, you can expect a tax bill. If more tax has been withheld than you owe for your total earnings, you can expect a refund. Claim the tax-free threshold When starting a new job, your employer should ask you to complete a withholding declaration. To claim the tax-free threshold, you must be an Australian resident for tax purposes on the declaration and answer “yes” to the question “Do you want to claim the tax-free threshold from this payer?”. Where you answer “no”, tax will be withheld from all income from that payer. Avoid claiming the threshold from multiple payers simultaneously unless you’re sure you’ll earn less than $18,200 total for the year. Overclaiming might make your take-home pay higher each pay cycle but will likely mean a tax debt later. Changing jobs When changing jobs you can claim the threshold from your new payer even if you have claimed it from your previous one. If you add a job or side gig that will provide more income than your existing main payer, you can change your claim at any time. Altering your tax-free threshold claim Change your claim using ATO online services, via your myGov account: Sign in to myGov and access ATO online services Select Employment from the menu Choose either New employment (for a new job) or Employment details (for an existing employer) Update your tax and super details as needed. Don’t forget your side gig If you’re earning income outside of employment (eg as a sole trader) you’ll need to pay tax yourself on that income. Consider setting aside a percentage for tax or using pay as you go (PAYG) instalments each time you are paid.

Deadline extended for NFP self-review returns

Fri, 02 Aug 2024 05:17:37 GMT

As of July, the ATO began sending letters to non-charitable not-for-profits (NFPs) to notify those organisations that the new NFP self-review return is ready to access and lodge. If you belong to one of the estimated 150,000 plus NFP organisations and are concerned that there is not enough time for your organisation to meet the new reporting obligations, or you are having difficulties accessing the ATO's Online services or the Self-help phone service, the ATO has offered a bit of breathing room. While Tax Time 2024 began on 1 July and closes on 31 October 2024, and NFPs are encouraged to lodge their 2024 NFP self-review returns within that time frame, the ATO has recently announced that it is extending the deadline for lodgment to 31 March 2025 if it's required. This extra time forms part of the ATO's transitional support arrangements, so an NFP doesn't need to contact the ATO in order to receive the extension if that extra time is needed. However, if you lodge after 31 March 2025, failure to lodge penalties may be applied to your account. Preparation To prepare to lodge your return, you should: Ensure that your organisation's ABN, addresses, associates and authorised contacts are up to date with the ATO. Set up myGovID and RAM (Relationship Authorisation Manager) to enable access to Online services for business. There are different processes to follow if you are a principal authority (a person responsible for the organisation) or an authorised user/administrator (someone who acts on the organisation's behalf). Once these are set up you will be able to review the return from 1 July 2024. Review your organisation's purpose and governing documents. The governing documents (or constitution, rule book or rules/articles of association) are the formal documents setting out an organisation's purpose, NFP character and how it makes decisions and operates. Make sure your documents have an appropriate not-for-profit and dissolution clause and that your organisation is operating for its stated purpose. Use the questions in How to prepare a NFP self-review return on the ATO website to determine your organisation's eligibility for income tax exemption. Keep a copy of your answers in an accessible format - if you find you can't use Online services or a tax agent to lodge your NFP self-review return, these answers will help you lodge the return over the phone using the Self-help service. Lodgment For the 2023-24 year, you can lodge the NFP self-review return in Online Services for business; registered tax agents can lodge the NFP self-review return using Online services for agents; or you can use the Self-help phone service on 13 72 26 if you can't access Online services for business. If you have your details ready, the ATO estimates that the lodgment process generally takes around 10 minutes to complete. Self-review resulting in taxable NFP or charitable NFP status If your NFP self-review indicates your organisation doesn't meet the eligibility criteria to remain a tax-exempt NFP, you can follow the prompts to notify the ATO that none of the categories apply and the ATO will help you meet your lodgment obligations. For organisations with an income year ending 30 June, you have up to 15 May 2025 to lodge an income tax return or notify the ATO of a return not necessary. More information can be found on the ATO website under Transitional support if you are taxable. If your self-review leaves you unsure if you have charitable purposes, or indicates your organisation does have charitable purposes, you can continue to complete and submit the NFP self-review return. The ATO will help you determine your organisation's status.

Motor vehicle expenses – which method should my business use?

Fri, 26 Jul 2024 05:35:33 GMT

If your business owns or leases a vehicle that is used for business purposes, it’s essential to keep proper records to ensure you’re entitled to the maximum deduction for your vehicle expenses. Running costs like fuel and oil, repairs, servicing, insurance premiums and registration are all potentially claimable, as well as interest payments on a loan to purchase the vehicle, lease payments, and depreciation. However, the method used to calculate your claim depends on your business structure and the type of vehicles you’re claiming for. Trusts and companies If your business operates in a trust or corporate structure, you must use the “actual costs” method for all types of vehicles used in your business. This means you can claim the expenses actually incurred, which requires you to keep receipts. You can only claim for business-related use, so if you use the vehicle for any private purposes you must identify the percentage that relates to business use. Keeping a diary that records your business and private use will allow you to justify your claim. Travel between your home and your business is treated as “private” use, unless you operate your business from home and need to travel away from home for business purposes. Individuals If you’re a sole trader (or operating in a partnership that includes at least one individual), the method to use depends on whether the vehicle you’re claiming for is a “car” or some other type of vehicle. A “car” for these purposes means a vehicle designed to carry fewer than 9 passengers and a load less than one tonne. For non-cars, you must use the “actual costs” method described above. But for car expenses, you have a choice of which method to use: either the “cents-per-kilometre” method or the “logbook” method. The cents-per-kilometre method allows you to claim a set rate per kilometre travelled for business use, up to a maximum 5,000 kilometres per year. The current rate for 2024–2025 is 88 cents per business kilometre. The law requires you to make a “reasonable estimate” of your business kilometres, which means you need to be able to show the ATO how you derived your total number of hours. The logbook method, on the other hand, is not limited to 5,000 kilometres but you’ll need to keep more detailed records. A logbook of your business kilometres travelled is required in order to calculate the percentage of total kilometres travelled for business during the year. This is then multiplied by your car expenses. In the first year of using the logbook method, you’ll need to record detailed odometer readings for each trip made in a 12-week continuous period. This 12-week representative period can then be used as the basis for calculating your claim for the year, and for the next four years. Navigating the complexities Once you’ve identified that your business may be entitled to claim vehicle expenses, it’s a good idea to seek expert advice on the detail as additional rules may apply. For example: Fringe benefits tax (FBT) may apply to the non-business portion of the vehicle use. The cost for working out depreciation (decline in value) of cars is limited to a maximum value. The logbook method requires you to also take into account circumstances such as variations in your pattern of use of the car. Contact our office for expert assistance on maximising your business’ vehicle deductions and getting your records right.

Tax incentives for small businesses this tax time

Fri, 12 Jul 2024 05:13:16 GMT

As lodgement time once again approaches, business owners should be aware of the key changes in the 2023-24 tax return which may benefit their bottom line in the form of paying less tax. Specifically for small businesses, there are 2 incentives available for certain costs incurred in the 2023-24 income year: the small business instant asset write-off and the small business energy incentive. Small business instant asset write-off The small business instant asset write-off applies to entities with an aggregated annual turnover of less than $10m. It allows those entities to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that were first used or installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024. It should be noted that the threshold of $20,000 is not cumulative and applies on a per-asset basis. Eligible entities will thus be able to instantly write off multiple assets that fall under the threshold, provided other conditions are met. In addition, eligible small businesses will be able to immediately deduct an eligible amount included in the second element of a depreciating asset’s cost (eg cost of improving the asset). Currently, there is a Bill before Parliament to extend the $20,000 instant asset write-off by 12 months until 30 June 2025. This Bill has not been passed and is not yet law, so at this stage, the small business instant asset write-off only applies to assets first used or installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024. Small business energy incentive The small business energy incentive applies to entities with an aggregated annual turnover of less than $50m. Eligible entities will get access to a bonus 20% tax deduction for any new assets or improvements to existing assets that support more efficient energy use. Eligible assets must be first used or installed ready for use between 1 July 2023 and 30 June 2024. This timeframe also applies to any eligible improvements. Up to $100,000 of total expenditure can be claimed under the incentive, with the maximum bonus deduction being $20,000 per business. According to the ATO, while this incentive covers a range of assets and expenditure, certain expenditure cannot be deducted including: assets and expenditure on assets that can use a fossil fuel; assets and expenditure on assets that have the sole or predominant purpose of generating electricity (eg solar panels); capital works; motor vehicle and expenditure on motor vehicles; expenditure allocated to software development pools; and financing costs. In addition to these 2 small business specific incentives, Australian companies of all sizes may be able to claim the digital games tax offset (DGTO). The DGTO is a refundable tax offset which allows eligible companies that develop digital games in Australia to claim 30% of their total qualifying Australian development expenditure incurred on or after 1 July 2022. A cap of $20m applies per company, per income year and the company will need to obtain one or more certificates from the Minister of the Arts to be eligible.

Get your employees’ super right for the new financial year

Fri, 05 Jul 2024 05:41:57 GMT

As the new financial year begins, employers need to keep an eye on various payroll activities to make sure their employees’ pay and superannuation contributions are processed correctly and at the right times, especially with a number of changes and rate adjustments coming into effect from 1 July 2024. Here are some important considerations at this busy time of year. Payroll Single Touch Payroll (STP) annual reporting needs to be finalised by selecting the final event indicator to “true” for all employees by 14 July 2024. Check and delete any tax variations ceasing as of 30 June 2024, and enter any new tax variations that apply from 1 July 2024. Remember to revise termination worksheets used for redundancies to the new tax-free limits and the employment termination payment (ETP) cap increase. Take care: if an employee is terminated by 30 June but paid on or after 1 July, the new rates and thresholds apply. Check that wages are shown in the correct income year – if the payment is received on or after 1 July 2024, it should be shown in the 2024–25 income year. Review changes to pay rates or salary sacrifice arrangements, noting that award rate increases usually apply to the first full pay from 1 July. Review whether 2024–25 may result in 53 weekly pays or 27 fortnightly pays – employees can elect to have additional tax withheld in these circumstances. This may also affect the amount of any employer and salary sacrifice to super. Superannuation The superannuation concessional limit increases from $27,500 to $30,000 for 2024–25. This reflects the maximum that funds can receive for an individual that will be taxed at 15% (30% for high income earners). The limit applies to the total of employer superannuation, sacrificed superannuation and any post-tax contributions that an individual has lodged a notice to claim a deduction against with the fund. Employers will be aware of the employer and sacrificed contributions. The super contribution rate for 2024–25 increases to 11.5%. Employees often seek to maximise the amounts contributed to their superannuation and may expect employers to manage this process for them. However, it’s up to employees to be responsible. Commonly, what’s shown on payslips and on employees’ income statement may not match what’s counted in a financial year towards the limit. This is primarily because payslips and income statements show amounts accrued for the employee in an income year, not what was actually paid in that income year to their fund. What the fund reports to the ATO for its members is based on what it receives and allocates to accounts in the income year. Why do differences occur? Payment dates: Many employers make their contributions monthly after month-end, meaning the contributions for June may not be received by the fund until July. Clearing houses: Where employers use a clearing house, the amounts are only considered contributed when the clearing house passes the amounts to super funds. This may take up to 10 working days. Fund cut-offs: At income year end, funds may have cut-off dates for recognising member contributions before 30 June. This can mean an employer may have processed contributions by 30 June, but the fund may not allocate and report the amounts until the new income year. To minimise confusion, make sure your employees are aware: it’s up to them to manage their own concessional limit; payslips and income statements show the accrued liability reported, not necessarily what has been paid in the income year; what timeframe you adopt in making contributions to funds (allowing for any clearing house processing time); and some funds may not recognise amounts received late in June until the new income year – this varies by fund.

Tax time reminders for small businesses from the ATO

Fri, 28 Jun 2024 02:17:43 GMT

As tax time approaches, the ATO has released some pertinent reminders for small businesses in preparing themselves for the end of this financial year and the start of the new financial year. The ATO has also highlighted that free courses are available on its small business online learning platform to help small business owners master their tax and superannuation obligations. For Tax Time 2024, the ATO has encouraged small business owners to prepare by considering the following: Purchase tax-deductible items: The last chance to purchase any tax-deductible items needed by the business is rapidly approaching with the end of the financial year on 30 June. Small businesses should ensure that any tax-deductible items can be documented both for cost and usage, including apportionment for work and private use where relevant. Check small business concessions: Check if the business is eligible for any small business concessions. Small businesses, depending on eligibility, may be able to access a range of concessions based on their aggregated turnover - this applies to sole traders, partnerships, companies and trusts - including CGT concessions, the small business income tax offset or the small business restructure roll-over. Finalise employees' Single Touch Payroll (STP): The ATO reminds small businesses that if they have employees, the 2023-24 STP information must be finalised by 14 July. This important end-of-year obligation ensures that employees have the correct information required to lodge their income tax return. STP information for all employees paid in the financial year, even terminated employees, must be finalised. Check your PAYG withholding and instalments: The Stage 3 tax cuts became law earlier this year. From 1 July, individual rates and thresholds will change and will impact PAYG withholding for the 2025 financial year. Small businesses should check that the correct PAYG withholding tax tables are being used and that their software has updated to the new withholding rates from 1 July. If a small business thinks that their PAYG instalments could result in paying too little or too much tax, instalments may be varied. This can be done when lodging the activity statement through Online Services for Business or via a registered tax agent. The variation should be lodged on or before the day the PAYG instalment is due and before lodging the tax return for the following financial year. Review record-keeping: Looking toward the next financial year, small businesses should review their record-keeping from the past year and see if anything needs to be done differently. As part of tax time preparation, the ATO encourages small business owners to consider the self-paced courses offered on the ATO's online learning platform. Launched in February of this year, the online learning platform offers free courses to help small business owners understand their tax and superannuation obligations and is a useful resource for tax practitioners to share and use with staff and clients. Co-created by the ATO with small businesses and educational experts, the platform offers more than 20 courses including videos, case studies, audio content and written information, quizzes, and learning pathways that can be customised. Courses include: life cycle stages - idea, start-up, day-to-day, change and exit; reporting obligations - for example, GST, FBT, employees; claiming small business tax deductions; and small business concessions.

New annual reporting obligation for NFPs

Fri, 14 Jun 2024 04:34:50 GMT

From 1 July 2024, non-charitable NFPs (not-for-profits) with an active ABN are required to lodge an annual NFP self-review return to the ATO to confirm their eligibility for income tax exemption. Applicable to around 150,000 NFPs who currently self-assess as income tax exempt, the new reporting obligations were introduced in the 2021-22 Federal Budget and serve to provide a higher level of transparency and integrity for the sector by ensuring only eligible NFPs are accessing concessions and that NFPs are operating for purpose and as intended. There are 3 steps to completing the NFP self-review return: Provision of organisation details - the ATO will use this information to support NFPs of different sizes. Income tax self-assessment - in order to self-assess as income tax exempt, a non-charitable NFP must meet 1 of the 8 categories outlined in Div 50 of the Income Tax Assessment Act 1997. The questions in the self-assessment will guide an NFP through a consideration of the organisation's purpose and activities against the specific eligibility requirements under 1 of the 8 income tax exempt categories. Summary and declaration - the summary shows the NFP's answers at steps 1 and 2, and based on those answers, the NFP's taxable status will be shown as either "income tax exempt" or "taxable". If the NFP meets the requirements for "income tax exempt", then the NFP self-review return can be lodged, and the NFP has met its obligations for the 2023-24 income year. If the NFP doesn't meet the requirements in the self-assessment and is given a "taxable" status, the organisation lodges the NFP self-review return with the declaration that the lodgment is informational only and indicates that the NFP may need to lodge a tax return. Taxable non-charitable NFPs will need to lodge a tax return where their income exceeds $416 for the 2023-24 year. If, as part of the self-review, the NFP indicates it has charitable purposes or is unsure if it has charitable purposes, a message will be generated that "The ATO may contact the organisation to provide guidance to help determine its charitable status". The entity will then need to consider their options regarding their charitable status (eg ACNC registration as an income tax exempt charity, or an unregistered charity treated as a taxable NFP). The 2023-24 NFP self-review return can be lodged via the ATO's Online Services for business, or a registered tax agent can lodge the return on the NFP's behalf using Online Services for agents. As a transitional measure for the 2023-24 income year only, the return may be lodged using a self-help phone service if Online Services can't be accessed. The 2023-24 NFP return must be lodged between 1 July and 31 October 2024. After the initial 2023-24 income year, NFPs must annually confirm or update their information on a pre-populated form. If a return is not lodged, an NFP may become ineligible for income tax exemption and penalties may apply. NFPs with an approved substituted accounting period (SAP) for income tax will use their SAP to lodge their NFP return. As the first NFP self-review return will not be available until 1 July 2024 in Online Services, the ATO has advised that SAP concessional due dates will apply for 2023-24. For example, NFPs with a year end of 31 December 2023 for the 2023-24 income year will need to wait until after 1 July 2024 to lodge their return and will have a concessional due date of 31 October 2024. SAP concessional due dates for the 2023-24 year can be found on the ATO website.

Early access to super for dental work

grahamelba@gmail.com (Grahame Allen) — Thu, 06 Jun 2024 01:31:28 GMT

The Dental Board of Australia has raised concerns regarding growing reports of dental practitioners encouraging patients to access super in order to fund their dental care. Administered by the ATO under conditions set out in the regulations, access to the compassionate release of superannuation program has 5 main grounds of eligibility, one being medical treatment. Under the law, for super to be released, a medical treatment must be necessary to: treat a life-threatening illness or injury; alleviate acute or chronic pain; or alleviate acute or alleviate acute or chronic mental illness. Applications for medical treatment expenses require 2 medical reports (at least one from a treating specialist) accompanying the application and stating that the treatment is necessary to alleviate or treat one of the above conditions and is not readily available in the public health system. Statistics for applications received and approved for medical treatment by the ATO under compassionate grounds for the 2022-23 financial year show a significant rise for dental treatment when compared to the other subcategories (ie IVF, weight loss and "other" medical treatments recommended by a medical practitioner). Applications for super to be released for dental treatment were approved by the ATO to the amount of $313.4m in the 2022-23 financial year – a significant jump from $171.3m in the previous financial year, and from $66.4m in the 2018-2019 financial year. Dr Murray Thomas, Dental Board of Australia chair, said that the Australian Health Practitioner Regulation Agency (Ahpra) has received a small number of notifications about patients using super to access dental services – including recommendations and advertising to patients to access their super, and the refusal by several practitioners to assist a patient in accessing their super – and expressed concern that, with the rapid increase of patients accessing their super for dental treatment in recent years, more complaints may forthcoming. Dr Thomas indicated that the Board is acting now in order to reduce the number of potential complaints by reminding practitioners of the right of patients to necessary, appropriate, and beneficial healthcare, and compliance with advertising requirements under the law when promoting the compassionate release of super for treatment. The preparation of reports by practitioners supporting the release of super on compassionate grounds also needs to comply with the Board's Code of Conduct in the provision of accurate and honest information to the ATO. Providing misleading information to support a patient's request to access super could incur disciplinary action from the Board in addition to any action deemed necessary by the ATO. If you are faced with expensive dental (or other medical) treatments and find your practitioner suggesting that you could fund it through an application for the compassionate release of your super, either through a direct application to the ATO or via a third-party company that "facilitates" such applications for a fee, it’s a good idea to seek further advice – both medical and financial. Get a second opinion on the cost of the treatment involved. Talk to a financial adviser and get a thorough understanding of what's involved and what the consequences of accessing your super early could be.

Div 7A loans: minimum repayments

Fri, 31 May 2024 05:38:45 GMT

Div 7A of the ITAA 1936 prevents profits or assets from private companies being provided to shareholders or their associates in a tax advantageous (or sometimes tax-free) manner. This Division captures payments or other benefits such as loans, advances, gifts or writing off a debt and treats them as a dividend (known as a “deemed dividend”) for income tax purposes. This deemed dividend is generally unfranked, which means that the private company shareholder or associate will not get the benefit of a franking credit that is associated with normal dividends. In terms of loans to private company shareholders or associates, the easiest way to prevent an unfranked deemed dividend under Div 7A is to ensure that the loan is either repaid in full, or placed on a Div 7A complying loan agreement before the company’s lodgment day. If loans to shareholders and associates will not be repaid before the company lodgment date, loan agreements should be in place and meet the 3 criteria to be considered a complying loan: the minimum interest rate requirements must be met, the loan must not exceed the maximum term, and the agreement is required to be in writing. To meet the minimum interest rate requirement of a complying loan, the interest rate for each year of the loan must be at least equal to the Div 7A benchmark interest rate, which is updated annually. For the year ended 30 June 2024, the benchmark interest rate is 8.27%. The maximum terms of the loan must not exceed the following: 25 years for a loan secured by a mortgage over real property (the whole of the loan must be secured by a registered mortgage over property, and when the loan is first made, the market value of the property, less liabilities secured over the property in priority of the loan, must be at least 110% of the amount of the loan); or 7 years for any other loan. In addition, for a loan to be complying, a written agreement must be in place before the private company’s lodgment date for the income year in which the loan amount was paid to the shareholder or associate. While there is no prescribed form for the written agreement, at a minimum, the agreement should identify the parties, set out the essential terms of the loan (the amount and term of the loan, the requirement to repay, and the interest rate payable), and be signed and dated by the parties. The loan agreement can be drafted to cover loans which will be made to shareholders or associates for a number of income years in the future. Where these 3 criteria are met, the loan would be considered to be a complying loan and not subject to the Div 7A deemed dividend rules. However, it should be noted that shareholders and associates will be required to make minimum yearly loan repayments of principal and interest as set out in the loan agreement. The minimum yearly repayments can be worked out either using a specific formula or using the Div 7A calculator and decision tool on the ATO website. Div 7A is a complex area with many nuances and variations depending on the individual factors and parties to the loans. For example, in some circumstances, some loan repayments may not be taken into account in working out minimum yearly repayments or the amount of loan repaid. Therefore it is imperative that experts are consulted in complex situations to avoid paying more tax than expected.

Get ready for tax time 2024

Fri, 24 May 2024 05:38:21 GMT

As the ATO gears up for tax time 2024, it has flagged three primary areas where taxpayers frequently make mistakes. It has emphasised the importance of getting tax returns right the first time to avoid unnecessary complications from having to amend tax returns and attracting possible compliance activities. “These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right.” – ATO Assistant Commissioner Rob Thomson For 2024, the ATO's vigilance is particularly focused on incorrect claims of work-related expenses, inflated rental property claims, and the omission of income on tax returns. In the previous year, over 8 million individuals claimed work-related deductions, with a significant number related to home office expenses. With the revision of the fixed rate method for calculating home office deductions, the ATO now requires more comprehensive records to substantiate claims. Taxpayers are advised to keep detailed records, such as a calendar or diary, to log the actual hours worked from home and additional running costs incurred. These records should include copies of bills for electricity or internet services used while working from home. The ATO warns against simply replicating claims from the previous year without the proper documentation, as this could lead to disallowed deductions. The ATO reiterates the three golden rules for claiming any work-related expenses: taxpayers must have spent the money themselves without reimbursement, the expense must be directly related to earning their income, and they must have a record, typically a receipt, to prove the expense. Rental property owners are also under scrutiny this year, with data revealing that 9 out of 10 are incorrectly completing their income tax returns. The ATO is paying close attention to deductions claimed for repairs and maintenance, which are often mistaken for capital improvements. While immediate deductions are permissible for general repairs, such as replacing broken windows or damaged carpets, capital improvements like kitchen renovations are deductible over time as capital works. The ATO encourages rental property owners to meticulously review their records before lodging their tax returns, and to ensure that their claims are accurate. The last area of focus for the ATO is the timing of tax return lodgements. It warns taxpayers against the lodging tax returns at the earliest possibility (ie. 1 July), as this can often lead to errors, particularly in failing to include all sources of income. According to the ATO, taxpayer that lodge early July will be doubling their chances of having their tax returns flagged as incorrect by the ATO. Most income information, such as interest from banks, dividend income, and government payments, will be pre-filled in taxpayers' returns by the end of July, simplifying the process and reducing the likelihood of mistakes. Taxpayers are urged to check if their income statements are marked as “tax ready” before lodgment.

Federal Budget 2024: Business Measures

Fri, 17 May 2024 06:00:52 GMT

On Tuesday 14 May 2024, Treasurer Jim Chalmers handed down the 2024-25 Federal Budget, his 3rd Budget. The major SME business tax-related measures announced in the Budget include the following. Instant asset write-off for small businesses extended The Government will extend the instant asset write-off concession for another 12 months. This will allow small businesses with turnovers capped at $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2024 and 30 June 2025. Depreciating assets that are first used or installed ready for use for a taxable purpose on or after 1 July 2023 will be subject to the $20,000 threshold. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. In terms of black letter law, the increased instant asset write-off concession ceased on 30 June 2023. However, the Government announced in the 2023-24 Federal Budget (ie last year's) that it would be extended by one year, ie to finish on 30 June 2024. That measure was contained in a Bill which is currently before Parliament (ie it is not yet law). It passed the Senate with one amendment (which extended the coverage to businesses above $50m and increased the threshold from $20,000 to $30,000) which was subsequently voted down in the House. The Bill has now returned to the Senate for further consideration. Changes to foreign resident CGT rules The Government will amend the following areas of CGT as it applies to foreign residents, ie it will: clarify and broaden the types of assets that foreign residents will be liable for; amend the point-in-time principal asset test to a 365-day testing period; and require foreign residents disposing of shares and other membership interests exceeding $20m in value to notify the ATO, prior to the transaction being executed. Energy relief payments extended The Government will provide $3.5 billion over 3 years from 2023-24 to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to eligible small businesses on 2024-25 energy bills. Future Made in Australia incentives The Government will provide 2 tax-related incentives relating to its Future Made in Australia program: the Critical Minerals Production tax incentive and the Hydrogen Production tax incentive. There are no specific details in the Budget Papers as to how these incentives will be implemented. BAS notification period extended The Government will extend the time the ATO has to notify a taxpayer if it intends to retain a BAS refund for further investigation. The ATO's mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds. More ATO funding; compliance programs extended The Government will provide $187.0m over 4 years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. Funding includes: $78.7m for upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time; $83.5m for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made; $24.8m to improve the ATO's management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud. In addition, the government will extend both the ATO Shadow Economy Compliance Program for 2 years from 1 July 2026 and the ATO Tax Avoidance Taskforce for 2 years, also from 1 July 2026. These measures are expected to increase receipts by $1.9 bn and $2.4bn respectively. Funding for new Administration Review Tribunal The Government will provide $1.0bn over 5 years from 2023-24 (with $210.8m per year ongoing from 2028-29 and an additional $194.2m from 2028-29 to 2035-36) to establish and support the sustainable operation of the new Administrative Review Tribunal (ART), replacing the AAT. Some of the funding will be used to clear court backlogs associated with high numbers of applications for judicial review of migration decisions.

ASIC warns consumers to beware of cold callers

Fri, 10 May 2024 05:24:02 GMT

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

Fri, 03 May 2024 05:29:46 GMT

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

Fri, 26 Apr 2024 05:46:49 GMT

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.

Old ATO debts: IGTO weighs in

Fri, 19 Apr 2024 05:38:19 GMT

In response to the ATO's recent actions on re-activating or off-setting old debts, the Commonwealth Ombudsman/ACT Ombudsman, and the Inspector-General of Taxation and Taxation Ombudsman (IGTO) have jointly issued new guidelines aimed at improving how Australians are notified about government debts. The publication outlines principles designed to ensure that the process of debt notification is handled with transparency, clarity and sensitivity towards impacted individuals. Mr Iain Anderson, serving as both Commonwealth Ombudsman and ACT Ombudsman, together with Ms. Karen Payne, Inspector-General of Taxation and Taxation Ombudsman, emphasized the importance of government agencies adopting a compassionate and principled approach when dealing with debt notification. "While the law may require agencies to take certain actions, it is crucial that these actions are taken in a manner that minimizes distress," they stated. The guidelines propose five key principles for the ATO and other government departments to consider when conducting programs: Transparency and Accountability - agencies should communicate clearly why the debt has arisen, fostering trust and confidence in the process. Clarity on the Debt's Origin - individuals should understand the source and nature of the debt, tailored to the recipient's circumstances. Clear Pathways for Review - information on how to request a review of the debt, apply for waivers, and arrange repayments should be readily accessible, ensuring individuals understand their rights and options. Accessible Support - contacts for further assistance must be provided, acknowledging that people may have additional questions or need personalized support. Commitment to Improvement - the process of debt recovery should be viewed as an opportunity to learn and enhance future practices based on oversight recommendations and past experiences. Also noted was the significance of reflecting on past interactions and the recommendations from oversight bodies to continually elevate how agencies engage with the community regarding sensitive matters such as debt recovery. Taxpayers who have an unresolved complaint or dispute with the ATO are able to lodge a dispute with the IGTO to receive independent assurance. IGTO will conduct an independent investigation of the actions and decisions that are subject of the dispute and can help taxpayers better understand the actions taken by the ATO and/or independently verify whether shortcomings exist in ATO’s action or decision which should be rectified, as well as identifying other options taxpayers may have to resolve their concerns. For example, in one case study, the IGTO assisted a taxpayer to verify whether the full amount of general interest charge had been remitted on their tax debts. In another, after a taxpayer’s original request for the Commissioner to exercise his discretion to advance their refund instead of offsetting against their tax debt due to imminent risk of homelessness was denied, the taxpayer lodged a dispute with the IGTO. Following urgent discussions between the IGTO and senior ATO officers, the ATO reversed their decision, and the taxpayer received his refund. The IGTO can also intervene in cases where the ATO has used family assistance payments to offset tax debts. According to another one of IGTO’s case studies, the ATO used a Centrelink Family Assistance (CFA) payment to offset a tax debt that a taxpayer had. At the time, the taxpayer was unemployed and supported two minors along with an ageing parent and relied on the payment. After IGTO intervention, the ATO agreed to refund the offset recognising it was not appropriate to pursue debt collection given the circumstances. Taxpayers interested in lodging a dispute with the IGTO should note that they must have first attempted to resolve the complaint directly with the ATO unless special circumstances exist. Those that remain unsatisfied with the ATO response should then lodge a formal complaint with the ATO for review. If taxpayers are still unsatisfied with the outcome of the ATO review, they can then lodge a dispute with the IGTO for an independent investigation either online or via post or phone.

Get ready for FBT time

Fri, 12 Apr 2024 05:37:08 GMT

The end of the FBT year is upon us once again. Employers that have provided their employees with fringe benefits any time during the 2024 FBT year – 1 April 2023 to 31 March 2024 – will need to lodge an FBT return and pay any liability by 28 May 2024. With the landscape of FBT evolving every year due to legislative amendments and administrative updates, employers need to be mindful of the changes applying for the current FBT year. While the electric vehicle exemption came into effect on 1 July 2022, many employers have only recently started ramping up the purchase or leasing of electric vehicles due to a combination of waiting for previous leases to expire and a temporary shortage of electric vehicles. As a refresher, employers are now exempt from paying FBT on benefits related to eligible electric vehicles under the condition that the vehicles are zero or low emissions, first held and used after 1 July 2022, never subjected to luxury car tax, and utilised by current employees or their associates. It should be noted that car expenses associated with providing eligible electric vehicles are also exempt, which includes registration, insurance, repairs and maintenance and fuel (including the cost of electricity to charge electric cars). Other expenses that are not exempt may be reduced by the otherwise deductible rule if the expenditure would have been deductible to the employee had they incurred it themselves. To provide certainty for employers, the ATO recently issued Practical Compliance Guideline PCG 2024/2, offering guidance on calculating electricity costs for charging electric vehicles at an employee’s home. This guideline provides a methodology for employers and individuals to calculate electricity costs, either by using the outlined approach or by determining the actual cost, facilitating the inclusion of these costs in FBT and income tax calculations. In addition, employers that provide cars to their employees should also be aware of the recent updates to the car parking fringe benefits to reflect the latest Taxation Ruling, TR 2021/2, offering clarity on modern car parking arrangements and compliance requirements. In another change for the 2024 FBT year, the ATO has simplified employee declarations in relation to some fringe benefits to ease the administrative burden for both employees and employers. The new declarations remove the requirement for employees to declare the make and model of cars for specific transport-related benefits, including remote area holiday transport and overseas employment holiday transport, among others. Similar to previous FBT years, employers that lodge FBT returns electronically through tax practitioners will have access to a deferred due and payment date of 25 June. This only applies to electronic lodgments and any paper returns lodged through tax practitioners will still have 25 May as the due and payment date. For employers that have registered for FBT but do not need to lodge a return for the 2024 FBT year, a notice of non-lodgment should be submitted to the ATO by the time the FBT return would normally be due (ie by either 25 May or 25 June) to prevent the ATO from seeking a return at a later date. The regulatory environment surrounding FBT continues to evolve; for example, recently the ATO registered instruments to allow employers the option to utilise existing records instead of statutory evidentiary documents for certain benefits from 1 April 2024 (ie the 2025 FBT year). Therefore it is crucial to stay up-to-date and well-informed to navigate the complexities of FBT compliance.

ATO’s use of small business benchmarks

Fri, 05 Apr 2024 05:19:43 GMT

Recently, the ATO updated its small business benchmarks to encompass the 2021-22 income year. While the ATO promotes these benchmarks as an aid for small businesses to enable them to compare expenses and turnover with other similar small businesses in the same industry, it is important to note that these benchmarks are also used by the ATO to identify businesses that may be avoiding their tax obligations. According to the ATO, it uses small business benchmarks along with other risk indicators to select businesses for further compliance activities. The first step consists of comparing information reported in business tax returns lodged with the key performance benchmarks for the industry. The industry that your business is in depends on the industry codes selected, as well as the description of the main business activity on the tax return and the business trading name. The benchmarks themselves are divided into 9 broad categories of accommodation and food; building and construction trade services; education, training, recreation and support services; health care and personal services; manufacturing; professional, scientific and technical services; retail trade; transport, postal and warehousing; and other services. These categories split into additional subcategories; for example, bakeries, chicken shops, coffee shops, kebab shops and pubs all have their own separate subcategory under accommodation and food. There are 5 tax return benchmark ratios calculated by the ATO and all are expressed as a percentage of turnover (excluding GST). These consist of total expense/turnover, cost of sales/turnover, labour/turnover, rent expenses/turnover, and motor vehicle expenses/turnover. To calculate the turnover, the ATO generally uses the amount reported at the “Other sales of goods and services” label on the tax return or if that figure is not present, the figure from the “total business income” label. Small businesses can use the Business performance check tool on the ATO app to work out their own personal ratios and then compare them to the benchmarks, or manually calculate the various ratios and compare to the benchmarks. For businesses with ratios inside the benchmark ranges for their industry, the ATO notes that nothing else needs to be done. However, businesses with ratios outside of benchmarks are encouraged to look to see if there are any factors that can be improved. Generally, businesses reporting ratios above the benchmarks indicate that expenses are high relative to sales which may point to a range of factors ranging from the benign (eg higher wastage, lower volume of sales, or lower mark-up), to concerning (eg sales not recorded properly, failure of internal cash controls, etc). Businesses reporting ratios below the benchmarks commonly have fewer issues of concern as they have lower expenses relative to sales which may indicate some expenses not being recorded, having a higher mark-up or just being more efficient. Not all benchmark ratios will apply to every business. It is up to the individuals in control to work out which benchmarks are applicable and check that the business is within the appropriate range, as well as investigate instances where it is not. The ATO reminds small businesses that benchmarks are never used in isolation in instances where further action of investigations are initiated, instead a wide range of other supporting factors are also considered.

Rental bond data matching program continues

Thu, 28 Mar 2024 06:27:56 GMT

Investment property owners beware! The ATO has signalled that its rental bond data matching program will continue to the 2025-26 income year. This program first commenced in 2005 and collected data dating back to 1985, the year that CGT was first introduced. It has continued since then. Rental bond data will be collected from the following State and Territory bond regulators twice a year for the 2023-24 to 2025-26 years: New South Wales Fair Trading – Professional Standards and Bonds; Department of Justice and Community Safety – Consumer Affairs, Victoria; Residential Tenancies Bond Authority – Consumer and Business Services, South Australia; Bond Administrator – Department of Mines, Industry Regulation and Safety, Western Australia; ACT Office of Rental Bonds – Access Canberra; Department of Justice – Office of the Residential Tenancy Commission, Tasmania; and Residential Tenancies Authority, Queensland. Specific data items collected will include: Individual client details (names, addresses, email addresses, phone numbers, unique identifier for the landlord). Landlord and Managing agent identification details (business names, addresses, contact names, email addresses, phone numbers, unique identifier of the managing agent). Rental bond transaction details (rental property address, period of lease, commencement of lease, expiration of lease, amount of rental bond held, number of weeks the rental bond is for, amount of rent payable for each period, period of rental payments, type of dwelling, number of bedrooms, and unique identifier of the rental property). According to ATO estimates, records relating to around 900,000 properties will be obtained each financial year. This data will be used to identify under-reporting or non-reporting of income in tax returns, the misapplication of CGT provisions leading to under or non-reporting in relation to sale of properties, and non-compliance with foreign investment laws. In combination with other data matching and compliance strategies, the ATO notes that the rental bond data matching program identified approximately 5,600 taxpayers where real property dealings had not been treated correctly in the 2022-23 financial year alone. This led to an additional$23m in revenue being raised. The identity matching process within any ATO data matching program employs over 60 sophisticated identity-matching techniques to ensure the correct taxpayer is linked to the data and uses multiple identifiers to obtain a match. An additional manual process may be undertaken in instances where a high confidence identity match does not occur and involves an ATO officer reviewing and comparing third-party data identity elements against ATO information on a one-on-one basis. Once an identity match is obtained, data analysts within the ATO then use various models and techniques to detect potential under-reported income or over-reported deductions. Higher risk discrepancy matches are then loaded into ATO’s case management system and allocated to compliance staff for actioning. Lower risk discrepancy match will be further analysed to discern whether further action is required. The compliance team will then contact the taxpayer usually by phone, letter or email to clarify or verify the discrepancy. Taxpayers will have up to 28 days to verify the accuracy of the information from the data matching and respond prior to the initiation of any administrative action. Taxpayers that disagree with any ATO decision regarding the information obtained from data matching programs can request a review by lodging an objection.

SBSCH and SMSF bank account validation

Fri, 01 Mar 2024 05:44:30 GMT

With the year-on-year growth in the number of SMSFs in Australia, the ATO is finally rolling out a extra security feature for SMSFs that use the Small Business Superannuation Clearing House (SBSCH) in terms of bank account validation. Briefly, the SBSCH is a free, online superannuation payments service that small businesses can use to pay their super contributions in one transaction. It is designed to simplify the process of making superannuation contributions on behalf of employees. The service is available to small businesses with 19 or fewer employees or businesses with an annual aggregated turnover of less than $10 million. The SBSCH is part of ATO online services and allows employers to meet their superannuation guarantee obligations easily. By using the clearing house, employers can make a single electronic payment to the SBSCH, which then distributes the funds to each employee's super fund or SMSF. This service helps reduce the time and paperwork associated with superannuation contributions for multiple employees across different super funds. The rollout of the new security feature, expected around 15 March 2024, will check whether an employee’s SMSF bank account details match their SMSF records. Where there is a mismatch, or where an employee has not listed their bank account details, the employer will receive an “invalid super fund bank details” error on the SBSCH payment instruction. According to the ATO, where this error occurs, the SBSCH cannot accept payments to an employee’s SMSF until it is resolved. To resolve this error, the ATO recommends employers check with employees that their SMSF’s bank account details exactly match those listed on the SMSF records. If those details are incorrect, or if there are no details listed, the employee should approach the trustee of the fund or a tax professional associated with the fund to update the information through ATO online services. Employees with SMSFs are encouraged to ensure that fund details are correct ahead of the change to avoid any delays in their super. Where the discrepancy is resolved, employers will be able to update the employee’s SMSF bank details in SBSCH and submit payment instructions. To avoid delays for other employees, the ATO notes that SBSCH payment instructions can still be submitted for employees with valid super fund details ahead of resolution of any discrepancy. This security feature is just one of many that the ATO has been rolling out late last year and early this year to safeguard retirement savings held in SMSFs from fraud and misconduct. For example, the ATO commenced sending rollover alerts to members of SMSFs when a super fund uses the SMSF verification service to verify a fund’s details with the intent to roll super benefits into an SMSF. This alerts members of SMSFs to an unauthorised rollover and potentially stop it in its tracks. Other alerts for SMSF changes have also been implemented by the ATO to tackle fraudulent use of taxpayer details to register new SMSFs. These are often then used to commit further offences, such as illegal early release. Taxpayers that have been alerted by the ATO in relation to a change made to an existing SMSF should either contact the trustees or the tax professional associated with the fund to verify the change in the first instance. Where it is subsequently determined that the change was incorrect or unauthorised, taxpayers are encouraged to contact the ATO immediately.

Australia’s love affair with SMSFs continues

Fri, 23 Feb 2024 05:42:21 GMT

Establishing a self managed superannuation fund (SMSF) offers a variety of benefits, chief among them being the unparalleled control and flexibility this type of fund can afford its members over their retirement savings. This control extends to the ability to tailor investment strategies to personal financial goals, risk tolerance and preferences, with access to a broader array of investment options than those typically available in retail or industry super funds. Such options include not just traditional stocks and bonds but also direct property, precious metals and even cryptocurrencies, allowing for a highly diversified investment portfolio. Beyond investment choices, SMSFs provide significant tax advantages. Members can employ strategic tax planning to minimise liabilities and enhance their retirement nest egg, benefiting from the ability to manage the timing of tax events and utilise imputation credits. In addition, SMSFs can offer enhanced estate planning flexibility, enabling members to specify how their assets are distributed upon their death, which can be particularly beneficial in complex family situations. The pooling of resources in an SMSF, which can include up to six members, allows for increased buying power, making it easier to invest in assets like real estate that might otherwise be out of reach for a single individual. Additionally, the direct ownership of investment assets through an SMSF can provide a sense of security and personal involvement not found in other superannuation arrangements. It is perhaps no surprise then that in the latest data released by the ATO, the number of SMSFs in Australia continues to grow as more people seek to take advantage of all the benefits offered. In the 5 years to 30 June 2023, the ATO estimates that there were on average 24,000 establishments and only 13,800 wind-ups of SMSFs, leading to an overall growth rate of 9%. As at 30 June 2023, there were 610,000 SMSFs holding roughly $876bn in assets, which accounts for around 25% of all super assets. However, taxpayers seeking to establish SMSFs should also be aware of the challenges and considerations that can significantly impact this type of fund’s suitability for individual retirement planning. One of the primary concerns is the complexity and responsibilities involved in managing an SMSF, as trustees must navigate a maze of financial, legal and tax regulations to ensure compliance with the ATO. This complexity is compounded by the potentially high costs associated with setting up and running an SMSF, including auditing, tax advice, legal advice and investment fees, which can erode investment returns, especially in funds with smaller balances. The autonomy in investment decision-making, while a key advantage, also introduces significant investment risks – trustees' lack of experience or knowledge can lead to poor investment choices. It should also be noted that not all investments are created equal. SMSFs need to meet the sole purpose test, which means the fund’s investments are required to be for the sole purpose of providing retirement benefits to the fund’s members. The sole purpose test may be contravened if a related party to the fund obtains a financial benefit (directly or indirectly) when making investment decisions. The SMSF will also fail the sole purpose test if it provides a pre-retirement benefit to an individual, for example, if one of the members engages in personal use of a fund asset. In addition to these potential drawbacks, there is the time commitment required to research investments, monitor fund performance and stay updated on regulatory changes; liquidity challenges for funds investing in real estate or other illiquid assets; and in most cases, more expensive or complex insurance (ie life, total and permanent disability [TPD], income protection) access to consider when starting an SMSF. Taxpayers thinking about starting an SMSF should carefully weigh these potential drawbacks against the benefits, and consult relevant qualified advisers for further advice where required.

FBT electric vehicle home charging rate

Fri, 16 Feb 2024 05:45:50 GMT

Since the introduction of EV incentives by various state governments to encourage the uptake of EVs and other zero emissions vehicles, the market share of EVs has significantly increased from around 0.78% in 2022 to 7.2% in 2023. According to the Federal Chamber of Automotive Industries, while EV sales only account for a small proportion of overall vehicle sales, the sales have increased 185% since 2022 (80,446 sales 2023 vs 33,410 in 2022). Due to the increasing number of EVs being used for business purposes, the ATO released a draft compliance guideline last year setting out the methodology for calculating the cost of electricity when an eligible electric vehicle is charged at an employee’s or an individual’s home. This draft guideline has now been finalised and applies from 1 April 2022. According to the guideline, in terms of FBT, the employer has the choice of using either the methodology outlined in the guideline or determining the cost of the electricity by determining the actual cost incurred. However, this choice applies to each vehicle for the entire year, although this choice can be changed from one FBT year to another. It should be noted that the guideline only applies to zero emission electric vehicles and not to plug-in hybrid vehicles which have an internal combustion engine. It also does not apply to electric motorcycles or electric scooters. For FBT purposes, the guideline may only be relied on to calculate electricity costs of charging an electric vehicle at an employee’s home if an employer: provides the electric vehicle to an employee or their associate for private use resulting in the provision of either car fringe benefit, a residual fringe benefit, or an expense payment benefit; provides the electric vehicle to an employee or their associate who charges the electric vehicle using electricity at a residential premises, where the electricity cost directly attributable to charging the electric vehicle cannot be practically segregated from the cost of running other electrical appliances in the home; and is required to calculate the taxable value as a part of FBT obligations (ie car fringe benefit, residual fringe benefit, car expense payment benefit, or reportable fringe benefits amount). The rate that the Commissioner will accept for calculating electricity costs of charging an electric vehicle at a residential premises for FBT purposes for the FBT year commencing 1 April 2022 and later FBT years is 4.20 cents per km. A transitional approach applies for the 2022-23 and 2023-24 fringe benefits years, whereby if odometer records have not been maintained, a reasonable estimate may be used based on service records, logbooks or other available information. After the transitional period ends, employers will need to keep a record of the distance travelled by the car and a valid logbook must be maintained if the operating cost method is used. Employers are reminded that even if an electric vehicle is eligible for a fringe benefits tax exemption, the benefit is still required to be included in an employee’s reportable fringe benefits amount. Therefore, the taxable value must be determined and where the employee home-charged the electric vehicle throughout the year and paid their electricity bills and provided the employer with the necessary declaration for electricity costs, the home charging electricity cost will form a part of the recipient contribution amount.

Tackling offshore tax evasion

Fri, 09 Feb 2024 05:11:25 GMT

Offshore tax evasion was once the domain of the very wealthy, but as the world becomes more globalised, many ordinary professional individuals both with and without accounting experience are increasing turning to establishing offshore companies to decrease the amount of tax paid in Australia. In response, the ATO is using the many tools in its arsenal to tackle the problem before it becomes established. As shown by recently offshore tax evasion case studies, one of the most effective tools employed by the ATO is advanced data analytics to identify patterns and anomalies indicative of tax evasion. By cross-referencing information from various sources, including those obtained through international agreements as well as domestically through share market trading data and payments made to domestic bank accounts, the ATO is able to detect unreported offshore income. The ATO also actively participates in international agreements for the exchange of tax information. The list of countries that the ATO has Tax Information Exchange Agreements (TIEAs) with include many famed tax havens as well as other countries: Andorra; Anguilla; Antigua and Barbuda; Aruba; The Bahamas; Bahrain; Belize; Bermuda; British Virgin Islands; Brunei; The Cayman Islands; Cook Islands; Costa Rica; Dominica; Gibraltar; Grenda; Guatemala; Guernsey; Isle of Man; Jersey; Liberia; Liechtenstein; Macao, Marshall Islands, Mauritius; Monaco, Montserrat; Netherlands Antilles; Samoa; San Marino; St Kitts and Nevis; St Lucia; St Vincent and the Grenadines; Turks and Caicos Islands; Uruguay; and Vanuatu. TIEAs allow the automatic exchange of financial account information between countries and allows the ATO to receive detailed information about Australians with financial accounts in other countries. In addition to these two very effective tools, the ATO also gathers information of tax evasion through the multi-agency Serious Financial Crime Taskforce (SFCT) which started operating on 1 July 2015, and combines the expertise and resources of the ATO, AFP, AUSTRAC, ASIC and ACIC, to name a few. The composition of the taskforce changes depending on the financial crime being investigated. As at 31 December 2023, the taskforce had investigated cases that resulted in the completion of 1,994 audits and reviews and the conviction and sentencing of 33 people, raising liabilities of over $2bn and collecting around $800m. In terms of international presence, the ATO is also a part of the J5 (Joint Chiefs of Global Tax Enforcement) along with Canada, UK, US, and Netherlands, which share intelligence and carry out operational activities. The most recent focus of the J5 include optimising the usage of data acquired from a variety of open and investigative sources available to each country to detect threats from crypto-assets. While these active approaches occupy most of ATO’s focus under normal operating conditions, where there is a substantial data leak from whistleblowers or investigative journalists such as the Panama Papers, the ATO will scrutinise the data and conduct investigations and audits of individuals and businesses with suspected links to offshore tax evasion. For individuals who inadvertently or mistakenly find themselves as part of possible offshore tax evasion structures, the ATO encourages making a voluntary disclosure before the commencement of potential audits to reduce the penalties and interest which may apply. However, those that deliberately flout the system may find themselves mired in legal action which can result in significant penalties or even criminal charges.

Stage 3 tax cuts vs proposed changes

Fri, 02 Feb 2024 05:25:21 GMT

The talk about the stage 3 tax cuts has reached fever pitch in recent days. The changes were originally legislated by the previous government in 2019 with support of the then Labor opposition. During the election campaign and since coming o government, the Prime Minister had reassured voters on multiple occasions that the stage 3 tax cuts would remain. However, with the recent inflationary stressors, the government has been under increasing pressure to scrap the already legislated tax cuts in favour of cost-of-living relief for low to middle income earners, which would require the introduction of amending legislation. As a refresher, stage 3 tax cuts are due to come in place from 1 July 2024, and will benefit individuals that earn above $45,000 of taxable income. Under the current rates, individuals that earn between: $0 and $18,200 pay no tax; $18,201 and $45,000 are taxed at 19% of excess over $18,200. $45,001 and $120,000 are taxed at $5,092 plus 32.5% of excess over $45,000; $120,001 and $180,000 are taxed at $29,467 plus 37% of excess over $120,000; and $180,001 and more are taxed at $51,667 plus 45% of excess over $180,000. From 1 July 2024 however, those earning taxable income between $45,000 and $200,000 will be taxed at $5,092 plus 30% of excess over $45,000. In addition, individuals that earn $200,001 and more are taxed at $51,592 plus 45% of excess over $200,000. According to the latest ABS data, the median earnings of full-time Australian workers are around $1,600 per week equating to $83,200 per year. Under the current rates this worker would be paying $17,507 in tax; however, when stage 3 tax cuts come into play for the 2024-25 income year, this same worker would only be paying $16,552, a saving of $955. Of course, as the critics of the tax cuts have pointed out, those earning more will be saving more. For example, the same ABS data indicates that individuals earning $2,820 per week are in the 90th percentile of workers in Australia. This figure equates to annual earnings of $146,640 and under the current tax rates this worker would be paying around $39,323. When the stage 3 tax cuts come into place, this worker will only be paying $35,584, a tax saving of around $3,739. This effect becomes even more pronounced at the edge of the stage 3 threshold of $200,000. These individuals would experience a tax saving of a whopping $9,075 ($60,667 in tax under the current rates vs $51,592 under the stage 3 tax cuts). Under the government’s proposed changes, those earning between $18,201 and $45,000 will see their tax rate reduced from 19% to 16%. In addition, those that earn between $45,001 and $135,000 will be taxed at the new marginal tax rate of 30%, and the existing 37% marginal rate will be retained but will apply to individuals earning between $135,001 and $190,000. The top marginal rate of 45% will also remain for those that earn $190,001 and above. An average worker earning $83,200 per year will be better off under the government’s proposed changes, paying around $15,748 in tax versus $16,552 under stage 3 and $17,507 under the current rates. While those in the 90th percentile of workers will be slightly worse off under the proposed changes ($35,594 in tax) compared to stage 3 ($35,584 in tax), they will still be better off than under the current system ($39,323 in tax). The government will now be working to get these proposed changes passed before 1 July 2024. It is widely speculated that the Coalition will largely vote against the change. It is likely that the proposed changes will still go through given the previous verbal support for scrapping the stage 3 tax cuts from the Greens and some independent senators.

Employee vs contractors: new rules

Fri, 19 Jan 2024 05:38:43 GMT

Following on from two prominent High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, the ATO has issued a Ruling clarifying the issue of whether certain individuals are employees or independent contractors. In brief, the High Court’s decisions deal with the distinction between employees and independent contractors in the context of a labour hire company and two truck drivers operating through partnerships to provide delivery services to their former employer. In the first case, the High Court ruled that a labourer engaged by a labour hire company to work on construction sites under the supervision and control of a builder was an employee of the labour hire company. The High Court noted that this right of control, and the ability to supply a compliant workforce, was the key asset of the business as a labour-hire agency and constituted an employment relationship. That the parties chose the label "contractor" to describe the labourer did not change the character of that relationship, the High Court said. This decision also overruled a earlier Full Federal Court decision which held that the labourer was an independent contractor after applying a ”multifactorial approach”. In the second case, the High Court held that two truck drivers were not employees of a company for the purposes of the Fair Work Act 2009 and Superannuation Guarantee (Administration) Act 1992. The Court also observed that the provision of such services has consistently been held, both in Australia and in England, to have been characteristic of independent contractors (and not employees). In the present case, the High Court said there was no reason to reach a different conclusion. Due to these landmark High Court decisions, the ATO has now released Taxation Ruling TR 2023/4 which states that whether an individual (ie worker) is an employee of an entity (“engaging entity”) under the term's ordinary meaning is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship. In addition, where the worker and the engaging entity have comprehensively committed the terms of their relationship to a written contract and the validity of that contract has not been challenged as a sham, nor have the terms of the contract otherwise been varied, waived, discharged or the subject of an estoppel or any equitable, legal or statutory right or remedy, it is the legal rights and obligations in the contract alone that are relevant in determining whether the worker is an employee of an engaging entity. The Ruling notes that evidence of how the contract was performed including subsequent conduct and work practices cannot be considered for the purpose of determining the nature of the legal relationship between the parties. However, this evidence can be considered to establish the contractual terms or to challenge the validity of a written contract with general contract law principles. It should be noted that the Ruling now states that the various indicia of employment that have been identified in case law (ie control and right to control, ability to delegate subcontract or assign work, achieve a specified result, bearer of risk, or generation of goodwill) remain relevant, but are only to be considered in respect of the legal rights and obligations between the parties. Therefore, according to the Ruling, the most important factor is the holistic consideration of the contract between the parties to determine whether, on balance, the worker is an employee or independent contractor. This requires an approach which involves standing back and viewing the contract from a distance such that an informed, considered, qualitative appreciation of the whole can be undertaken. In conjunction with the Ruling, the ATO has also released a Practical Compliance Guideline (PCG 2023/2) which sets out its compliance approach for businesses that engage workers and classify them as employees or independent contractors.

ATO areas of interest for the coming year

Fri, 15 Dec 2023 05:32:22 GMT

As the year draws to an end, the focus of the ATO has moved to the 2024 year. At a recent conference, the Second Commissioner of Client Engagement, Jeremy Hirschhorn, highlighted three areas of focus for the ATO which it says are likely to impact suppliers and clients of all businesses. With the advent of increased cyber-crimes, scams and hacks in Australia in recent times, the ATO, like any other large organisation has taken additional steps to address cyber security and increased protection of personal data to deal with an unprecedented rise in identity-related fraud attempts. For all businesses, it has introduced “client-to-agent linking”, which requires all entities with ABNs (excluding sole traders) to digitally nominate their agent through ATO’s secure online services before the agent can access any data. This will cover approximately 4.7m businesses and will only apply if businesses engage a new agent, change their existing agent, or want to provide additional authorisation for their existing agent. For all individuals interacting with the tax system, the ATO encourages the use of myGovID. This coincides with the Government announcing a tightening of the way in which individuals access the myGov account. The Assistant Treasurer noted that individuals who use their myGovID to log into the ATO will need to use that myGovID for future logins from now on. In other words, it will not be possible to access an ATO account without it. myGovID is an app that proves an individual’s digital identity., Once set up, the app can be used to access government online services without having to prove identity or remember passwords. This can be used for personal or business services, although the myGovID must be linked to an ABN through the relationship authorisation manager to allow users to act on behalf of the business. Anyone over 15 years who has access to a smart device and has a personal email address can set up the service. Protecting the system and taxpayers against fraud will continue to be a key theme in 2024 for the ATO. In 2024, the ATO will also be seeking to address the growth in the collectable debt book. Currently, the collectable component of debt sits at about $50bn and consists of mostly self-assessed debt, with small businesses owing 67% of this $50bn of collectable debt. This does not include disputed debt which is treated separately. According to the ATO, during the pandemic it took a different audit position, chased fewer lodgements, and recovered less debt. This has led to a concerning behavioural shift in businesses after the pandemic which de-prioritised paying tax and super and is increasing relying on unpaid tax and super to prop up the cashflow of some business. While the ATO notes that it is seeking to engage with those businesses to help them understand and pay tax debts and employee super, it is also using its full arsenal to protect employees, clients and customers. One of the ways the ATO is seeking to level the playing field on uncooperative businesses is the reporting of debt information to credit reporting bureaus. Since 1 July 2023, it has disclosed the debts of more than 10,500 businesses that have significantly overdue undisputed tax debts of at least $100,000. Staying on the topic of small businesses, the ATO will be seeking to improve tax performance in 2024. Even though the tax performance of small businesses is currently running at around 87%, the ATO notes that there is a small minority of dishonest businesses operating wholly or partly in the shadow economy that is contributing to the underperformance. To eliminate businesses operating in the shadow economy and reduce honest mistakes by small businesses, the ATO is seeking to build a digital-first ecosystem which will move tax reporting closer to the tax event and have seamless tax and reporting from business source to the ATO. The takeaway message for businesses, especially small businesses for the coming new year is to be proactive and engaged with the ATO in terms of any unpaid tax or super debts. Businesses in general should also be very careful with their data, and should use the most secure method to access government services to prevent financial losses.

Holiday homes not genuinely available for rent

Fri, 08 Dec 2023 05:30:58 GMT

As the traditional holiday period approaches, many individuals may be heading to their holiday properties to celebrate with family or friends or letting their loved ones make use of the properties. Owners of holiday properties that claim deductions for property costs should be careful to ensure that their holiday property is genuinely available for rent, otherwise deduction for expenses may be denied. According to the ATO, factors that may indicate a property is not genuinely available for rent include: the way that it is advertised which may limit exposure to potential tenants (ie if it is only advertised by word of mouth, at a particular workplace, on restricted social media groups, outside of holiday periods/school holidays when the likelihood of it being rented out is very low). the location, condition, or accessibility of the property which may mean that it is unlikely that tenants will seek to rent it. unreasonable or stringent conditions placed on renting out the property (ie rent above the rate of comparable properties in the area, requiring prospective tenants to give references for short holiday stays, or conditions such as “no children” and “no pets”). Refusing to rent out the property to interested parties without adequate reasons. While some of these factors will be familiar with most owners of holiday properties such as having rent above the comparable properties in the area, other factors such as conditions of having no pets, or only having the property available outside of holiday periods may surprise. This could mean that if owners of properties near the beach in an area popular with summer holiday makers with little or no demand at other times reserve the property for their own use during the summer period, the property may be deemed to be not genuinely available for rent. In a scenario where a holiday property is deemed to be not genuinely available for rent (ie it is essentially for private use and not for earning rental income), no deductions can be claimed for the property for that period. However, records of expenses should still be kept, as property expenses such as insurance, interest on borrowing costs, repair, maintenance, and council rates can all be used to reduce any capital gain made when the property is sold. It should be noted not all private use is considered equal. In situations where a holiday property is available for rent during all holiday periods, including weekends, school holidays, Easter, and Christmas, and the owners only use the property during “off-peak” periods where they are unlikely to find tenants, the property would be considered to be genuinely available for rent. However, as the holiday home was used for private purposes during the year, the expenses must be apportioned. This apportionment applies any time an owner rents out their holiday home but also uses it for private purposes, including when the property is reserved for own use, or the use of family and friends. It also applies in instances where there is a short-term accommodation restriction by the State or Local government. In addition, where the holiday is rented out to family or friends at below market rates, the deductions for the period are limited to the amount of rent received. Example Jerry owns a holiday home in an area that is close to beaches and bushwalking tracks. The area is popular with beach goers in summer and hikers in winter. The local government has imposed a short stay restriction to combat the shortage of housing in the area, consequently, Jerry can only let out his holiday home for less than 180 days a year. To keep within this limit, Jerry only lets out the property for 169 days per year from 1 December to 28 February (90 days) then again from 14 June to 31 August (79 days). During the time the property isn’t advertised or rented out, Jerry uses the property himself or allows his family and friends to use it. For the 196 days the property isn’t rented or genuinely available for rent, Jerry cannot claim a deduction for expenses incurred during this period. Jerry makes $18,500 from renting out the holiday home over the 169 days and incur expenses of $35,000 over the entire year including $2,000 of agent and advertising fees. The property was also rented out for 2 weeks during the year at minimal rate of $100 per week to friends. Jerry can calculate his deduction for the property as follows: [(169 days/365 days)x$33,000] + $2,000 = $17,279.45 In addition, Jerry can only claim deductions for the 2 weeks that he rented out the property to his friends equal to the amount of rent during that period (ie $200). This is because the rent is less than the market rate and the expenses are more than the rent received during the period. Jerry’s rental income is therefore: $18,500 – ($17,279.45 + $200) = $1,020.55 As the area of holiday homes becomes more complicated with restrictions to short stays and interpretations of when a residence is genuinely available for rent, it is prudent to consult a registered tax professional when questions arise to avoid tax pain down the line.

ATO pauses debts on hold campaign

Fri, 01 Dec 2023 05:35:31 GMT

In response to community feedback and perhaps negative commentary in the media, the ATO has announced it is pausing its “awareness campaign around tax debts on hold”. As foreshadowed in an earlier speech by an Assistant Commissioner, the ATO had recommenced pursuing small business debts that were previously placed on hold. Recently, the ATO had written to some small businesses with debts on hold greater than $50 to inform them that offsetting of debts will apply. Small businesses that have not received a letter thus far from the ATO were advised that they may still have a debt on hold but have not yet been contacted. Many small business debts were put on hold entirely by the ATO (ie debts were not deducted from tax refunds or credits) during the COVID-19 pandemic which rapidly changed business conditions and was a means to give these businesses a chance to recover and rebuild. This approach was reviewed by the Australian National Audit Office (ANAO) and found to be inconsistent with the law. The ATO then received clear advice that while these debts were no longer actively pursued, by law, any credits or refunds that the small business becomes entitled to must be used to offset (or pay off) the debt, and this action is generally automatic. Due to this offsetting, small business with debts on hold may find that any credits or refunds from lodged tax returns or BASs may be less than expected or even be zero. After the offsetting, any balance payable relating to the debt on hold will continue to remain on hold until it is paid in full. Small businesses do not need to actively do anything in relation to offsetting of debts and will only need to contact the ATO if they would like to make payments towards the debt on hold or make a request for the ATO not to offset. However, small businesses should be aware that there are only very limited circumstances in which the Commissioner has the discretion not to offset and instead issue a refund. These are: the amount owing is due but not yet payable; the amount owing is under a payment arrangement and the taxpayer is complying with that arrangement; the ATO has agreed to defer recovery action; and/or the amount is to be offset against a director penalty debt. The easiest way to check whether a debt on hold exists is through ATO online services. Small businesses may need to download a file with all transactions on the applicable account to check, as debts on hold will not show as an outstanding balance on the account (ie it has been made inactive but remains on the account). Debts on hold can be found by searching the file for “non-pursuit” and any offsetting of a credit or refund can be found by searching “offset”. Small businesses should also be aware that debts on hold can be reactivated at any time where it believes that there is capacity for the business to pay. However, businesses will be notified of such a move, usually in writing. Again, reactivation of a debt can be checked through ATO online services, which will now show an outstanding balance on the relevant account, with the transaction being labelled either re-raise of non-pursuit, partial re-raise of non-pursuit, or cancellation of non-pursuit. While the ATO acknowledges that its communication approach to debts on hold caused “unnecessary distress”, particularly to those taxpayers whose debts were incurred several years ago, it has verified that all debts exist and that all taxpayers were previously informed when the debt was originally incurred through their notice of assessment. The ATO notes that the purpose of the letters was to ensure that taxpayers had full visibility of their existing debts with the ATO, nonetheless, it will pause the campaign to allow a review into its overall approach to debts on hold before progressing any further. Presumably, it is only referring to pausing the campaign of informing taxpayers and not the offsetting itself, as that process is required by law, is automatic, and the debts have been confirmed to exist.

Employer SG obligations: annual report

Fri, 24 Nov 2023 05:25:00 GMT

Each year the ATO releases a report containing the latest annual statistical results for employer super guarantee (SG) compliance and obligations, and this year is no exception. According to the 2022-23 report, the amount of employers complying with their SG obligations without intervention from the ATO remained the same as the 2021-22 year, at 94%. This is the case even though the number of employees and employers reporting through single touch payroll (STP) has increased; 915,000 employers reporting through STP for around 14.3m employees in 2022-23 compared with 819,000 employers reporting through STP for approximately 13.6m employees in 2021-22. The data collected in relation to the super guarantee gap, which estimates the difference between the amount of SG paid and what should have been paid if every employer met their SG obligations, increased slightly from 4.9% or $3.4bn in the 2021-22 report compared with 5.1% or $3.6bn in the 2022-23 report. This indicates an increase in unpaid SG obligations which could be collected by the ATO. While there was a noticeable drop in the number of employee notifications of unpaid super cases completed in 2022-23, around 77% of cases completed in 2021-22, compared to 54% of the cases completed in 2022-23, and also a drop in the total number of ATO initiated cases for unpaid super (2,100 in 2021-22 and 1,400 in 2022-23), the number of voluntary disclosures of unpaid super from employers sharply rose from 30,800 instances in 2021-22 to 56,000 instances in 2022-23. The overall picture would seem to indicate that employers are self-disclosing before the initiation of any ATO compliance action. The ATO also notes that the drop in the completion number of employee notification cases were due to some employee notifications not requiring action to be taken and resolved through other means, such as the complaint being withdrawn, the ATO already raising an assessment against the employer for late or unpaid super, the employer already lodging a super guarantee charge statement to correct their obligations, or duplicate notifications being received from employees. Going forward, as a part of the government announced package to move to “pay day” super (ie SG contributions made at the same time as salary and wages are paid), the ATO will have improved SG recovery targets each year. This is set to commence from the 2026-27 financial year, to give the ATO time to upgrade its data compliance capabilities, and reassess debt recovery processes and policies to ensure that employees receive their SG contributions. In the meantime, two new compliance measures for recovery of unpaid SG have been published, which consist of: SG distributed as a proportion of SG raised: the proportion of SG charge liabilities raised for a financial year which has been collected and distributed to individuals or superannuation funds. Results would be reported two years after the financial year has ended to account for liabilities collected after the financial years have ended. SG charge raised and distributed within 12 months: The value of SG charge liabilities raised, then collected and distributed to individuals or superannuation funds within 12 months. All this points to an increase in focus for the ATO in the SG space now and in the future. Employers are therefore advised to stay on top of their SG obligations to avoid penalties including the super guarantee charge and/or any Part 7 penalties. Those that discover they have failed to comply with SG obligations should make a voluntary disclosure promptly and pay any outstanding SG debt. The ATO notes that it is open to accepting reasonable payment plans for SG debt.

ASIC identifies suspicious investment opportunities

Fri, 17 Nov 2023 05:33:52 GMT

As a part of the government strategy to target investment scams, ASIC and the ACCC through the newly formed National Anti-Scam Centre have published an investor alert list which may help consumers to identify whether entities they are considering investing with could be fraudulent, a scam or unlicensed. While the list is not exhaustive, as new scams are appearing every day, any reduction of consumer harm, financially and non-financially, is seen as a win. According to the National Anti-Scam Centre which commenced operation on 1 July 2023, Australians reported a record $3.1bn of losses to scams the previous year, which was 80% more than the year before. While the Centre is still building its capabilities over the next 3 years by working on a new system to improve scam data sharing across government and the private sector, it is already making inroads by highlighting the most harmful scams and making it easier for Australians to report scams. This new investor alert list replaces the previous list of “companies you should not deal with” issued by ASIC but has the advantage of including both domestic and international entities that the regulators are concerned about. These concerns largely consist of entities operating and offering services to Australians without appropriate licenses, exemptions, authorisation or permission. The alert list also includes imposter entities which run impersonation scams that falsely claim to be associated with legitimate and often well-known businesses. “At launch, our investor alert list includes 52 unlicensed entities and 25 websites impersonating legitimate entities” – ASIC Deputy Chair, Sarah Court For consumers looking to invest, ASIC recommends conducting the following checks before handing over any money: Is the company or person licensed or authorised – generally a company or finance professional must hold an Australian Financial Services (AFS) licence in order to issue or sell investments in Australia, or they must be an authorised representative of an AFS licence holder. Checks can be made through the ASIC website on professional registers, the financial advisers register, or Australian registered scheme number in relation to a managed investment scheme to ensure appropriate licences are valid. Understanding how the investment works – ASIC recommends obtaining a product disclosure statement or prospectus from the public website for the company, speaking to a financial adviser and/or searching ASIC’s Offer Noticeboard. In addition, ASIC reminds consumers that investments including crypto, direct investment in real estate or precious metals, and international investments not offered by licensed Australian providers are not regulated by ASIC and are higher risk. Consumers are not protected if things go wrong. Check for signs of an investment scam – consumers should check a company’s details through open-source searches and call the number on the public website if required and be wary of any offer documents sent by email. The investor alerts list should also be consulted in conjunction. Even if you invest in a legitimate financial service or product from a licensed company/individual, there may be instances where things can go wrong. However, those entities are obliged by law to take steps to resolve any complaints from consumers. For consumers that invest in unlicensed or unregulated products in Australia, there is very limited assistance should things go wrong. Going forward, ASIC will continue to add to the investor alerts list and have urged both the industry and consumers to assist in identifying suspicious websites or investments scams by reporting them to the appropriate authorities.

ATO’s GST compliance focus

Fri, 10 Nov 2023 04:56:06 GMT

At a recent conference, the ATO Deputy Commissioner, Hector Thompson, outlined the key ATO focus areas in the GST space. It was noted that while the GST system is in relatively good shape in Australia with a gap of 3.6%, which is much lower than many OECD countries (eg EU VAT gap was estimated to be 10.3% in 2022 with some other nations as high as 34%), the system needs to evolve to ensure it remains sustainable. One of the ATO’s key focus areas in 2023-24 is to improve small business tax performance by digitising small business taxation and integrating the tax and super system into the operating environment of small businesses to reduce the instances of fraud. In conjunction with this, the ATO has also designed new analytical data-driven risk models that utilise statistics and algorithms to look for patterns and relationships on data, as well as machine learning to stay in control of rapid evolution in GST fraud behaviour. In addition to catching GST fraud in those already in the system, the ATO notes it is continuing to work closely with the ABR as a preventative. Both agencies coordinate strategies to disrupt potential fraudulent registrations in the ABN system, particularly for phantom businesses. Going forward, the ATO will be taking a proactive approach to the registration of ABNs and will request businesses contact them to initiate a review where there is a question around the entitlement to an ABN. For the 2023-24 year, the ATO will also implement a targeted industry strategy in relation to privately owned high wealth groups focusing on retail, construction, and retirement village industries. Given that the retail and construction industries are the two most significant industries for GST activity and have arguably experienced the most disruption during the COVID-19 pandemic and the aftermath, this focus will come as no surprise. Specifically for the retail sector, the ATO has concerns that some retailers’ controls and governance have not shifted in line with changes to an online retailing model, variations in sales volume, product classifications and intragroup transactions. It will also continue to crack down on the use of illegal electronic suppression tools used to mask, understate, or delete the transactions at the point of sale. In terms of the retirement village industry, the ATO acknowledges that the sector presents unique challenges to GST. To facilitate compliance of the sector, the ATO is currently undertaking a broad review of the issues impacting the sector to develop a greater understanding of industry operating models. It is hoped this will identify opportunities to provide comprehensive and fit-for-purpose guidance to the sector. The ATO hopes that this targeted approach will allow it to understand the distinctive issues facing each industry and pinpoint areas or risk to develop tailored approaches to ensure entities within particular industries are paying the correct amount of GST. This approach will also allow for the early detection of risky behaviour and the application of appropriate treatment. Businesses in all sectors are reminded to remit GST in a timely manner as the ATO has seen an increase in GST debt with businesses reporting but not remitting GST. In fact, according to figures, collectable GST debt has more than doubled in the three years to $12.3bn as at 30 June 2022.

International businesses and GST

Fri, 03 Nov 2023 04:51:04 GMT

International businesses that have sales connected to Australia over a certain threshold may need to register and pay GST in Australia. This applies to electronic distribution platform (EDP) operators that allow merchants to make sales of services, digital products or low value goods to Australian customers; merchants who sell services, digital products, and/or low value goods to consumers in Australia; and redeliverers that bring low value goods to Australia on behalf of a consumer. Under GST, low value goods are generally goods with a customs value (ie price the goods are sold for, minus freight and insurance from place of export) of $1,000 or less. It should be noted GST will not apply to some sales such as basic/essential food and beverage items, certain medical services/medical aids and appliances, certain education courses and materials, as well as certain cars and car parts for eligible people. If you’re a relevant merchant, EDP, or redeliverer, and the value of sales connected to Australia over a 12-month period is equal to or more than AUD$75,000, you will be required to register for GST. The business will also be required to charge GST by including it in the price when selling the product or services to consumers in Australia. The GST collected from the sales will need to be reported to the ATO through the lodgment of a GST return of a business activity statement (BAS), and the amount of GST collected will need to be remitted to the ATO in Australian dollars. For most merchants, EDPs and redeliverers, simplified GST registration will be the easiest way to meet their GST obligations in Australia. This can be used where an ABN is not needed by the non-resident businesses, and it also does not need to claim GST credits (including credits for taxable importations). Additional requirements include making sales of low value goods or imported services and digital products. Once registered, non-resident businesses will receive secure access to ATO online services for non-residents which will allow registration, lodgment and payment of GST obligations. Once registration is completed, a unique 12-digit identifier, an Australian Reference Number (ARN), will be sent to the relevant non-resident business to use as an identifier for the ATO system and on invoices and customs documentation if required. Under simplified registration, non-resident businesses must lodge GST returns and pay GST on a quarterly basis. According to the ATO, when paying a GST liability, non-resident businesses must pay the full GST amount owing and any card payment fees, bank handling and exchange fees using either SWIFT or a credit/debit card. Non-resident businesses that don’t qualify for the simplified registration may have to apply for standard registration where registration thresholds are reached. It also applies where a non-resident business wants to issue tax invoices or want to claim GST credits which can’t be done under the simplified GST registration. However, the drawback with standard registration is that non-resident businesses will not be able to lodge electronically from outside of Australia and may need to engage an Australian registered tax agent. Additional ABN and proof of identity requirements also apply. As the world becomes more interconnected the issue of non-resident businesses and GST will inevitably become more significant. Non-resident businesses should be aware of the rules to ensure that they register for GST when appropriate. The ATO notes that those that register for GST should stay registered for at least 12 months.

Regulation of crypto exchanges on the horizon

Fri, 27 Oct 2023 05:38:24 GMT

As previously flagged by the government and supported by many consumer advocates, the government is taking the first steps to introduce regulations for crypto exchanges and digital asset platforms in the interests of consumer protection while also providing certainty to the industry. A proposal paper has been released which seeks to improve the operating standard for multi-function platforms that holds assets for customers in the digital assets space, which is currently unregulated. The government estimates that the unregulated nature of the digital asset platforms have lead to considerable consumer losses. In the collapse of one prominent exchange alone, around 50,000 Australian consumers were affected with varying degrees of losses. In short, the paper proposes to incorporate the digital asset platforms (ie crypto exchanges) and other intermediaries within the existing financial services framework which will involve the introduction of a new type of financial product called a “digital asset facility”. The existing AFSL framework would then apply to any person carrying on a financial services business in Australia in relation to a digital asset facility. This proposed regime would be engaged when a platform provider deals in digital assets that are not financial products and may apply to investments in tokenised real-world assets such as gold or collectables, investments in digitally native assets (eg bitcoin), and digitally native investments (eg participation in some form of staking). The issuer of a digital asset facility under the proposal would be the person or persons responsible for the obligations owed to customers under the terms of the asset holding arrangement. In addition, platform providers and other intermediaries performing financial services in relation to digital asset facilities including brokers, arrangers, agents, market makers, and advisers would be required to hold an Australian Financial Services Licence (AFSL). Standard AFSL obligations would apply, although a low value exemption will be introduced similar to the low value facility exemption for non-cash payment facilities. The low value exemption is anticipated to apply to digital asset facilities holding less than $1,500 per customer and less than $5m in total. In addition to standard AFSL obligations, a platform provider must also comply with general obligations (eg standard solvency and positive net asset requirements etc) and disclosure obligations. Minimum standards will also apply digital asset facilities that essentially replicate the minimum standards that apply to financial products and services that hold assets (ie a requirement to hold financial products on trust). However, the minimum requirement will be tailored to include additional standards for holding tokens and permit additional types of true custody arrangements for non-financial products. The proposal paper also deals with other related topics such as minimum standards for intermediating platform entitlements and funding tokenisation. Feedback on the paper will inform the government’s formulation of the draft legislation which is scheduled to be released next year. Further consultations of the draft legislation will then occur before the introduction of the legislation into Parliament. A 12-month transitional period has been flagged to commence upon Royal Assent of the relevant legislation. The government notes that this period will allow an appropriate amount of time for industry participants to plan and make changes to ensure compliance and obtain a licence where required.

Proposed mechanisms for payday super

Fri, 20 Oct 2023 05:40:17 GMT

Unpaid superannuation is equivalent to wage theft and is detrimental to the retirement income of many Australians. That’s why in the 2023-24 Federal Budget, the government proposed measures to reduce the structural drivers of unpaid super guarantee (SG), including increasing the payment frequency of SG to occur at the same time as when salary and wages are paid (payday super), and increasing the ATO’s data matching capabilities to target SG compliance. A consultation paper has now been released by the government on two proposed models that could be used to implement the payday super measure: the employer payment model and the due date model. Under both models, the SG charge, which is currently designed for quarterly payments, will need to be updated to align with a more frequent payment schedule. Essentially, the SG charge is a penalty that applies if an employer does not pay an employee’s SG amount in full, on time and to the right fund. Currently, the due date for the payment SG charge is one month after the SG due date. For example, for the quarter 1 July to 30 September the SG payment is due on 28 October, and the SG charge and statement is due on 28 November. Changes proposed to the SG charge to fit in with payday super could include amendments to the rate of nominal interest (currently 10% pa) and the size of the administration fee (currently $20 per employee, per quarter). However, to reduce instances where employers are inadvertently penalised for circumstances outside their control or for small administrative errors, it is suggested by the consultation paper that the Commissioner of Taxation could be granted flexibility to remit or reduce the SG charge or extend the due date under certain circumstances (which would be limited and specified in legislation). The paper emphasises that this will not be a general discretion for the Commissioner to remit or reduce the charge or extend the due date for payment. Under the employer payment model, it is proposed that the SG charge would be based on a requirement that the employer make the payment of an SG contribution on payday, and where a payment is not made, the employer would become liable to pay the SG charge from that date (ie nominal interest would be calculated from this date). The ATO will be required to make reconciliations between the STP (Single Touch Payroll) and Member Account Transaction Service (MATS) data to ensure that the correct amount of super has been received by an employee’s super fund. For the due date model, the current model of the SG charge will possibly be retained, in that an employer becomes liable to pay the SG charge if their employee’s super contribution is not with their fund by a specified due date. Contributions will need to be received by a super fund within a certain number of days following an employee’s payday. According to initial consultation conducted by Treasury and the ATO, a reasonable due date for super contributions to reach the fund would be between 8 and 13 days after payday. Regardless of the model used to implement payday super (ie employer payment or due date), the ATO will use enhanced reporting by employers and funds to ensure that super payments have been paid on payday or received by the funds by the due date. It will then initiate SG charge assessment through compliance activities more frequently, with lower reliance on and need for cases to be raised through employee notifications. Based on the outcomes of the consultation, the government will redesign the super compliance framework to incorporate payday super, which is proposed to commence from 1 July 2026 subject to the passage of legislation. Transitional arrangements may also be available to ensure concessional contributions caps are not exceeded by inadvertent timing issues.

Sharing Economy Reporting regime

Fri, 13 Oct 2023 04:47:26 GMT

The Sharing Economy Report Regime (SERR) has now commenced, for the 2023-24 income year. Only transactions for supplying taxi travel/ride sourcing and short-term accommodation need to be reported under the regime. However, from 1 July 2024, the SERR will apply to all other reportable transactions of electronic distribution platform operators (EDPs) including hiring of assets (consisting of hire of personal assets, storage, or business space), food delivery, and professional performing tasks and activities will need to be reported. Generally, all operators of electronic distribution platforms (EDPs), must report transactions made through the platform. EDPs are defined as any service that allows sellers to make supplies available to buyers and is delivered via electronic communication (eg website, internet portal, gateway, application, online store, marketplace). It should be noted that platforms that solely provide carriage services that transmit electronic communications, access to payment systems or payment processing services, or advertising that makes customers aware of products and links to them to a merchant’s website are not considered to be EDPs. For example, consider a platform that merely provides a connection between a seller and an end-user, say for services, but transactions are not accepted through the website, and the entity is required to contact the end-user themselves (eg platforms where individuals requiring trades can input the details of work they’re looking to have done and tradespeople can bid for a jobs by directly contacting end-users with offers). These platforms are not considered to be EDPs, and no data will be required to be reported under the SERR. However, if a platform provides a connection between a seller, whether it be individual or a business, with an end-user and the transaction between the two are processed through the platform, then these transactions are captured under the SERR and the operators will need to report: all transactions when an entity uses the EDP platform to make a supply that relates to Australia (including its external territories); all transactions that are available to end-users and receive payment or other consideration for the supply. It should be noted that EDP operators are not required to report transactions which relate to the sale of goods or real property (ie where ownership changes), for financial supplies, where EDP and the seller are members of the same income tax consolidated group or MEC group, or transactions where tax is required to be withheld from payment under the PAYG withholding regime. Information that will be reported by the EDP platforms on the seller include names, DOB, ABN, registered business name, trading name, tax identification number, address, contact number, email, bank account name, BSB, bank account number (or international equivalent), total amount of payments to the seller for the reporting period including GST, fees and commissions, and total GST payable on all sales. In addition, sellers of short-term accommodation will also have the property address of the short-term accommodation and number of nights booked included in reports to the ATO. While the regime ostensibly applies to EDP platforms, it is expected to heavily affect individual taxpayers with the information obtained through the program to be used in ATO data matching and compliance projects. According to the ATO, compliance profiles of participants in the sharing economy will be created using the data to generally improve ATO intelligence. In addition, the data will also be used to improve compliance, both voluntarily through education programs and/or through enforcement measures.

Deductions related to holding vacant land

Fri, 06 Oct 2023 05:32:21 GMT

Deductions for losses and outgoings that relate to holding vacant land on which there is not substantial and permanent structures in use or available for use has been denied since 1 July 2019. However, confusion around the application of the provision and exclusions have prompted the ATO to release a Ruling that clarifies when the provision applies to a specific landholding aside from the business, entity or primary production exclusions. Generally, deductions related to the cost of holding vacant land will not be denied if there is a substantial and permanent structure on the land that is in use or available for use, and the structure has to be independent of and not incidental to the purpose of any other structure or proposed structure on the land. In this context, a substantial structure must be significant in size, value or some other criteria of importance in the context of the property, and to be permanent, the structure needs to be fixed and enduring (eg a house). In addition, structures that have the purpose of increasing utility of another structure are not considered independent. For example, the ATO notes that while fencing, garages, or sheds may be considered substantial and permanent, they do not have a purpose independent of the residence. Additionally, to be able to claim a deduction, any substantial and permanent structure must be in use or available for use. According to the ATO, whether from a residential or commercial perspective, this means that the premises are capable and lawfully able to be occupied. For example, in situations where some residential premises on the land has been deemed by the local council or another relevant body/qualified professional of being unsafe to occupy, then any deductions would be denied from that point onwards as the structure was “not available for use”. However, if an owner of a vacant lot constructs or substantially renovates existing residential premises on the lot, the structure will be disregarded as a substantial and permanent structure unless it can be lawfully occupied and is leased, hired, or licensed (or available for lease, hire or licence). In other words, where an individual purchases vacant land and then builds a residence on the land, they can only deduct holding costs from the date the residence is both lawfully able to be occupied (ie occupancy certificate issued) and is available for lease (ie listed with an agent). These two conditions (ie lawfully able to be occupied and available for lease) will apply throughout an individual’s entire ownership period of the land where a new premises is constructed or an existing premises is substantially renovated. This means that if the owner decides to stop leasing the premises for a period of time for any reason, the structure would be disregarded, and the land will be considered to be vacant, and deductions may be denied. Further complications exist where an individual purchases a vacant block on multiple titles and builds residential premises on only one of the titled blocks, or where a vacant block is purchased and then subdivided and a residence built on only one of the subdivided blocks. Taxpayers should also be careful when selling previously vacant land that they have constructed premises on (or if they have substantially renovated the premises) to avoid unintended tax consequences.

ATO shifting to firmer debt collection

Fri, 29 Sep 2023 05:43:57 GMT

With less than 6 months left in his tenure as the Commissioner of Taxation, Chris Jordan has unapologetically flagged the ATO’s shift to firmer debt collection actions where appropriate in a recent speech. This coincides with reactivation of debts that the ATO previously put on hold during the 2020 COVID-19 pandemic. The Commissioner noted that most collectable debts with the ATO are self-assessed and do not only include income tax debt, but also unremitted GST, unpaid PAYG withholding, as well as super guarantee charges related to businesses. In addition, he also noted that small businesses continue to be over-represented in the ATO’s debt book, owing over $33bn of the $50.2bn of collectable debt, with $23bn of that being unpaid business activity statement debt. According to the ATO, it is seeing a trend of profitable businesses that have the capacity to pay their tax debts but are actively choosing not to do so. It is concerned that businesses appear to be de-prioritising payment of tax and super and in some cases treating ATO liabilities like a free loan. The ATO reiterates that businesses are only temporary custodians of GST, PAYG withholding and super guarantee and those that don’t pay or engage with the ATO will be subject to a range of actions. In general, if taxpayers do not pay their tax by the due date or engage with the ATO by the due date to work out a payment plan, General Interest Charge (GIC) will be applied to any unpaid amounts. GIC is automatically calculated on a daily compounding basis on the amount outstanding and added to taxpayers’ accounts periodically. The rate of GIC is revised every quarter and is calculated using the 90-day Bank Accepted Bill rate and an uplift factor of 7%. The GIC annual rate for the October-December 2023 quarter is 11.15%. In addition to GIC being applied to unpaid debts, the ATO is also legally required by law to use any credits or refunds taxpayers become entitled to, to pay off any debt that is owed, including any debts that are “on-hold” by way of offsetting. This includes any refund that individuals may receive in relation to income tax, and any GST refunds that businesses may receive. The ATO notes there are very limited circumstances in which it has the discretion not to offset a debt, such as serious financial hardship. The ATO states that the following taxpayers will generally be subject to stronger enforcement action: those deemed “unwilling” to work on addressing the debt; those that repeatedly default on agreed payment plans; those that don’t have the capacity to pay the debt but also do not take any steps to resolve the situation; those that have been subject to an audit where deliberate avoidance is detected and payment avoidance continues; and those that appear to be engaging in phoenix activities. Some of the stronger enforcement actions that the ATO may use include: issuing garnishee notices to a person or business that holds money now or in the future for the taxpayer; issuing director penalty notices for unpaid amounts; disclosure of business tax debt to credit reporting agencies; and legal action (ie claim or summons, bankruptcy notice, creditor’s petition, statutory demand, and wind-up action). While the ATO has previously referred debts to external debt collection agencies, it no longer does so. However, it has not ruled out doing so for future debts. While the recent speech by the Commissioner highlighted the fact that small businesses were overrepresented in terms of collectable debt, he specifically noted that it does not mean that the ATO is solely targeting debt collection in the small business space. In reality, it is very focused on every group in the tax system whether it be individuals or large businesses.

Compliance actions available to the ATO: SMSFs

Fri, 22 Sep 2023 04:16:07 GMT

The ATO has been ramping up compliance activity in response to an increasing number of SMSFs which have been identified as not complying with superannuation obligations. A quick refresher for trustees on how the ATO deals with SMSF non-compliance and the range of compliance action available to the ATO may assist trustees to act proactively to address compliance gaps early and avoid more adverse consequences. Understandably, as a first step, the ATO encourages taxpayers including trustees of SMSFs to voluntarily comply with their obligations by providing guidance and other updates. However, it recognises that mistakes may happen and when that occurs in the SMSF space, trustees are expected to identify the mistake in a timely manner and initiate an undertaking to rectify any contraventions. In that scenario, it is the trustee that proposes the undertaking to the ATO in writing which usually includes a commitment to stop the behaviour that led to the contravention, the action and timeframe to rectify the contravention, how and when the trustee will report the contravention has been rectified, and the strategies to prevent the contravention from reoccurring. The ATO will then consider the compliance history of the trustee, the nature of the contravention and other factors to decide whether or not to accept the undertaking. Where an undertaking is accepted, a trustee can vary or withdraw the undertaking with the ATO’s consent. In instances where the undertaking is breached, the Commissioner has options, including: entering into an informal arrangement; seeking wind-up of the fund; issuing a direction to rectify; disqualifying/suspending or removing the trustee; freezing assets of the fund; and/or seeking a court order. According to the ATO, it will generally not accept an undertaking from repeat offenders, even if they are willing to rectify. If the ATO discovers a contravention before the trustee does, or if an undertaking is not accepted or breached, the ATO may give the trustee a written direction to rectify a contravention of the super laws. The direction will specifically require the trustee to take a particular action within a timeframe and show proof of compliance. Where a direction to rectify is not followed, there are consequences for both the trustee and the fund itself. The trustee may be disqualified and the fund’s complying status may be removed. Just as trustee-proposed undertakings can be varied in writing, so too can an ATO-issued rectification direction. Trustees may also object to the ATO’s decision to give a rectification direction or refusal to vary a direction. Trustees that do not seek or follow rectification directions may be subject to administrative penalties depending on the type of contravention. For example, the penalty for failing to notify the ATO of significant adverse events or lending to members and relatives is 60 penalty units, which works out to $18,780 (each penalty unit is $313 for infringements occurring on or after 1 July 2023). Individual trustees are each liable to the penalty and directors of corporate trustees are jointly and severally liable to the penalty. Administrative penalties may also be imposed on SMSF trustees where false and misleading statements are made to the ATO. In addition to the imposition of administrative penalties, the ATO can also: raise income tax assessments where a member has illegally accessed their super early leading to additional income tax, shortfall penalties and interest charges for the member; disqualify a trustee from acting as a trustee or director of a corporate trustee; apply to the courts to impose civil and criminal penalties; issue a notice of non-compliance to the SMSF which will mean the fund loses its concessional tax status; and freeze the assets of an SMSF where the preservation of benefits is at risk. According to the ATO, where a contravention of super laws has occurred, the trustee cannot escape consequences by winding up the SMSF and rolling over any remaining benefits to an APRA regulated fund. Depending on the actions of the trustee and type of contravention, the ATO may continue to issue the SMSF with a notice of non-compliance or apply other actions.

SMSF compliance activity escalation

Fri, 15 Sep 2023 05:22:20 GMT

After a relatively quiet period in the SMSF compliance space due to the effects of the pandemic and its aftermath, the ATO is once again bolstering its compliance activities. This has occurred in response to an increasing number of funds being identified as not complying with their superannuation obligations. For the 2023 year, ATO compliance actions included issuing an additional $29m in income tax liabilities, administrative and tax shortfall penalties, and interest on SMSF trustees and/or members, which is double the amount of tax and penalties the ATO issued in 2022. In addition, a total of 753 trustees were disqualified in the 2023 income year, and that is more than triple the amount of disqualifications in the 2022 income year. According to the ATO, the most common reason for applying penalties was the illegal early access of super benefits by fund members. It reminds SMSF trustees that they have a responsibility that members have met a condition of release before any funds are released. Trustees should also be aware that some conditions of release have cashing restrictions which restrict the form of benefit (ie lump sum or pension) or the amount of benefit that can be paid. Common conditions of release include the fund member having reached preservation age and retired, or commenced a transition-to-retirement income stream; ceasing an employment arrangement on or after the age of 60; being 65 years old even though they haven’t retired; or having died. If the common conditions of release aren’t met, where a member meets eligibility requirements under certain special circumstances, they are able to have at least part of their super benefits released before reaching preservation age. These special circumstances include the that the fund member: has terminated gainful employment; is temporarily or permanently incapacitated; is suffering severe financial hardship; meets conditions for compassionate grounds; has a terminal medical condition; or is taking part in the first home super saver scheme. Trustees should note that each of the special circumstances has its own eligibility conditions; for example, in the case of severe financial hardship, the trustee must first be satisfied that the member cannot meet reasonable and immediate family living expenses, has been receiving relevant government income support payments for a continuous period of 26 weeks and was receiving that support at the time they applied to the trustees. Cashing restrictions also apply – in the example of severe financial hardship, the super payment must be a single gross lump sum of no more than $10,000 and no less than $1,000. Another special condition of release which may be confusing for trustees is compassionate grounds. Not only do trustees have to be satisfied that the member qualifies under certain circumstances, prior ATO approval must be received by the trustee before any funds can be released. The amount of super that can be paid on compassionate grounds must be in the form of a lump sum and is limited to what is reasonably needed for the circumstances (eg medical treatment, palliative care, payment on home loan, council rates, accommodating disability, funeral expenses etc). Besides targeting illegal early release, the ATO has reminded trustees of SMSFs that their fund must be audited every year by a suitably qualified auditor and an annual return must be lodged by the due date. This blitz on the SMSF compliance is set to continue all through until the end of the 2024 income year, with the ATO explicitly stating it will take “firm action” against trustees who persistently fail to comply with their obligations and seriously breach the superannuation laws.

ASIC calls on lenders to support customers

Fri, 08 Sep 2023 05:19:42 GMT

ASIC has issued an open letter to various banks and credit institutions calling on them to ensure their customers have the appropriate level of support as the cost of living pressures persist and more individuals fall into the threshold for financial hardship. It reminds lenders that they must have suitable arrangements in place to respond to the requests for assistance from customers and work cooperatively to find sustainable solutions. There is increasing evidence that a growing number of consumers are starting to report high levels of financial stress, for example, the National Debt Hotline has received a 28% increase in calls this year compared to the last financial year, and delinquencies and hardship application volumes are also starting to increase. Based on early engagement information obtained by ASIC, several important areas of focus for banks and credit institutions were identified. ASIC has reminded lenders that under s 72 of the National Credit Code, providers must consider varying a customer’s credit contract if they are notified that these credit obligations are unable to be met. Credit providers must also ensure that credit activities authorised by their licence are engaged in efficiently, honestly and fairly. First and foremost, to meet their obligations, lenders must proactively communicate to customers about the circumstances in which they can seek hardship assistance and the options that are available. Hardship options may be temporary (eg deferring a payment) or permanent (eg setting up a payment plan or altering/varying loan repayments). Applications for financial hardship will usually be required to provide proof of hardship including reasons for the hardship, current income and other major financial expenses, as well as the level of repayments that can be afforded at the current time. Customers worried that seeking hardship arrangements will permanently affect their future credit scores can rest easy knowing the effects are only temporary. While hardship arrangements for certain credit products such as loans or credit cards can appear in credit reports, the report will only show the months the arrangement is in place, or if the arrangement is permanent, the month the loan is varied, no other details are included and the listing will be deleted after 12 months. Where a hardship application is granted, lenders should contact customers as the period of assistance comes to an end, to understand their most up-to-date financial circumstance and consider whether further assistance is required. This includes ensuring that customers understand what happens to any arrears that may exist at the end of the hardship assistance period. Where a customer’s hardship assistance is denied, written reasons must be provided along with other options including making a compliant to AFCA about the decision. Lenders should also encourage customers to reach out and talk about further options including non-hardship arrangements on offer. Ensuring customers receive the appropriate level of support will be an important compliance area for ASIC over the next 12 months. To facilitate that, it will commence data collection, involving 30 large lenders, to collect application-level information relating to financial hardship. ASIC will also initiate a review of 10 large home lenders to understand their approach to hardship through the use of questionnaires, review documents, and meetings with staff of selected lenders. Differences in lenders’ approach to hardship will be gleaned from case studies and hypothetical applicant exercises with results and insights to be released early to mid-2024.

ATO crackdown on TPAR lodgments

Fri, 01 Sep 2023 05:17:58 GMT

The ATO has reminded relevant taxpayers to lodge their Taxable Payments Annual Report (TPAR) by the annual deadline or as soon as possible. It notes that the deadline for each year is firm and those that fail to lodge their TPAR may be subject to penalties, the scale of which depends on the size of the entity and the period of time since the due date for lodgment. As a reminder, the TPAR applies to businesses in the building and construction industry as well as businesses that provide cleaning, courier and road freight, information technology and security, investigation or surveillance services and have paid contractors in relation to those services. For small entities, the failure to lodge (FTL) penalty is calculated at a rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of 5 penalty units. From 1 July 2023, one penalty unit is $313, therefore the maximum that small entities could be liable to would be $1,565. For medium entities (ie medium withholder for PAYG withholding purposes or has assessable income or current GST turnover of more than $1m and less than $20m) the penalty unit is multiplied by 2, which means the maximum FTL penalty could be $3,130. Similarly, for large entities (ie large withholder for PAYG withholding purposes or an entity with an assessable income or current GST turnover of $20m or more) the penalty unit is multiplied by 5, therefore the maximum penalty could be $7,825. In addition, for global significant entities, the base penalty unit is multiplied by 500, meaning that the maximum penalty applicable could be $782,500. “The ATO recently issued more than 16,000 penalties for businesses who didn’t lodge their TPARs for previous years, despite receiving multiple reminders. The average penalty for not lodging was approximately $1,110.” – ATO Assistant Commissioner, Tony Goding Businesses that may have received a reminder from the ATO to lodge a TPAR but do not actually need to lodge will need to submit a TPAR Non-lodgment advice form to avoid an unnecessary follow up. The form will allow entities to notify ATO of multiple years on the same form as well as to advise that they do not need to lodge in the future. According to the ATO, around $400bn in payments made to almost 1.1m contractors were reported in the TPAR system in the last financial year. The ATO uses the information obtained to check for red flags, including non-reporting of income, non-lodgment of tax returns or activity statements, overclaiming of GST credits or misusing of ABNs. The ATO cites a recent example where it used TPAR data to investigate a sole trader who failed to include more than $80,000 of income from 3 different companies and failed to lodge activity statements. The ATO will also include information reported in the TPAR in their prefilling service to help contractors get their income right in their tax returns. The prefilled data will give taxpayers transparency about the data that has been provided to the ATO about their business transactions.

Small business bonus deduction: technology investment

Fri, 25 Aug 2023 05:32:29 GMT

Small businesses can access a 20% bonus deduction for eligible expenditure incurred on business expenses and depreciating assets for the purposes of their digital operations or for digitising operations. The bonus deduction applies to up to $100,000 of eligible expenditure incurred in each period between 7:30pm on 29 March 2022 and 30 June 2023, with a maximum bonus deduction amount of $20,000 per income year or specified time period. This bonus deduction is available to all entities that meet the definition of a small business entity, either those businesses with an aggregated annual turnover of less than $10m or those that meet the definition where the $10m threshold is replaced with $50m. Expenditure on digital operations or digitising operations may include the following: digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks; digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design; e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services, and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth; or cyber security – cyber security systems, backup management and monitoring services. It should be noted that the eligible small businesses’ expenditure on digital operations or digitising its operations is not necessarily limited to the above. A broad range of expenditure could be eligible for the bonus deduction, provided: the expenditure itself is eligible for a deduction under another provision of taxation law (ie the expenditure must be necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income); the expenditure is incurred between 7:30pm (by legal time in the ACT) on 29 March 2022 and 30 June 2023; if the expenditure is on a depreciating asset, it must be first used or installed ready for use by 30 June 2023. Any private use portion of expenditure is not eligible for the bonus deduction as it cannot be deducted under another provision of tax law. Small businesses are also ineligible to claim the bonus deduction for expenditure on depreciating assets if any balancing adjustment event occurs to the asset while the entity holds it during the relevant period, unless the balancing adjustment event is an involuntary disposal. However, repair and improvement costs for depreciating assets are eligible for the bonus deduction provided these costs are incurred during the relevant time period. Other excluded expenditure in relation to the bonus deduction include: salary and wage costs; capital works costs which can be deducted under Div 43 of the ITAA 1997; financing costs; training and education costs; and expenditure that forms part of, or is included in, the cost of trading stock. According to the government the above expenditure is excluded as they are not directly related to digital operations or digitising operations, and the bonus deduction is not intended to cover general operating costs related to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. Training and education costs are excluded as they are specifically covered under the Skills and Training boost (which also provides a 20% bonus deduction).

Does GST apply to crypto-assets?

Fri, 18 Aug 2023 03:40:37 GMT

As digital currency becomes more common-place in a business context both in terms of trading and using such assets for payment in Australia, one question that commonly arises for those businesses will no doubt be: does GST apply to crypto-assets? The answer, according to the ATO, depends on the context in which the crypto-assets are being used. The many types of crypto-assets can be broadly divided into 2 categories, those considered to be digital currency and those that are not. Generally, digital currency is anything that uses cryptography and block-chain technology to secure and record transactions (eg Bitcoin and Ethereum) and encompasses the following characteristics: fully interchangeable with the same digital currency; can be provided for payment; available to the public free of any substantial restriction; is not denominated in any country’s currency, or is denominated in a currency that is not issued by or under the authority of an Australian or foreign government; does not have value that is derived from or dependent on anything else; does not give entitlement to receive something else unless it is incidental to holding it or using it as payment; if supplied, would not be an input-taxed financial supply for a reason other than being a supply of digital currency or money. Crypto-assets that are not considered to be digital currency include non-fungible tokens (NFT), Stablecoins, and Initial coin offerings. NFTs are not considered to be a digital currency because they cannot be interchanged with other NFTs, the supply of which are usually deemed to be taxable unless they are GST-free. Stablecoins are crypto-assets that are pegged to the value of some other asset such as a commodity or more generally a fiat currency (ie US dollar), and are not considered to be a digital currency. In addition, initial coin offerings are not considered to be digital currencies if they are a security (including a share or managed investment scheme), a derivative, or gives a right or entitlement to goods and services. If an initial coin offering is a security or derivative, the supply will be input-taxed unless its GST-free. If the offering gives a right or entitlement to goods and services, the supply will be taxable, unless the entitlement is incidental or the supply is GST-free. It should also be noted that the ATO does not consider loyalty points that can only be redeemed for goods and services under the loyalty scheme and in-game tokens that cannot be used outside the game, to be digital assets. For those trading in digital currency in exchange for money or digital currency with an Australian resident who is located in Australia, the supply will be an input-taxed financial supply and GST does not need to be paid. Digital currency traded in exchange for money or digital currency with a non-resident (not located in Australia) would be GST-free. If the location of the counterparty to the digital currency transaction cannot be identified, taxpayers can use the location of the digital currency exchange to treat the supply as either GST-free (if the exchange is not located in Australia), or input-taxed (if the exchange is located in Australia). Digital currency used to pay for goods and services in a GST-registered enterprise will be treated in the same way as money. If a taxable supply is made and digital currency is received as payment, the GST amount for that payment will need to be included in the relevant BAS and must be in Australian dollars. Conversely, where digital currency is used to make a purchase in a GST-registered enterprise and a GST credit is claimed, the GST amount of the credit in the BAS must also be in Australian dollars. The exchange rate can either be obtained from a digital currency exchange website, or agreed on between supplier and recipient. For taxpayers that account for GST on a non-cash basis, the day to convert the amount is the earlier of the day the payment was received, or the transaction date or invoice date. The conversion date for taxpayers that account for GST on a cash basis can be the transaction date, invoice date or the date any of the payment is received.

Small business lodgment amnesty reminder

Fri, 16 Jun 2023 05:16:19 GMT

The ATO has reminded eligible small business taxpayers to take advantage of the lodgment penalty amnesty program announced in the recent 2023-24 Federal Budget. It applies to tax obligations covering income tax returns, business activity statements, or fringe benefits tax returns originally due between 1 December 2019 and 28 February 2022. Superannuation obligations and penalties associated with the Taxable Payments Reporting System are not included as a part of the program. The amnesty will run for the period 1 June 2023 to 31 December 2023. “The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact. We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations. Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track.” – ATO Assistant Commissioner, Emma Tobias To be eligible for the amnesty, small businesses must have an annual turnover of less than $10m at the time the original lodgment was due, and lodge relevant overdue forms and returns between the amnesty period (ie 1 June 2023 to 31 December 2023). It should be noted that the amnesty does not apply to privately owned groups or individuals controlling over $5m of net wealth. According to the ATO, where eligible small businesses lodge relevant overdue forms and returns during the amnesty period, any associated failure to lodge (FTL) penalties will be proactively remitted and businesses will not need to separately request a remission. It flags that some taxpayers may see a FTL penalty on their account for a short period of time but reassures eligible taxpayers that it will be remitted as per the amnesty. Although FTL penalties will be remitted, the ATO emphasises that no other administrative penalties or general interest charge (GIC) will be remitted as a part of the amnesty. Therefore eligible small businesses with an existing debt or that accrue a new debt through late lodgment may still have GIC applied to those debts. The most current annual rate of GIC (for the July – September 2023 quarter) is 10.90%. In addition, the ATO also encourages those businesses outside the amnesty eligibility to also lodge any overdue forms or returns to avoid being classified as not being actively engaged with the tax system which is a red flag which may lead to other action. While FTL and other penalties may apply to those businesses lodging outside of the amnesty, the ATO states that it will consider the unique circumstances of every business taxpayer and may remit penalties on a case-by-case basis. Small business that may be concerned about debts which may arise once they lodge their overdue forms or returns can take comfort in ATO’s assurances that it will work with taxpayers to figure out the right solution for each situation. This includes having a range of support options available, including payment plans, compromise of tax debt, or deferring repayments. Some small businesses may also be able to set up their own payment plan online through either MyGov or the ATO Business Portal.

Beware of scams this tax time

Fri, 09 Jun 2023 05:40:31 GMT

In a sign of just how bad scams have gotten, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, has issued a warning for Australians to beware of scams that are circulating in the lead up to tax time 2023. According to the government, the number of scam reports received to date for the 2022-23 income year is already at 19,843 and is projected to exceed the 20,000 scams reported in the 2021-22 income year. Tax time scams typically involve the impersonation of the ATO to obtain personal information or solicit unlawful payment. The common tricks tax scammers are using ahead of the 2022-23 tax time include: posing as the ATO on social media offering to help individuals with tax and super questions, which require personal information such as TFN, DOB, names, addresses etc; luring unsuspecting individuals with an offer of a fake refund in return for the provision of personal information; in conversations via phone, social media private messages, email and text, attempting to keep the individual engaged for as long as possible through various means including threats and intimidation, offers to help etc, to either collect personal information or solicit payment. The ATO now has a dedicated team that monitors and assists taxpayers that have fallen victims to scammers. While the ATO will sometimes contact taxpayers by phone, email, SMS or post, it will never send out links to login to their online services or ask taxpayers to send personal information via any means. To be extra cautious, the ATO recommends that if taxpayers are unsure whether the communication they’ve received is genuinely from the ATO, they should not reply and look up the ATO’s number on its website and not call any number shown in the caller ID, phone log, SMS, or voicemail. Many scammers will use spoofing technology to show a real ATO or an Australian phone number in the caller ID or call log. The ATO notes that its calls will not show a number and will be shown as No Caller ID. In addition, as some scammers may also attempt to get the individual into a conference call with a third party of fake tax or law enforcement officers, the ATO sates that it will never pull any individual into a conference call with a third party including the individual’s tax agent or other law enforcement. In terms of SMS and email communications, the ATO says it will never send an unsolicited message asking individuals to return personal identifying information through these channels. It also does not send links or attachments for taxpayers to open or download. If the communication contains either a link or attachment and is purportedly from the ATO, it is highly likely to be a scam. Individuals that have fallen victim to an ATO scam are encouraged to contact their bank for financial institution if financial information or money was provided to the scammer, make an official report to local police, and report the scam to the ATO through either their hotline, or the specific scams email address.

Tax rates and offsets for 2023-24 and beyond

Fri, 02 Jun 2023 05:31:32 GMT

Despite the calls to scrap the already legislated stage 3 tax cuts, the government did not announce any changes in the recent Budget, which means the tax cuts are still set to commence from 1 July 2024 (ie the 2024-25 income year). Additionally, no changes were announced in the Budget to the current personal tax rates, meaning that the rates and income thresholds that have applied since the 2021-22 income year will continue to apply all the way through to the 2023-24 year. As a refresher, the already legislated stage 3 tax cuts will reduce the 32.5% marginal tax rate to 30% for one big tax bracket between $45,000 and $200,000, along with the abolishment of the 37% tax bracket from the 2024-25 income year. The original aim was to align the middle tax bracket of the personal income tax system with corporate tax rates. In detail, the brackets and rates are as follows: $0 - $18,200: Nil tax payable; $18,201 - $45,000: Nil + 19% of excess over $18,200; $45,001 - $200,000: $5,092 + 30% of excess over $45,000; and $200,001+: $51,592 + 45% of excess over $200,000. However, some individuals may find themselves paying more tax for the 2022-23 income year due to the end of the Low and middle income tax offset (LMITO). The LMITO applied to individuals with taxable income of less than $126,000. For the 2021-22 income year, those earning a taxable income of $90,000 received an offset of $1,500 which reduced by 3 cents for every dollar above $90,000 tapering off at $126,000. For the 2022-23 income year and onwards, only the low income tax offset (LITO) will apply. The maximum amount of the offset is $700 and will apply to individuals with taxable incomes of less than $37,500. Those earning between $37,501 and $45,000 will get $700 minus 5 cents for every dollar above $37,500. Individuals with taxable incomes between $45,001 and $66,667 will get $325 minus 1.5 cents for every dollar above $45,000. Taxpayers earning more than $66,667 are not eligible for the LITO. Example Jerry earns a taxable income of $95,000 for the 2022-23 income year. He is not eligible for the LITO as his taxable income is too high, and the LMITO no longer applies. The amount of tax payable for the 2022-23 income year based on the current tax rates is $21,342. Previously in the 2021-22 income year, where the LMITO applied, Jerry’s tax payable of $21,342 would have been reduced by $1,350 to $19,992. If Jerry is still earning the same taxable income of $95,000 in the 2024-25 income year due to wage stagnation, based on the stage legislated stage 3 tax cut rates, his tax payable would be $20,092, a projected reduction of $1,250 from his 2022-23 and 2023-24 tax payable. It should also be noted that the stage 3 tax cuts not only applies to Australian residents, but also foreign residents and working holiday makers from the 2024-25 income year. As legislated from 1 July 2024, foreign residents will only pay 30% on taxable income of up to $200,000. Currently, the lowest rate for foreign residents is 32.5% on taxable income of up to $120,000. For working holiday makers, from 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000, as per the rates for Australian residents.

STP Phase 2: avoid common mistakes

Fri, 26 May 2023 05:26:33 GMT

Single Touch Payroll (STP) was introduced as a way for employers to send super and tax information directly to the ATO through the use of STP-enabled software solutions. STP Phase 2 is now in full swing having commenced on 1 January 2022. It required more detail on the amounts reported through STP, for example, salary sacrificed amounts must be reported separately. In addition to employers reporting more detailed information under Phase 2, the ATO will also be receiving information from super funds. When employers make a super payment to their employees’ chosen or default fund, the fund will send this information to the ATO which will then be matched with the STP information from the employer to ensure that the correct entitlements are being paid. With the STP Phase 2 having been in place for more than a year for some employers, the ATO has now identified common mistakes for employers that are currently entering into the system after expiration of deferrals to avoid. These common mistakes relate to pay codes, continuity of year-to-date (YTD) reporting, employee details, and employment basis. In relation to pay codes, the ATO have noticed that some employers have failed to set up the codes correctly and to ensure that payments including allowances, paid leave, and overtime are itemised separately. Another issue the ATO has noticed is employers selecting “not reportable” or “do not report to the ATO” incorrectly. It states that generally all amounts paid to employees should be reported and the “not reportable” or “do not report to the ATO” options should only be selected for travel allowances below the ATO’s reasonable amounts, overtime meal allowances below the ATO’s reasonable amount reimbursements, and post-tax deductions (except for those separately identified). For employers that transitioned to STP Phase 2 part way through the financial year, they need to ensure that continuity of YTD reporting is maintained unless the replacing payroll IDs method is used. This varies with the different software solutions used, some will transition to the amounts automatically while others may require manual input of YTD amounts. Employers should be aware of which one is required by their software provider. The ATO suggests comparing the first STP Phase 2 report with the last STP Phase 1 report to assist in maintaining the correct figures. As tax time approaches, the ATO emphasises the importance of having the correct employee information such as name, TFN, and DOB transitioned into STP Phase 2. Employers will also need to report accurate information about their employees’ employment basis (eg full time, part time or casual), each time the payroll is run. Specifically however, the ATO has also identified a common issue where the employer omits the cessation date and reason for leaving when employees leave. In general, it notes that under Phase 2, employers should be reporting a cessation date and reason for an employee when there are also payments that are connected to termination (eg ETPs, unused leave termination, lump sums). This information will flow through to Services Australia and help streamline interactions with the employee. Under Phase 2, employers are also required to report a country code when payments are made to employees who derive foreign employment income, are inbound assignees to Australia, or are working holiday makers. The country refers to the home country of the individual, and differs depending on the type of income. The ATO has noticed employers using the code “na” to denote “not applicable” in these instances, however, “na” has been assigned as the country code for Namibia and should not be used unless they are either working overseas in Namibia or are from Namibia.

Employers to pay super at same time as wages

Fri, 12 May 2023 05:46:58 GMT

With the 2023 Federal Budget fast approaching, the government has been selectively releasing various measures ahead of time. Two particular announcements set to affect businesses consist of payday super and the small business energy incentive. While more details on these measures are likely to be released in the Budget, businesses of all sizes can benefit from early preparation. The government announced that from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages (ie payday super). This 3-year lead time is to give businesses, super funds, payroll providers and other parts of the superannuation system sufficient time to prepare for the change. According to ATO estimates, in 2019-20, around $3.4bn worth of super went unpaid. While the onus to chase up unpaid super currently lies with the employee, this is made all the more difficult by the employer only having to show the amount of super they are liable to pay, not the actual amount paid. Currently, employers are only required to pay super for eligible employees on a quarterly basis, meaning that many employees realise that they have not been paid the correct amount of super far too late. The ATO notes that it will generally not pursue unpaid super enquiries where the compliant is for a period that ended over 5 years ago. Once the employee notices that they have not been paid the correct amount of super, recovery can be an onerous process of providing relevant evidence to initiate an investigation with either the ATO or the Fair Work Ombudsman. As evidenced by the amount of estimated unpaid super each year, many unscrupulous business owners will have either abandoned or liquidated the business by this point, leaving employees with nothing. While some eligible employees will be able to claim unpaid wages and annual leave under the Fair Entitlements Guarantee, super guarantee contributions cannot be claimed, leaving employees, particularly those in casual, part-time or lower-wage sectors, worse off in retirement. The government hopes that the simple payday super change will make it easier for employees to keep track of their super payments, making it harder for disreputable employers to exploit this loophole. The Treasurer, Jim Chalmers MP, noted that more frequent super payments will make employers’ payroll management smoother with fewer liabilities building up on their books, while also benefitting employees. It is projected that a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000 or 1.5% better off at retirement just with this small change. To complement the payday super measure, the government has also announced that the ATO will receive additional resourcing to help detect unpaid super payments earlier. New enhanced targets will also be set for the ATO for the recovery of super payments. Jointly, the Treasury and the ATO will commence consultation on these changes in the second half of 2023. It should be noted that legislation related to these measures have not yet been released, let alone passed Parliament. Therefore, these measures are not yet law, but given the broad political support in wake of the announcements, it is likely that these proposals will be introduced as soon as various consultation concludes.

Budget 2023: What’s in it for small businesses

Fri, 12 May 2023 05:30:23 GMT

The 2023 Budget has been handed down by Treasurer Jim Chalmers. In addition to the cost-of-living and welfare measures leaked ahead of the Budget, the government also released new measures relating to businesses. The government has forecast a Budget surplus of $4.2bn in 2022-23, but an underlying cash deficit of $13.9bn is expected in 2023-24 and a $35.1bn deficit for 2024-25. The Budget papers note that the global economic outlook has deteriorated and is highly uncertain with persistent inflation and rising interest rates expected to slow real GDP growth from 3.25% in 2022-23 to 1.5% in 2023-24, before rising to 2.25% in 2024-25. While inflation remains elevated at 6% for this year, it is expected to fall to 3.25% in 2023-24 and return to the RBA's target band of 2-3% in 2024-25. For small businesses, the government has proposed to temporarily increase the instant asset write-off threshold from 1 July 2023 to 30 June 2024. In previous years, the temporary full expensing effectively replaced the instant asset write-off regime and applied for assets held/first used/installed ready for use between 6 October 2020 to 30 June 2023. This allowed eligible businesses to immediately deduct the business portion of an asset’s cost with no general limit, although specific cost limits on certain assets, such as cars, applied. With the expiration of the legislated temporary full expensing, eligible small businesses with an aggregated annual turnover of less than $10m will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 limit will apply on a per asset basis, so small businesses are able to instantly write-off multiple assets. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. In addition, the “lock-out” rule that prevents small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024. The government has also announced a lodgment penalty amnesty program for small businesses (with an aggregate turnover of less than $10m). The amnesty will remit failure-to-lodge (FTL) penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that had original due dates between 1 December 2019 to 29 February 2022. Currently, the FTL penalty is $275 per penalty unit. Small entities are liable to the FTL penalty at a rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of 5 penalty units. For medium entities (ie a medium withholder for PAYG purposes or one who has assessable income or a current GST turnover of more than $1m and less than $20m) the penalty unit is multiplied by 2 and applies at the same rate as small entities. It is hoped that the amnesty will encourage small businesses to re-engage with the tax system. In conjunction with the amnesty, the government will also be providing funding to the ATO from 1 July 2023 over 4 years to assist with engaging more effectively with businesses to address the growth of tax and superannuation liabilities. Specifically, the funding will facilitate ATO engagement with taxpayers who have high-value debts over $100,000 and aged debts (ie more than 2 years) of either public/multinational groups with aggregated turnover of greater than $10m, or privately owned groups or individuals controlling over $5m of net wealth.

Ride-sourcing data-matching

Fri, 05 May 2023 05:45:15 GMT

Continuing on from the theme of closing the tax gap of individuals for budget repair, the ATO has notified the public of the extension of an existing data-matching program on ride-sourcing. The program was previously designed to run from the 2015-16 to the 2021-22 financial years, capturing information from individuals engaged in providing ride sourcing services, this has now been extended to apply to the 2022-23 financial year. Information obtained by the ATO in the extended data-matching program will include: Identification details – driver identifier, ABN, driver name, date of birth, phone number, email, physical addresses etc; and Transaction details – bank account details, aggregated payment details, gross fares, net amount paid to driver, all other income. It is estimated that records relating to approximately 200,000 individuals will be obtained. According to the ATO, the data obtained will be used to identify and address incorrect reporting of income in terms of income tax returns and activity statements. It will also be used to identify instances where individuals fail to meet registration or lodgment obligations (eg GST). While the ATO will not use the data obtained from the program to initiate automated actions or activities, it may be used as a part of the methodologies by which it selects taxpayers for compliance activities. As with the previous program, the extension does not specifically identify the data providers of ride sourcing services, as the ATO notes that identifying providers that work the ATO “may cause commercial disadvantage”. Instead, the ATO is continuing to apply a “principles-based approach” to ensure that the selection of data providers is fair and transparent and includes any ongoing arrangement where the following conditions are satisfied: a driver makes a car available for public hire; a passenger uses a website, app or similar technology provided by a third party to request a ride; and the driver uses the car to transport the passenger for payment with a view to profit. In addition to potential compliance activities, the ATO will also be using the program to promote voluntary compliance, understand behaviours and compliance profiles of individuals and businesses providing ride sourcing services and obtain a holistic view of taxpayers’ income. According to the ATO, in previous years, the data from the ride sourcing program broadly achieved the goals of being used in educational campaigns as well as identifying candidates for review of audit in relation to registration and lodgment obligations. Going forward, this particular data-matching program will not be extended beyond the 2022-23 financial year with the passing of the Sharing Economy Reporting Regime Bill which will require operators of various electronic distribution platforms to indefinitely report identification and payment information to the ATO for data-matching purposes from 1 July 2023 for ride-sourcing and short-term accommodation, and from 1 July 2024 for all other reportable transactions. The data obtained in this data-matching program will be retained for 5 years from the receipt of the final instalment of verified data from the data providers. The ATO notes this supports its general compliance approach of reviewing an assessment within the standard period of review and also aligns with the record-keeping requirements for taxpayers.

Director penalties

Fri, 21 Apr 2023 04:46:27 GMT

What is a director penalty? A company director becomes personally liable for the company's unpaid amounts of: pay as you go withholding (PAYGW); goods and services tax (GST); and super guarantee charge (SGC). These amounts that a director is personally liable for are called director penalties. The ATO can recover the penalty amounts from a director once it has issued a director penalty notice (DPN) to the director. Alternatively, the ATO can pursue the company. If the company has more than one director, the amounts owed are likely to be the same for all directors. Before becoming a director Before you become a company director, you should check if the company has any unpaid or unreported PAYGW, GST and SGC liabilities. Once you are appointed as a company director, you become personally liable for any unpaid amounts. A new director can avoid becoming liable for director penalties that were due before their appointment if, within 30 days of your appointment, they ensure the company does one of the following: pays its debts in full for PAYGW, net GST from 1 April 2020 (including luxury car tax (LCT) and wine equalisation tax (WET) amounts) and SGC from 1 April 2012; appoints an administrator; appoints a small business restructuring practitioner; begins to be wound up. Even if you resign as a company director within the 30-day period, you will still be liable for the company's unpaid PAYG withholding, net GST or SGC liabilities that were due before your appointment. Director’s responsibilities Once you become a director, you are responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full by the due date. If these obligations are not met, you become personally liable for director penalties unless you take steps to ensure the company lodges and pays its: PAYGW by the due date; net GST (as well as LCT and WET amounts) by the due date; and superannuation guarantee (SG) to employees' superannuation funds by the due date – if that doesn't occur, the company must lodge a superannuation guarantee statement and pay the resulting SGC liability. Estimates If the company fails to report PAYGW, net GST or SG obligations by the due date, the ATO may make a reasonable estimate of the unpaid and overdue amounts. The director penalty provisions also apply to estimated liabilities. Defences Various defences are available to a director served with a DPN, such as: the director did not take part in the management of the company during the relevant period because of illness or another acceptable reason; and the director took all reasonable steps to ensure that the company paid the amount outstanding, an administrator was appointed to the company, a small business restructuring practitioner was appointed to the company or the company is begun to be wound up.

Home charging rate for EVs released

Fri, 21 Apr 2023 04:31:58 GMT

The ATO has released a draft compliance guideline which contains the methodology for calculating the cost of electricity when an eligible electric vehicle is charged at an employee’s or an individual’s home. This methodology contained in the guideline can be applied for FBT from 1 April 2022 and for income tax purposes from 1 July 2022. According to the ATO, the EV home charging rate will be 4.20 cents per km. If charging costs are incurred at a commercial charging station, a choice must be made. If the EV home charging rate is used, the commercial charging station cost will be disregarded, and vice versa. However, records such as receipts must still be kept to substantiate any claims, and the choice to rely on the guideline applies for the entire FBT or income year. Example Ian owns a zero emissions electric vehicle which he mainly uses for work but also for private purposes. For the relevant year, he maintains odometer records as well as a logbook. He works out that for the year the business use percentage of the car is 60% and he drove 26,000km. He charges his car at commercial charging stations while on the road, and also at home. Using receipts he has retained, the cost of charging at commercial stations for the year amounted to $300 for the year. Using the guideline, he works out that his home charging electricity deduction to be $655 (26,000km x 4.20c per km x 60%). Ian has a choice to either deduct the $300 from the commercial charging stations as a part of his work-related car expense deduction claim or the $655 worked out using the methodology contained in the guideline. He cannot do both. Since $655 is higher than $300, Ian opts to rely on the guideline and have it apply for the entire income year. For the 2023 FBT and income tax year, the ATO will accept a reasonable estimate based on service records, logbooks, or other available information where odometer records have not been maintained as a transitional measure. This approach is only available for the opening odometer reading at 1 April or 1 July 2022. Businesses that can rely on this guideline include those that provide electric vehicles to employees (or associates) for private use that results in the provision of a car fringe benefit, residual benefit, or car expense payment fringe benefit and is required to calculate the value of benefit as a part of FBT obligations. For example, the EV home charging rate can be used to determine the recipient contribution component for the statutory formula method for car fringe benefits. Similarly, it can be used to determine both the operating cost and recipient contribution if the operating cost method is used. For individuals, the guideline can only be relied on to calculate the cost of charging an electric vehicle if a zero emissions electric vehicle was used in carrying out income-earning activities and relevant records have been kept during the year. It should be noted that plug-in hybrids (ie those powered by a combination of liquid fuel and electricity) are not considered to be zero emission vehicles and individuals that use plug-in hybrids are unable to rely on the guideline even if the vehicle was used in carrying out income-earning activities.

Property investors beware: new data matching program

Fri, 14 Apr 2023 05:05:10 GMT

Recent results of sample audits across individuals conducted under the ATO random enquiry program appeared to show a net tax gap of $9bn for the 2020 income year, with the incorrect reporting of rental property income and expenses being a significant driver of the gap. Specifically, the estimated net tax gap for rental property expenses contributed around $1bn or 14% of the total individuals gap, with a common driver being the incorrect apportioning loan interest costs where the loan was refinanced or redrawn for private purposes. Based on the results of the program, it comes perhaps as no surprise that the ATO has announced the commencement of a data matching program to acquire residential investment property loan data from authorised financial institutions for the 2021-22 to the 2025-26 income year. Information collected will include: identification details – unique client ID, names, addresses, phone numbers, date of birth, email address; account details - account numbers, BSB, balances, commencement and end dates, term of loan, opening and closing balances, borrowing costs; transaction details - transaction date, amounts, transaction description; and property details - addresses, etc. The data providers include the big 4 banks (ANZ, Commonwealth, Westpac, NAB), as well as other providers and their subsidiaries, including Adelaide Bank, Bank of Queensland, Bendigo Bank, Bankwest, ING, Macquarie Bank, Suncorp, RAMS, Ubank, St George, Bank of South Australia, Bank of Melbourne and ME Bank. The ATO will also be the matching agency and the sole user of the data obtained during this program. Records relating to approximately 1.7m individuals will be obtained each financial year. The ATO will be using the data obtained to provide information about rental property loans including information such as repayments, interest charged, and borrowing expenses. It will be using this information of identify, assess and treat several tax risks including: Lodgment – confirming that taxpayers with rental properties are lodging tax returns and the relevant rental property schedule on or before the relevant due date; Income tax – confirming taxpayers with a rental property are correctly reporting interest on loan and borrowing expense deductions in their rental property schedules and associated income tax return labels; Capital gains tax (CGT) – confirming the calculation of cost base elements used to determine the net capital gain or loss on a rental property used to generate income. According to the ATO, after a return is lodged, it will be using the data collected to identify relevant cases for administrative action including compliance activities and education strategies. If a discrepancy is identified, taxpayers will be contacted by phone, letter or email. Taxpayers will then have 28 days to respond before the ATO takes any administrative action in relation to the discrepancy. In addition to compliance action, the ATO will also be using the data collected to gain insights to help develop and implement treatment strategies to improve voluntary compliance. The data obtained may also be made available to individual self-preparers through myTax, specifically the rental property schedule interest on loans and/or borrowing expense labels and rental income tax return labels.

ATO enforcement of sales suppression technology

Thu, 06 Apr 2023 05:36:30 GMT

Following the commencement of the Treasury Laws Amendment (Black Economy Taskforce Measures No 1) Act 2018, which strengthened penalties to deter the possession, manufacture and distribution of electronic sales suppression technology (ESST) from the 2019-20 income year onwards, the ATO along with the Treasury has recently released the results of a review as required by the enacting legislation. Since the introduction of these new powers, the ATO has mostly focused its efforts in addressing ESST behaviour as part of the broader shadow economy program. Where the ATO identifies actual or suspected ESST use, detailed compliance action is undertaken to identify both cash and electronic sales suppression across businesses. According to the ATO, the use of ESST is not only in income, and can also facilitate payment of cash wages and the subsequent non-compliance with employer obligations such as PAYG withholding and super guarantee contributions. Traditionally, ESST has been embedded in and focused on manipulating POS software, however, the ATO has observed the evolution of ESST with the advent of more complex systems. For example, it has seen ESST which has been embedded into other parts of electronic systems of business taxpayers containing very sophisticated components and coding to hide the technology that requires analysis of the broader computer architecture and countering the ESST’s in-built-detection and anti-forensic mechanisms. To combat this leap in technology, the ATO is now broadly defining ESSTs to include the following: cloud-based software that works with the POS system; use of encryption software to conceal documents from the ATO; remote access that can facilitate individual and bulk deletions from mobile devices from anywhere in the world in real time; conceal phantomware and programs that enable rapid removal or alteration of data by either a portable device (ie USB) or an external/cloud-based service; suppression of HR and payroll data which enables falsifying employee and wage records; digital sources relating to ESST which can be located in computer hard drives, operating systems, servers, software, program coding, log entries, POS systems, communication, and external devices where most can only be identified by digital forensics experts undertaking imaging activities. One new sales suppression technique that has emerged that particularly concerns the ATO is a “foreign zapper” that operates over the internet and allows for the same activities of alteration, deletion, replacement, and manipulation of sales data. The zapper is not present during normal use and the software may also allow for remote crashing of hard drives which makes verification of accurate records difficult. To date, 46 sales suppression software cases have been completed by the ATO with around $1m in penalties being applied and raising around $7.4m in tax liabilities. Anecdotally, the ATO is aware of a four-fold increase in the use of ESST during the pandemic and ESST manufacturers have also adapted to the post-pandemic model by offering more sophisticated technology that takes advantage of business taxpayers’ increased use of electronic payment platforms and digital operations. In addition, to apply ESST penalties successfully, there is a requirement for significant investment of ATO resources, given the difficulties in gathering sufficient evidence to support the enforcement decision, as it is common for an ESST to delete the audit trail. Highly trained ATO officers are usually required to gather information from many sources to corroborate the existence, manufacture, sale and use of ESST. However, the ATO notes that the general risk to tax collection posed by ESST is outside its risk tolerance, therefore further compliance action is required.

Cheaper childcare on the horizon

Fri, 31 Mar 2023 04:23:49 GMT

Families struggling with the current cost of living crisis could soon have some relief with cheaper childcare coming mid-year after the government passed child care subsidy reforms. This was a component of Labor’s election platform with a promise to make early childhood education and childcare more affordable for families. According to the government, with the passing of the legislation, 96% of families with children in early childhood education and care will benefit, with no family being worse off. From 1 July 2023, the rate of child care subsidy (CCS) that Australian families are entitled to receive will increase. Currently, the highest CCS percentage families can receive for their first child in care is 85%. This rate is reserved for families with a combined income of up to $72,466. Then between the family income thresholds of $72,467 and $177,465 the CCS percentage reduces by 1% for every $3,000 of income the family earns. Effectively, this drops the CCS percentage down to 50% at the family income of between $177,465 and $256,755. In addition, families that presently earn between $256,756 and below $346,755 receive a CCS of between 50% and 20%. Those that earn between $346,756 and $356,755 receive a 20% rate for CCS and those that earn $356,756 or more receive no child care subsidy at all from the government. With the passing of the legislation, families that earn up to $80,000 will receive a CCS rate of 90%, which will taper down by 1% for each additional $5,000 of family income until it reaches 0% for families earning $530,000. The existing measure that provides a higher CCS rate for families with multiple children under 5 years old in childcare will continue to apply so that for second and younger children 5 years and under in care, families will receive an additional 30% up to a maximum of 95%. The new rates will apply from the first CCS fortnight starting on 1 July 2023 and the base rate threshold of $80,000 will be indexed annually with CPI increases, although the amount will not be indexed in 2023. Example Ian and Valerie have one child under 5 who goes to childcare. They have a family income of $346,755. Under the current system, the childcare subsidy percentage they receive is 20%, which largely means that the government will subsidise 20% of their childcare fees (although it may be lower in reality as there is a 5% withholding and is also capped at a maximum of $12.74 per hour). Under the new CCS system coming in 1 July 2023, Ian and Valerie will be able to receive a higher CCS of 36.65% for their childcare fees at the same family income. The legislation also extends the FBT exemption for staff discounts to include cooks employed or otherwise engaged in child care services. It is estimated by the government that the CCS reforms will cut the cost of child care for around 1.26m families. It is hoped that by making these reforms, many more parents will re-enter the work force or have the opportunity to work more if they choose.

Tax records education direction now in place

Thu, 23 Mar 2023 05:04:45 GMT

Late last year, the Treasury Laws Amendment (2022 Measures No 2) Bill 2022 passed Parliament and received Assent. Among other things, it contained a measure to allow the ATO to issue a “tax-records education direction” which will require an entity to complete an approved record-keeping course where the Commissioner reasonably believes that there has been a failure to comply with one or more specified record-keeping obligations under tax law. This will be an alternative to imposing a penalty. This measure came into effect on 13 March 2023 and as a result, PS LA 2005/2 relating to the penalty for failing to keep or retain records has now been updated to include this new power. In addition to general principles in administering a penalty for failing record keeping obligations, it contains guidance on eligibility for the tax-records education direction, factors the ATO will consider in that assessment, and how to comply with such a direction. It should be noted that the “tax-records education direction” does not apply to Part X of the Fringe Benefits Tax Assessment Act 1986 or Div 900 of the ITAA 1997. Furthermore, although it also does not apply to the Superannuation Guarantee (Administration) Act 1992, a similar power already exists for not complying with super guarantee record-keeping obligations within the Commissioner’s powers. According to the ATO, the purpose of the tax-records education direction is to help educate businesses about their tax-related record-keeping obligations, is only issued to entities that are carrying on a business and is best suited to small business entities. A direction to educate will most likely be issued in cases where the ATO believes an entity has made a reasonable and genuine attempt to comply with, or had mistakenly believed they were complying with their tax record-keeping obligations. Factors the ATO will consider when deciding whether an education direction is appropriate include: knowledge gaps within the business which may benefit from the completion of a course; inappropriate records kept due to unintentional mistakes or digital illiteracy; whether genuine attempts have been made to comply with tax obligations; the entity has not been issued an education direction previously; the entity is new to business (ie trading less than 2 years); and the entity has cooperated with the ATO regarding information requests. The ATO notes that entities that have been or are disengaged from the tax system or deliberately avoiding obligations to keep records will not be eligible. Factors that point to disengagement or deliberate avoidance include poor compliance history, poor engagement with the ATO regarding information requests, deliberate loss or destruction of documents, or fabrication of documents. Once an education direction has been issued, the Commissioner is able to vary the terms if certain circumstances arise (ie course unavailable, natural disaster etc). The entity is also able to request a variation, such as an extension, in writing, before the end of the period specified in the direction. To help businesses understand record-keeping obligations, the ATO states that all “reasonable” extension requests received before the end of the specified period should be granted. To comply with the education direction, a relevant individual to the entity (ie director, public officer, partner etc), must be able to show evidence that they have completed the ATO approved online record-keeping course by the end of the specified period. Successful completion of the course by the due date means the entity will no longer be liable to a penalty. Conversely, if the appropriate course is not completed by the due date, the entity will be liable to a penalty of up to 20 penalty units (ie $5,500).

Objective of superannuation proposal

Fri, 10 Mar 2023 05:24:50 GMT

Superannuation, while being one of the integral components of Australia’s retirement system, along with the aged pension and savings, has never had a clear legislated objective to guide policy makers. As a consequence, it has been used for many other objectives, such as housing and healthcare, which may conflict with the ultimate goal of providing Australians with income in retirement. The government has released a consultation paper seeking views to legislate an objective for superannuation. The paper builds on the outcomes of the 2014 Financial System Inquiry and the 2020 Retirement Income Review, which both recommended an objective for super to ensure the consistency and stability of retirement income policy. “Legislating an objective for super – a Labor commitment at the last election – will give confidence to the super industry and peace of mind to Australian workers that we’ll do everything we can to safeguard their savings to deliver income in retirement.” – The Hon Stephen Jones MP Assistant Treasurer and Minister for Financial Services The paper outlines the proposed objective of super which is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way. Breaking down the individual parts of the objective gives a clearer picture of what the government is attempting to do: “preserve savings” refers to the concept that contributions to super should not be accessed unless for the purpose of income in retirement barring exceptional circumstances. “deliver income” makes it clear that the purpose of super is to provide savings that are drawn down in retirement to support the standards of living and not for minimising tax on wealth accumulation or for retirees to leave tax-effective bequests. “dignified” is a qualitative measure which will differ between individuals and recognises that individuals deserve a high standard of living in retirement with access to both super and government support, if required. “equitable” means delivery of similar outcomes to people in similar situations and targets support to those most in need. “ sustainable” refers to the super system being cost-effective for taxpayers in achieving retirement outcomes and beyond a certain level of income, additional government support through tax concessions is not necessary or appropriate. In a recent speech, the Assistant Treasurer and Minister for Financial Services, Stephen Jones singled out what it calls “bad policy” such as the pandemic early release of super, the results of which will be “felt for decades to come” and raiding superannuation to buy a home “in a supply constrained, inflationary environment”. While the objective of super is for retirement, the Assistant Treasurer noted that in exceptional circumstances of genuine hardship, there will be flexibility to access funds before retirement. According to the government, once an objective for super is legislated, broad benefits as well as performance and accountability issues can be unlocked. For example, trustees will be held accountable for the use of member funds to deliver income, and every investment should meet a performance benchmark to ensure they are meeting retirement income needs. In addition the government indicates that there will also be opportunities to leverage greater super investment in areas where there is alignment between the best financial interests of members and national economic priorities, given the long-term investment horizon of super funds.

Superannuation tax break changes

Fri, 03 Mar 2023 05:28:56 GMT

In an attempt to repair the Federal Budget and lower the overall national debt, the government announced changes to the way super in accumulation phase are taxed over the threshold of $3 million. It will not affect those with super account balances below $3 million, which accounts for the majority of Australians. Currently, earnings from super in the accumulation phase are taxed at a concessional rate of 15% regardless of balance. It is proposed that from the 2025-26 income year, the concessional tax rate applied to future earnings for those with super account balances above $3 million will be 30%. It will not apply retrospectively to earnings in previous years and does not impose a limit on the size of super account balances in the accumulation phase. Affecting an estimated 0.5% of the people or around 80,000 individuals, the government indicates that it is a “modest” adjustment which is in line with its proposed objective of superannuation – to deliver income for a dignified retirement in an equitable and sustainable way. To illustrate just how little it affects ordinary Australians, in the latest ATO taxation statistics (relating to the 2019-20 income year), the average super account balance for Australian individuals is around $145,388, with a median balance of only $49,374. In addition, according to ASFA (Association of Superannuation Funds of Australia) estimates, for a comfortable retirement, a single homeowner individual at 67 will need $65,445 per year. If that individual lives to the ripe old age of 100, that will only equate to an amount of $1.5m in super, well below the $3m proposed. Let’s take another unrealistic example of an individual aged 65 in 2023, hoping to retire by the time they reach the age of 67. If they had started contributing to super from 1992 (when compulsory super was introduced) and contributed up to the current concessional cap ($27,500) every year since 1992 for 33 years to the 2025 income year, they would have a capital amount of $907,500. Assuming a balance portfolio return of 6% per annum over the entire 33 years, that individual would still be shy of a $3m super account balance, coming in at $2.8m. With younger Australians increasingly facing cost of living pressures, astronomical house prices, slow wages growth, and uncertain international headwinds, most have no hope of contributing up to the maximum concessional cap every year and attaining a super balance even close to $3m; short of winning the lotto or receiving a lucky inheritance. This effect is amplified for women who usually take time away from work or take up part-time opportunities to raise children and take on caring responsibilities. According to the latest Expenditure and Insights Statement released by the Treasury, revenue foregone from super tax concessions amount to $50bn per year, and the cost of these concessions is projected to exceed the cost of the Age Pension by 2050. With this single change, the government estimates that around $2bn in revenue will be generated in its first full year of implementation which can be used to reduce government debt and ease spending pressures in health, aged care and NDIS. “More than 99.5 per cent of Australians will continue to receive the same generous tax breaks that help them save more for retirement through superannuation. The 0.5 per cent of individuals with superannuation accounts over $3 million will receive less generous tax breaks for balances that are beyond what is necessary to fund a comfortable retirement.” – The Hon Dr Jim Chalmers MP, Treasurer According to the Treasurer, the government will seek to introduce enabling legislation to implement this change as soon as practicable. Consultation will still be undertaken with the super industry and other relevant stakeholder to settle the implementation of the measure.

Work from home expenses: new rate

Fri, 24 Feb 2023 05:40:19 GMT

From the 2022-23 income year, taxpayers can no longer rely on the 80c per hour shortcut method with the introduction of the revised fixed-rate method for calculating the work-related additional running expenses incurred as a result of working from home (WFH). Taxpayers are still able to use the actual costs method to calculate the actual expenses incurred as a result of WFH as an alternative to the revised fixed-rate method. To use the new revised fixed-rate method, taxpayers must: work from home while carrying out employment duties or carrying on a business on or after 1 July 2022 (minimal tasks such as occasionally checking emails or taking phone calls while at home will not qualify as working from home); incur additional running expenses which are deductible under Income Tax Assessment Act 1997 (Cth) s 8-1 as a result of working from home that are not reimbursed by a third party (ie employer); and keep and retain relevant records in respect of the time spent working from home and for the additional running expenses incurred. The new revised fixed-rate method covers energy expenses including electricity and gas for lighting, heating, cooling, and use of electronic items while working. It also covers internet, mobile, home phone expenses, as well as stationery and computer consumables such as ink. While the new revised fixed-rate method of 67c per hour is lower than the previously available shortcut method, it does not include the work-related decline in value of any depreciating assets used during the income year or any other running expenses not specifically covered above. However, 3 years into the pandemic, with many taxpayers having already purchased depreciating assets early in the piece to be able to perform their duties effectively from home, the lower revised fixed-rate method means many taxpayers will be losing around $100 in deductions going forward. For example, a taxpayer working 3 days per week from home at 8 hours per day over 49 weeks will only be able to get a deduction of $787 under the new rate compared to $940 they would previously be able to claim under the shortcut method. In addition, if a taxpayer chooses to use the new revised-fixed-rate method, no additional separate deductions can be claimed for any of the expenses covered. This includes instances where taxpayers use their personal mobile phones for both working from home and working elsewhere (ie in the office). The total deduction for the year would consist of the amount covered by the amount of 67c per hour. Taxpayers that chose to use this new method need to ensure that relevant records are kept. For the 2022-23 income year only, taxpayers will need to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023, and a record of the total number of actual hours worked from home for the period 1 March 2023 to 30 June 2023. For 2023-24 and later income years, taxpayers must keep a record for the entire income year of the number of hours worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period and applied to the rest of the income year will not be accepted. A record of hours worked for the entire income year can include timesheets, rosters, logs, time tracking apps, and diaries that are kept contemporaneously. To be able to claim expenses for 2022-23 and later income years, one document for each of the additional running expenses incurred must be kept. For energy, mobile, phone and internet, one monthly or quarterly bill in the relevant name must be kept. If the bill is not in the relevant name, additional evidence such as credit card statements showing payment or lease agreements showing sharing of property and expenses must be present. For stationery and computer consumables, receipts must be kept for any purchases. Those claiming a deduction for any decline in value of depreciating assets must also keep documents which demonstrate the income-producing use of the assets.

ATO warning: access company profits tax-free scheme

Fri, 17 Feb 2023 05:41:48 GMT

The ATO has recently issued a Taxpayer Alert warning that it is reviewing arrangements where an individual taxpayer accesses the profits of a private company in tax-free form through the use of an interposed holding company. It notes that the Alert will apply to all arrangements when, viewed objectively, there is an indication that the dominant purpose of the arrangements is for the individual to avoid tax. According to the ATO, these arrangements generally have the following features but may also include variations where the shares in the first company are pre-CGT shares or a holding company is interposed between a trustee shareholder and a company: A private company (company A) has retained profits on which it may have paid tax at the corporate rate. Shares in company A are held by an individual who may also be a director of company A. The individual disposes of their shares in company A to another private company (interposed company), receiving shares in the interposed company in return. The shares in the interposed company are issued at a paid-up amount being the same as, or similar to, the net assets of company A which includes the retained profits of the first company. The individual applies a CGT roll-over, to disregard for tax purposes any capital gain on the disposal of those shares in company A. Company A declares a franked dividend to the interposed company and discharges its liability to pay the dividend by way of cash, cheque or promissory note. The interposed company then provides a loan to the individual, sourced from the dividend received. The loan may be interest-free and repayable at call. Neither the interposed company nor company A have sufficient distributable surplus for Income Tax Assessment Act 1936 (Cth) (ITAA 1936) Div 7A to treat the loan made to the individual as a deemed dividend (whether directly from the interposed company or indirectly from company A). In some cases, company A could be wound up after the payment of the dividend to the interposed entity with the loan remaining uncalled and outstanding. The individual will have then obtained an amount tax-free in the form of a loan as opposed to without the interposed entity. As outlined in the above scenario, company A could have provided its accumulated profits to the individual by simpler means, such as paying a dividend or providing an interest-free, unsecured loan (assessable as a deemed dividend under ITAA 1936 Div 7A), both of which attract tax consequences for the individual. Hence, when viewed objectively, the purpose of the interposed entity appear to have a dominant purpose of avoiding tax. Besides the general anti-avoidance provisions in ITAA 1936 Pt IVA, the ATO will be actively reviewing these and similar arrangements to look for intention to repay the loan to decide whether the amount may be assessable under Div 7A. In addition, if the arrangements are found to be a “dividend stripping” scheme or operation, various legislation could apply to include the amount of the loan in the individual’s assessable income, and cancel the franking credit on the dividend paid to the interposed company.

NALI provisions to be amended

Fri, 10 Feb 2023 05:19:44 GMT

The government has released a consultation paper to canvass options to amend the non-arm’s length income (NALI) provisions that will apply differently to SMSFs/small APRA funds and large APRA-regulated funds. The NALI provisions are an integrity measure to prevent income being diverted into super funds to benefit from lower rates of tax compared to other entities. For example, generally, income of super funds has a concessional tax rate of 15% along with a 1/3 discount for capital gains tax. Broadly, non-arm’s length income may arise in relation to amounts received via private company dividends, trust distributions or income from non-arm’s length transactions. This also includes expenses not incurred that would normally be expected to apply in a commercial arm’s length transaction. All these transactions are not subject to the concessional 15% tax rate but are taxed at the top personal marginal rate of 45%. To avoid the operation of NALI provisions, it is necessary to be able to satisfy the ATO that such distributions are reasonable arm’s length transactions. In 2020, when the ATO published a Practice Compliance Guideline (PCG 2020/5) which established its initial transitional approach to the NALI provisions compliance, consultation with the wider community lead to the ATO realising that not all trustees may have been aware that NALI provisions also apply to non-arm’s length expenses (NALE) of a general nature which is linked to all income of the fund (ie general expenses). In PCG 2020/5 the ATO announced it would not allocate compliance resources to determine whether the NALI provisions applied to a complying superannuation fund for the 2018-19, 2019-20, 2020-21 income years where the fund incurred NALE of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in those respective income years. This transitional approach was subsequently extended twice to include the 2021-22 and 2022-23 income year and only applies to general expenditure that is incurred on or before 30 June 2023. To provide certainty to trustees ahead of the expiry of the transitional approach in PCG 2020/5, the government intends to confirm that the rules continue to operate in line with their original policy intent. The potential amendments proposed will apply to general expenses which have sufficient nexus to all ordinary and statutory income derived by the fund. Potential proposed amendments to the NALI provisions for super funds are as follows: SMSFs and small APRA funds – factor-based approach that would set an upper limit on the amount of fund income taxable as NALI due to a general expenses breach. The maximum amount of fund income taxable at the highest marginal rate would be five times the level of the general expenditure breach, calculated as the difference between the amount that would have been charged as arm’s length expense and the amount that was actually charged to the fund. Where the product of five ties the breach is greater than all fund income, all fund income will be taxed at the highest marginal rate. Large APRA-regulated funds – exempted from NALI provisions for general expenses, while remaining subject to the provisions for specific expenses linked to specific

Upcoming FBT-related changes

Fri, 03 Feb 2023 04:44:58 GMT

With 2023 in full swing, the ATO is looking to finalise a number of FBT-related issues currently under consultation. For businesses, the outcome of these consultations and subsequent issue of draft rulings or guidelines may affect the applicability of FBT in certain circumstances, as well as the calculation of FBT benefits. The ATO continuing its work on the updated car parking fringe benefits as a result of the Full Federal Court’s decision in FCT v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209. An addendum is planned for release in February, following consultation of the draft update which was released in November 2022. An update to Chapter 16 of FBT – a guide for employers is also planned to be completed in April 2023. This update will incorporate practical guidance on the application of the car parking FBT law, including the meanings of “commercial parking station” and “primary place of employment”, and should be read in conjunction with the aforementioned updated ruling. A new area that the ATO is working on is the issuance of a draft practical compliance guideline for calculating electricity costs when charging an electronic vehicle at an individual’s home for FBT purposes. According to the ATO, this draft guideline will provide a methodology to enable users of electric vehicles to determine the approximate cost for the electricity when charging an electric vehicle at home. It is expected to be released soon (sometime in February). While this new draft practical compliance guideline will not currently apply to those electric vehicles both held and used on or after 1 July 2022 and meets the other conditions for exemption from FBT (ie under the LCT threshold, and a zero or low emissions vehicle), it will be helpful for those vehicles that do not meet the conditions for FBT exemption and for reportable fringe benefits amount purposes. For an eligible vehicle that is exempt from FBT, car expenses such as registration, insurance, repairs/maintenance, and fuel (including electricity to charge and run electric cars) are also exempt. However, it should be noted that the provision of a home charging station is not a car expense associated with providing a car fringe benefit and may be a property or an expense payment fringe benefit. Although the private use of an eligible vehicle and associated expenses are exempt, businesses are still required to include the value of the benefit when working out whether an employee has a reportable fringe benefits amount. This entails working out the notional taxable value of the benefits, which under both the statutory and operating cost method is reduced for any employee contributions made. For employees that charge electric vehicles at their homes, the new draft practical compliance guideline will hopefully provide an easier method for working out their contribution and reduce the taxable value of benefits for reportable fringe benefits amount purposes. It may also be useful in the future for all zero or low-emission vehicles as the government has committed to a complete review into the FBT exemption by mid-2027 to consider electric car take up which may result in the FBT exemption being removed.

New year, new scams

Fri, 27 Jan 2023 05:35:19 GMT

Money never sleeps, as the old quote goes, but it could apply equally well to scammers. As most people have let their guard down and are still recovering from their holiday excesses, scammers are positioning themselves to strike at this particularly vulnerable time. Among the usual parade of swindles, the government has warned of a particularly insidious new ATO impersonation scam on social media. The scammers do plenty of leg work by first scouting out public conversations on social media platforms such as Twitter or Facebook where taxpayers ask questions or make complaints about the ATO. The fraudsters then hijack the conversation using a fake ATO profile, then by contacting the taxpayer directly with an offer to help resolve the complaint or follow-up on a comment. After the taxpayer takes the bait, the scammers will usually ask the victim to click on a link or provide their personal details in the guise of solving or following-up the original complaint. This impersonation scam has caught plenty of people off-guard, as responding to public complaints offering resolution has long been in the PR playbook of many companies – both large and small – as well as some government departments and agencies. Taxpayers that have been duped by the scam usually won’t know that anything has gone wrong until much later when the stolen personal information is used for nefarious purposes. “The ATO is working with social media platforms and other government agencies to help remove these damaging interactions. The best defence against such scams is community awareness.” – The Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services In the meantime, the ATO provides some tips on how to stay one step ahead of the scammers. It states that it will never send taxpayers a link in an email or a text to log into online services, MyGov, or for taxpayers to fill their personal details (including their TFN). The ATO also says it will never ask for a taxpayer’s personal identifying information such as their TFN or bank account details on social media. For interactions on social media, taxpayers are encouraged to look for verified accounts on Facebook and Twitter, and a high follower count on LinkedIn. Anyone purporting to be from the ATO but asking for payments through unusual methods such as gift cards, crypto assets or cardless cash, and/or resorts to threats of immediate arrest if payments are not made, is a fraudster and should be ignored and reported to the appropriate authorities if possible (ie Scamwatch or the ATO). Young jobseekers are also being increasing targeted at this time of the year, with scammers pretending to be hiring on behalf of high-profile companies and online shopping platforms, as well as impersonating well-known recruitment agencies to obtain personal information and/or swindle jobseekers out of large payments with promises of guaranteed income. It is not just individuals that scammers are targeting. Those with small businesses should also be aware of continuing business email compromise scams, where scammers pose as legitimate businesses and request small businesses change the legitimate payment details for invoices, wages or deposits to one that is controlled by the scammer. In some cases, the email may come from hacked email accounts of the legitimate business, and in some other cases scammers may register domain names that are very similar to legitimate companies.

AAT to be replaced

Fri, 20 Jan 2023 05:36:34 GMT

The government has announced that it will abolish the Administrative Appeals Tribunal (AAT) and replace it with a new federal administrative review body. According to Attorney-General, the Hon Mark Dreyfus, the AAT’s dysfunction has had a very real cost to the tens of thousands of people who rely on it each year to independently review government decisions. A dedicated taskforce within the Attorney-General’s department has been formed to implement this reform, which will include a transparent, merit-based system of appointments. Stakeholder consultation will also be held on the design of the new body. “The AAT’s public standing has been irreversibly damaged as a result of the actions of the former government over 9 years, by appointing 85 former Liberal MPs, failed Liberal candidates, former Liberal staffers and other close Liberal associates without any merit based selection process, including some individuals with no relevant experience or expertise, the former government fatally compromised the AAT, undermined its independence, and eroded the quality and efficiency of its decision making.” – The Hon Mark Dreyfus KC MP, Attorney-General The government will implement a transparent and merit-based appointment process, in which the selection of non-judicial members will be made against a core set of selection criteria (and additional criteria as required), as well as a panel report endorsed by the chair of the assessment panel to be provided to the Attorney-General recommending candidates suitable for appointment and reappointment. Under the new process, appointment and reappointments of judicial members will be made following consultation by the Attorney-General with the AAT president and the relevant Chief Justice. To prevent a position from remaining vacant for too long, the Attorney-General will determine what position needs to be filled and at what level at least once a year, informed by the advice of the AAT present. Expressions of interest will also be sought at least every 6 months for vacant positions in relation to non-judicial members. While the transparent, merit-based appointment process is a central pillar in this new body, the government has also committed to providing additional capacity to enable the rapid resolution of existing backlogs, and to implement consistent funding and remuneration arrangements to enable the new system to respond flexibly to fluctuating case numbers. Thus far, it has committed to appointing an additional 75 new members to the AAT to deal with existing backlogs. To ensure the new body is user-focused, accessible, fair, and efficient, the government will also improve additional support services and emphasise early resolution where possible. A single, modern, reliable, and fit-for-purpose case management system will also be introduced in order to capitalise on procedural efficiencies and address critical business risks. Current cases before the AAT will continue. Taxpayers that have already applied to the AAT for a review of a decision will not need to submit a new application. The government envisages that many current cases before the AAT will be decided or finalised before the establishment of the new federal administrative review body. Any undecided remaining cases will transition to the new review body when established.

SMSF changes and reminders for 2023

grahamelba@gmail.com (Grahame Allen) — Fri, 13 Jan 2023 05:33:25 GMT

After a tumultuous 2022 year, 2023 is finally here, a new year means changes and the SMSF space is no different. If you’re thinking of starting a new SMSF, the ATO has now changed the registration process which removes the ability to add the SMSF bank account details to the online and paper application for an ABN registration of an SMSF. Previously, after the SMSF is established and trustees have been appointed, the trustees then had 60 days to register the SMSF with the ATO by applying for an ABN through the Australian Business Register. That process included a section where bank account details of the SMSF could have been added, along with other information such as the TFN for the fund. However, due to the recent explosion in fraudulent schemes targeting SMSFs, this feature has now been removed, in a bid to protect the retirement savings of Australians. New SMSFs will now need to provide the ATO with their bank account details after the SMSF registration process. This can be done through the online portal for businesses, via phone, or through a registered tax agent. New SMSFs with members that are likely to request a rollover should be extra careful as both the SMSF bank account details and the electronic service address is required to be provided to the ATO before any rollover is requested. Otherwise, the rollover will either be unable to be processed or delays will be experienced. If you’re contemplating starting an SMSF with a corporate trustee, you’ll need to ensure that the directors of that corporate trustee apply for Director IDs before the appointment is made through the Australian Business Registry Services (ABRS). The director ID is a unique 15-digit identifier that will follow each individual through their business life and was introduced as a part of a suite of measures to combat phoenixing and other illegal activities. The process is free, simple, online and only requires individuals to confirm their identity. Every individual must apply for their own director ID, and no one else can apply on their behalf. The Director ID regime also applies to existing directors of corporate trustees of SMSFs. For individuals that first became a director on or before 31 October 2021, the deadline to apply was 30 November 2022, which has passed. Similarly, individuals that first became a director of a corporate trustee between 1 November 2021 and 4 April 2022 have to apply for a director ID within 28 days of appointment. However, the ATO has noted that those who missed the deadline can still apply for a Director ID and that it is “taking a reasonable approach to those directors who try to do the right thing”. Those individuals that are unable to apply by the various deadlines can apply for an extension of time to apply. It was estimated by the ATO at the end of 2022 that around one million directors have not applied when required to do so, thus individuals are reminded that it is a criminal offence if Director IDs are not applied for on time, and maximum penalties of $16,500 (criminal) and $1,375,000 (civil) may apply.

Looming changes for the BNPL market

grahamelba@gmail.com (Grahame Allen) — Fri, 16 Dec 2022 05:33:19 GMT

The government has given the strongest indication yet that it will be seeking to regulate the Buy Now Pay Later (BNPL) market soon with the release of a consultation paper on the appropriate regulatory approach for emerging financial products to ensure access of credit while protecting consumers. It has been estimated by the Reserve Bank of Australia that there are approximately 7m active BNPL accounts making $16bn in transactions in the 2021-22 financial year. This accounts for around a 37% increase on the previous year. Low value BNPL products that typically provide a spending limit of $2,000 are the most popular in Australia, although spending limits of up to $30,000 are available with some providers for large ticket items such as home upgrades. Currently, the BNPL space is unregulated in Australia because it falls under the exemptions available to certain types of credit under the Credit Act. Due to this exemption, BNPL products are not subject to responsible lending standards or other requirements of the Credit Act. In addition, providers do not need to hold an Australian Credit licence (ACL). Perhaps due to this lack of regulation, there has been an exponential growth in the BNPL market in Australia and many other similar unregulated markets. Consumer advocates argue that this regulatory gap has the potential to create harm in the absence of key consumer protections. “…as a minimum, I think putting in place some sort of credit checks to ensure that the product is affordable and suitable for the people…We don't want to see people who are in the same situation they were in the bad old days of the credit card…where they might have had five, six, seven or eight credit cards. No one company knew that the other one had one and this person was just simply unable to pay off their debts...And that's what we want to address.” – Assistant Treasurer and Minister for Financial Services, Stephen Jones Some of the issues raised by various stakeholders on BNPL schemes include: Unaffordable/inappropriate lending practices contributing to financial stress/hardship; Poor complaints handling process and lack of hardship assistance; Excessive/disproportionate consumer fees and charges (ie large default fees relative to size of debt); Non-participation in Australia’s credit reporting framework, meaning information is not available for use in credit checks by other lenders; Poor product disclosure practices, meaning consumers cannot make informed choices; Unsolicited selling targeting consumers and encouraging the use of BNPL for essentials such as groceries and utilities; Uncomplicated sign-up to BNPL products which increase chances of other consumer harms such as scamming, overselling and financial abuse; and Inadequate reverse charging provisions when goods purchased on BNPL are returned. To resolve some of these issues, the consultation paper proposes three broad options of varying levels of regulatory intervention. Option 1 will impose a bespoke affordability assessment for BNPL providers under the Credit Act and address any other regulatory gaps in a strengthened Industry Code to make it fit-for-purpose. Option 2 will require BNPL providers to obtain and maintain an ACL, and in addition, introduce modified responsible lending obligations under the Credit Act to determine unsuitability combined with a strengthened industry code. Option 3 will impose the strictest regulation, with BNPL providers needing to obtain and maintain an ACL. The existing responsible lending obligations in the Credit Act will also be applied to all BNPL credit, including requirements around reasonable inquiries into a consumer’s financial situation and taking reasonable steps to verify this information.

Sharing economy reporting regime commences soon

grahamelba@gmail.com (Grahame Allen) — Fri, 09 Dec 2022 05:44:26 GMT

As a part of the government’s strategy to combat the tax compliance risks posed by the sharing economy, it has now legislated requirements for operators of electronic distribution platforms to provide information on transactions made through their platforms to the ATO. Sharing economy usually involves two parties entering into an agreement for one to provide services and/or loan personal assets to the other, for payment. This measure was originally introduced by the previous government but lapsed when the election was called. To meet the definition of an electronic distribution platform, it must: deliver service through electronic communication (ie platforms operating over the internet including through applications, websites or other software); and allow entities to make supplies available to end-user consumers through the platform. A service is not considered to be an electronic distribution platform if it only advertises or creates awareness of possible supplies, operates as a payment platform, or serves a communication function. Generally, electronic distribution platforms facilitate transactions between two otherwise unrelated parties in the sharing economy and act in a quality assurance role to ensure a seamless experience for both parties, regardless of whether the payment is processed by the platform or a third-party operator. Examples of sharing economy electronic platform operators in a variety of sectors include Uber, Airbnb, Car Next Door, Menulog, Airtasker, and Freelancer, to name a few. Practically, electronic platform operators will be required to provide various information through the Taxable Payments Reporting System (TPRS) on certain transactions that occur through the platforms. Generally, it will only include transactions where the electronic platform facilitates a supply that is connected to Australia for consideration between two entities. However, it will not include supplies of goods where ownership of the goods is permanently changed, where title is transferred, or if the supply is a financial supply. The information obtained from TPRS will be used in ATO data-matching and help identify entities that may not be meeting their tax obligations. The information will need to be reported to the Commissioner either annually, or at such other times as the Commissioner determines. Currently, businesses in the building and construction industry, cleaning, security, and information technology services are required to report annually by 28 August each year under the TPRS. Therefore, it is envisaged that electronic platform operators will follow the same reporting deadlines. Transactions in relation to the supply of taxi travel and short-term accommodation will be required to be reported to the ATO under TPRS from 1 July 2023. Electronic platform operators that deal in all other transactions will not have to report relevant transactions to the ATO under TPRS until 1 July 2024. This difference in application dates reflect the fact that data-matching protocols already exist between the ATO and operators of platforms that commonly facilitate taxi travel and short-term accommodation, hence, these entities do not need a lengthy lead time to ensure compliance.

Tax rules for personal services income

grahamelba@gmail.com (Grahame Allen) — Fri, 02 Dec 2022 05:31:46 GMT

The tax legislation contains special rules about personal services income (PSI). The PSI rules are aimed at improving the integrity of, and equity in, the tax system by ensuring that individuals cannot reduce or defer their income tax by alienating or splitting their PSI through the use of interposed companies, partnerships or trusts. An interposed entity is called a personal services entity (PSE). What is PSI? Personal services income (or PSI) is income (whether ordinary income or statutory income) that is earned mainly as a reward for the personal efforts or skills of an individual (ie more than 50% of the income must be a reward for the personal efforts or skills of an individual). PSI includes income from the personal efforts or skills of an individual that is earned through a PSE. PSI earned through a company or trust If you operate your business through a PSE, income earned by the PSE from the provision of your personal services will be attributed to you for tax purposes unless: the PSE is carrying on a personal services business (PSB); or the income was promptly paid to you as salary or wages. The PSE will be carrying on a PSB if at least one of a number of tests (PSB tests) are satisfied. If 80% or more of your PSI (with certain exceptions) is income from one client (or the client and their associate(s)) and the results test is not met, the PSE will need to obtain a PSB determination from the ATO. Limits on deductions A PSE cannot deduct amounts that relate to gaining or producing your PSI, unless you could have deducted the amount as an individual or the PSE received the PSI in the course of carrying on a PSB. Even if you don’t use a PSE to derive your PSI, there are limitations on the deductions that you may claim against your PSI. For example, you may not be able to deduct certain home office expenses, eg occupancy expenses such as mortgage interest or rent. New ATO ruling The ATO recently released a new taxation ruling (TR 2022/3) which considers: how to identify PSI; how the PSI rules apply to an individual or entity; and the application of the PSB tests. Want to find out more? Talk to us about whether the PSI rules may apply to you.

Future of superannuation

grahamelba@gmail.com (Grahame Allen) — Fri, 18 Nov 2022 06:37:27 GMT

In a recent address, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, outlined the changes the government will be pursuing in terms of superannuation. From its beginnings in 1992, superannuation collectively has become a juggernaut and has grown to encompass over $3.3 trillion in assets held by an estimated 16m Australians. That figure makes Australian superannuation the world’s third largest pension pool. As the world’s economy is challenged by war, the effects of the ongoing pandemic, energy scarcity, and possible recession in dominant economies, it is perhaps no surprise that the government is looking to this large pool of money to work in both the national interest and the interests of superannuation members where possible. To that end, one of the main changes the government will be focusing on in terms of superannuation is to legislate an objective for super. A Bill was previously introduced in 2016 that proposed to enshrine the primary objective of the super system in legislation, which is to provide income in retirement to substitute or supplement the age pension. It would have also required all new Bills relating to super to be accompanied by a statement of compatibility with the objective of the super system. This Bill subsequently lapsed ahead of the 2019 election and was never reintroduced. Having a clear objective of super, Mr Jones, notes will break the vicious cycle of plans to raid super such as drawing on super to pay for housing, HECs, or living expenses which have all been proposed at various stages in the past few years. According to Mr Jones, once this objective is settled on, important conversations around the taxation of super can also be had. The government estimates that there are 32 SMSFs with more than $100m in assets, with the largest SMSF having over $400m in assets. Industry estimates also indicate that the tax concessions on a single $10m SMSF could support 3.1 full age pensions. It is with this background in mind that the government is looking to have a conversation around the concessional taxation of these high asset SMSFs which have an obvious cost to the Budget. “If the objective of super is to provide a tax-preferred means for estate‑planning, you could say it is doing its job…Those who support the status quo will need to demonstrate how concessional tax arrangements for high balance super funds meet the common objective. Those who argue for change will need to show how that approach meets the objective." - Assistant Treasurer and Minister for Financial Services, Stephen Jones. The other change the government is looking to make in the super area will stem from the results of the review into Your Future, Your Super (YFYS) laws. It was initiated to ostensibly remove “unintended consequences” and keep the focus on “high performance”. A consultation paper has been released and the government has also established a Technical Working Group in addition to public submissions and stakeholder consultations. It should be noted that paradoxically, in order to conduct the review to keep the focus on high performance, the government paused the extension of the existing ARPA performance test to Choice products for 12 months. The performance test therefore currently only applies to MySuper products which represents around $13.7m accounts. Super members in other types of products will not have access to the same independent APRA performance analysis unless the consultation concludes thus. According to Mr Jones, “[t]he performance tests, conducted by APRA, must and will continue. Trustees need to be held to account because it is about ‘Your Future’. We also need to ensure members have meaningful information so that they can hold their funds to account and make informed decisions about their retirement.”. Hence, it appears that the performance tests will continue in one form or another into the future with perhaps different benchmarks.

Proposed new method for calculating WFH expenses

grahamelba@gmail.com (Grahame Allen) — Fri, 11 Nov 2022 05:44:37 GMT

With the expiration of the previous fixed rate method and the shortcut method for calculating the deduction for working from home (WFH) expenses, the ATO has released a draft guideline on the new revised fixed rate method for calculating work-related additional running expenses that will replace both these methods from 1 July 2022. Prior to 1 July 2022, taxpayers were able to use one of three methods for calculating a deduction for expenses incurred as a result of working from home: the actual costs method, which involved calculating the actual expenses incurred as a result of working from home; the fixed rate method, which allowed 52c per hour for each hour a taxpayer worked from their home office to calculate their electricity and gas expenses, home office cleaning expenses, and the decline in value of furniture and furnishings. In addition, a separate deduction for the taxpayer’s work-related internet expenses, mobile and home telephone expenses, stationery and computer consumables and the decline in value of a computer/laptop could also be claimed; and the shortcut method, which was introduced during the COVID-19 pandemic to make it easier for the large proportion of employees suddenly finding themselves working from home. This method allowed taxpayers to claim 80c per hour for each hour that they worked from home and covered all expenses such as phone, internet, decline in value of equipment and furniture, electricity, gas, lighting etc. From 1 July 2022, taxpayers can no longer use the shortcut method of 80c per hour and the ATO has now revised the fixed rate method. According to the ATO, the revised fixed-rate method apportions additional running expenses “on a fair and reasonable basis by using a fixed rate of 67c per hour”. Not only is this rate lower than the 80c per hour used by the shortcut method, but it is also proposed to include energy expenses (electricity and gas), internet, mobile, telephone, stationery, and computer consumables, some of which could have been claimed as a separate deduction under the previous fixed rate method. The work-related decline in value of any depreciating assets can continue to be claimed as a separate deduction under the proposed fixed rate method, as can other running expenses not specifically outlined above. Therefore to calculate the total deduction under this new revised fixed rate method, taxpayers will need to calculate the number of hours worked from home during the income year, and multiply that by 67c per hour. To that figure, the decline in value of depreciating assets and other running expenses which are not included in the 67c base rate can be added giving a final deduction amount. Given the continual increase in energy bills and other inflationary pressures, this new proposed fixed rate method is likely to yield consistently lower deductions than if the actual cost method was used. Coupled with the abolition of the shortcut method, this means that taxpayers will either have to accept a lower WFH deduction in the coming years or deal with increased paper work to be able to claim WFH deductions under the actual costs method.

Tax crackdown coming

grahamelba@gmail.com (Grahame Allen) — Fri, 04 Nov 2022 05:41:12 GMT

With the Budget deficit projected to blow out to $36.9bn in 2022-23 and $44bn in 2023-24, coupled with the slow projected growth in the economy (3.25% in 2022-23, dropping to 1.5% for 2023-24), the Treasurer outlined the commencement of “budget repair work” via various tax integrity measures. While some of the measures target multinationals, it appears the government will be leaning heavily on personal and SME tax compliance to make up the budget shortfall. As announced in the Budget, the government will provide $80.3m to the ATO to extend the Personal Income Taxation Compliance Program for 2 years from 1 July 2023. The extended program will focus on key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income. It is estimated that this extension will increase tax receipts by $674.4m and increase payments by $80.3m over the 4 years from 2022-23. In a recent address, the Second Commissioner Jeremy Hirschhorn noted that while individuals are correctly paying about 94% of the tax they should be at lodgment, there are still 3 areas that the ATO will be focusing on. The first area is the work-related expense claims, which account for almost $4bn (or 44%) of the tax gap. “So many [work-related expense] claims are an optimistic characterisation of personal expenses as work related, while others are even more creative claims.” – Second Commissioner Jeremy Hirschhorn The second area is omitted income, particularly cash wages and income from the sharing economy. It is estimated that the tax gap attributed to unreported income was over $1bn in 2018-19 and is possibly even higher now. Finally, the ATO’s last area of focus appears to be property investments which it says contributed to over $1bn to the net tax gap. It recently conducted a Random Enquiry Program on property investments which revealed the startling statistic that 9 out of 10 returns reporting net rental income required adjustment. To complement the personal tax compliance program, the government will also extend the existing Shadow Economy Program for a further 3 years from 1 July 2023 at a cost of $242.9m. This measure is estimated to increase receipts by $2.1bn over 4 years from 2022-23. Previous data provided by the ATO indicated that the Shadow Economy Program had raised an additional $2.6bn over 3 years to June 2021 through various strategies including: removing tax deductibility of non-compliant payments; expanding the Taxable Payments Reporting System into new industries; and making it easier to report suspected or known illegal activity or behaviour of concern. In addition to the above compliance programs, the government has also committed to provide $200m per year over 3 years (2022 to 2024) and $500m in 2025-26 to extend operation of the Tax Avoidance Taskforce. The boosting and extension of this taskforce is expected to support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses. This measure is expected to increase tax receipts by $2.8bn and increase payments by $1.1bn over 4 years. The total cost of extending these compliance programs will be at least $1.4bn but judging by the perhaps optimistic projected increase in tax receipts figure of $3.7bn, the government will consider it money well spent.

Federal Budget 2022-23

Fri, 28 Oct 2022 04:49:17 GMT

On Tuesday, 25 October 2022, Treasurer Jim Chalmers handed down the 2022-23 October Federal Budget, his 1st Budget. While a Budget was handed down on 29 March 2022, this second Budget for 2022-23 updates economic forecasts and outlines the new Labor Government's priorities following the May 2022 Federal election. The Budget estimates an underlying cash deficit of $36.9 billion for 2022-23 (and $44bn for 2023-24). While the economy is expected to grow by 3.25% in 2022-23, it is predicted to slow to 1.5% for 2023-24, a full percentage point lower than forecast in March 2022. Inflation is expected to peak at 7.75% later in 2022, but is projected to moderate to 3.5% through 2023-24, and return to the Reserve Bank's target range in 2024-25. Against this backdrop, the Treasurer has sought to exercise fiscal "restraint" so as not to put more pressure on prices, and make the Reserve Bank's job even harder. Rather, the Budget sets out a 5-point plan for cost-of-living relief in the areas of (i) child care; (ii) expanding paid parental leave; (iii) medicines; (iv) housing; (v) getting wages moving. While the Budget does not contain major tax changes it does seek to begin some "Budget repair work" via tax integrity measures. "By making sure multinationals pay a fairer share of tax in Australia, by extending successful tax compliance programs, and by giving the ATO the resources they need to crack down on tax dodging. Together, these initiatives save a further $4.7 billion over four years", Dr Chalmers said. Tax-related measures announced Tax-related measures announced in the Budget included the following. Intangible assets depreciation – reversal of previously announced option to self-assess effective life for certain intangible assets (eg intellectual property and in-house software). The effective lives of such assets will continue to be set by statute. Previously announced measures – the Government has announced that it will abandon 8 measures announced by the previous Government, and defer the start date of 3 others. While most of the measures relate to the heading of "Business Taxation" (and are finance related), note that the proposals include superannuation and personal tax measures. Digital currencies not a foreign currency – the Budget Papers confirm that the Government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. Off-market share buy-backs – the Government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. COVID grants treated as NANE – the Budget Papers contain a listing of further State and Territory COVID-19 grant programs eligible for non-assessable, non-exempt treatment. Penalty unit increase – the Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023. Tax Practitioners Board funding – the TPB will get increased funding to investigate high-risk tax practitioners and unregistered preparers. Superannuation The superannuation measures include: SMSF residency changes - the proposal to extend the CM&C test safe harbour from 2 to 5 years, and remove the active member test, will now start from the income year commencing on or after assent to the enabling legislation (previously 1 July 2022). SMSF audits every 3 years - the Government will not proceed with the former government's proposal to allow a 3-yearly audit cycle for SMSFs with a good compliance history. retirement income products - the Government will not proceed with the proposal to report standardised metrics in product disclosure statements. Other measures Affordable housing measures – the Government will establish a Regional First Home Buyers Guarantee Scheme and a Housing Australia Future Fund. Housing Accord - struck between State and Territory governments and investors, including super funds, targeting 1 million new homes over 5 years from 2024. The Government will commit $350m over 5 years to deliver 10,000 affordable dwellings. Paid Parental Leave (PPL) scheme - to be expanded from 1 July 2023 so that either parent can claim the payment. From 1 July 2024, the scheme will be expanded by 2 additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Child care subsidy - maximum CCS rate to be increased from 85% to 90% for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income. Where to get Budget documents The 2022-23 October Budget Papers are available from the following website: § Budget October 2022-23 - https://bit.ly/3TKPqwn More information on the tax and related announcements is also contained in a number of Budget press releases on the Treasurer's website. Parliamentary sittings Both Houses of Parliament will sit during the Budget week 25-27 October. The House of Reps (only) will sit 7-10 November, while both Houses will sit for the 2-week period 21 November to 1 December 2022.

Deceased estates and CGT: disposal of dwelling

Fri, 21 Oct 2022 05:48:00 GMT

The ATO has recently updated its practical compliance guideline on how the CGT main residence exemption may apply in cases where a dwelling is disposed either in the capacity of an individual beneficiary or a trustee of a deceased estate. Generally, CGT on disposal of an ownership interest (as either an individual beneficiary or as the trustee of the deceased estate) within 2 years of the deceased’s death, can be disregarded. For disposals that take longer than 2 years, the Commissioner has the discretion to extend this period. Practical compliance guideline PCG 2019/5 outlines a safe harbour compliance approach that allows individual beneficiaries and trustees of the deceased estate to manage their tax affairs as if the Commissioner had exercised the discretion to allow for a longer period. To qualify for the safe harbour, the following conditions must be satisfied: During the first 2 years after the deceased’s death, more than 12 months was spent addressing one or more of the following circumstances: ownership of the dwelling, or the will, is challenged; a life tenancy or other equitable interest given in the will delays the disposal of the dwelling; the complexity of the deceased estate delays the completion of administration of the estate; settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of control; or restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. The dwelling was listed for sale as soon as practically possible after the above circumstances were resolved, and the sale was actively managed to completion. The sale was completed (settled) within 12 months of the dwelling being listed for sale. If any of the below conditions applied, they were immaterial to the delay in disposing of the interest: waiting for the property market to pick up before selling the dwelling; waiting for refurbishment of the dwelling to improve the sale price; inconvenience on the part of the trustee or beneficiary in organising the sale of the dwelling; or unexplained periods of inactivity by the executor in attending to the administration of the estate. the longer period for which discretion is otherwise needed to be exercised is no more than 18 months. The updated guideline now explicitly considers the effect that COVID-19 has had and contains examples to illustrate the complexity in claiming safe harbour. In the event that safe harbour conditions cannot be met, the guideline also outlines factors that the Commissioner may consider when weighing up whether or not to exercise their discretion. These include the personal circumstances of the surviving relatives, the degree of difficulty in locating all beneficiaries required to prove the will, any period the dwelling was used to produce an assessable income, and the length of time an ownership interest was held in the dwelling. It is important to note that the ATO considers the circumstances that have caused the delay in disposal to be more important than the length of the delay. Any potential capital gain or loss is also not considered to be relevant to the exercise of discretion.

Market valuation for tax purposes

grahamelba@gmail.com (Grahame Allen) — Fri, 14 Oct 2022 03:50:47 GMT

The ATO has released an updated version of its online Guide - Market valuation for tax purposes. The purpose of the Guide is to assist taxpayers in understanding the ATO’s general expectations on market valuation for tax purposes. It includes information on what market value means for tax purposes and the evidence and processes the ATO generally expect to see to support a valuation. Market value definition for tax purposes The Guide notes that the definition of "market value" in the income tax legislation does not provide a meaning to be applied in all contexts. Unless market value is specially defined or qualified in a particular provision, it has its ordinary meaning - the principles in case law and the International Valuation Standards Council (IVSC) are "principally relevant". If taxpayers want advice tailored to a particular set of facts to provide more certainty, they can apply for a private ruling on an asset's market value providing it is relevant to a question about the tax law. However, the ATO cannot provide a private ruling to determine or confirm the appropriateness of a valuation methodology or the market value applicable for a future event. Who can determine market value? For tax purposes, the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it. However, the Guide provides where exceptions may apply. Valuation fundamentals The Guide states that a valuation should be specific to the tax and superannuation provision that it is being applied to and consider any requirements of the relevant provisions, having considered case law and relevant ATO guidance. The Guide sets out in some detail the information that the ATO expects to be in a report for tax purposes. The process of valuation requires the valuer to make impartial judgments as to the reliability of inputs and assumptions. For a valuation to be credible, it is important that those judgments are made in a way that promote transparency (eg, state the inputs and any assumptions made) and minimise the influence of any subjective factors on the process. The valuer should adopt the most relevant and appropriate valuation methodology based on industry standards and practice assemble and record evidence by means such as inspection (as required), enquiry, computation and analysis to ensure that the valuation is properly supported. Want to find out more? Talk to us if you need assistance in understanding the ATO’s general expectations on market valuation for tax purposes.

Varying PAYG instalments

grahamelba@gmail.com (Grahame Allen) — Fri, 07 Oct 2022 05:24:02 GMT

Pay as you go (PAYG) instalments are prepayments of your expected income tax for the year. If your total PAYG instalments will be more, or less, than your expected tax for the year, for example because your financial situation changes, you can vary the amount of the instalments. If you pay PAYG instalments using the instalment amount (option 1 on your activity statement), you may want to vary if there has been a significant change in your instalment income this year. If you calculate your PAYG instalments using the instalment rate (option 2 on your activity statement): you do not need to vary simply because your income has changed – the payment you calculate will go up and down in line with your income; you would usually only vary if the taxable proportion of your income has changed – for example, if your income has fallen significantly but your deductions for running costs have stayed the same. You make your variation when you lodge your activity statement or instalment notice. Your varied amount or rate will apply for the remaining instalments for the income year, or until you make another variation. Underestimating instalment amount or rate When you vary your PAYG instalments, it is important to not underestimate your instalment amount or rate. If you underestimate, you could be left with a substantial tax bill when you lodge your tax return at the end of the year. Also, when your tax return is lodged, the ATO compares your actual instalments to the total tax payable on your instalment income for the income year. If your varied instalments are less than 85% of your total tax payable, you may have to pay interest (the general interest charge) on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties. Varying your instalments due to floods or other disasters You may need to vary your PAYG instalments due to the impact of the 2022 floods or other disasters. The ATO has said that it will not apply penalties or charge interest on variations if you have taken reasonable care to estimate your end of year tax liability. This means making a reasonable and genuine attempt to determine your liability. Want to find out more? Talk to us about whether you should vary your PAYG instalments. We can also talk to the ATO on your behalf if you are unable to pay an instalment amount.

CGT and foreign residents: reminder

Fri, 30 Sep 2022 05:29:21 GMT

Foreign residents are reminded that they are no longer entitled to any main residence exemption for disposals of property unless one of the life events tests are satisfied. Previously, where a foreign resident sold their main residence before 30 June 2020, they could apply the main residence exemption to reduce the capital gain to nil and ignore any capital losses. To meet the life events test and have a main residence exempt from CGT, both of the following need to be satisfied: the individual was considered to be a foreign resident for tax purposes for a continuous period of six years or less; and during that period, one of the following occurred: the foreign resident, their spouse, or their child under 18 had a terminal medical condition; the spouse of the foreign resident or their child under 18 passed away; or the CGT event occurred due to a formal agreement following the breakdown of a marriage or relationship. It must be noted that in addition to the above criteria, the general requirements for the main residence exemption also need to be satisfied. This includes having the dwelling be the home of the foreign resident, their partner, and other dependents for the whole ownership period, not using the dwelling to produce income or run a business, and if dwelling is on land of two hectares or less. Where the conditions of the life events test and other general conditions are met, the foreign resident is able to claim the main residence exemption and use that exemption as the reason to vary the capital gains withholding that would otherwise apply to the sale of their residence. If a foreign resident does not meet the life events test conditions and sells a property even if it is their main residence, no exemptions can be applied. However, they may be able to apply a 50% CGT discount under certain circumstances. The 50% CGT discount can be applied to part of a capital gain when a foreign resident sells any Australian property if either of the following applies: the asset was acquired on or before 8 May 2012; or the foreign resident had a period of Australian residency after 8 May 2012. In instances where either of the above conditions are met, the 50% CGT discount must be pro-rated for the number of days the foreign resident was an Australian resident after 8 May 2012. This is achieved by calculating the total number of residency days divided by the overall ownership days in the ownership period and calculating it as a percentage. Any properties purchased after 8 May 2012 by a foreign resident that remains a foreign or temporary resident for the entirety of the ownership will not be entitled to any CGT discount when sold. For any foreign residents who want to avoid selling their property and triggering CGT provisions, it should be noted that these rules also apply when a foreign resident for tax purposes passes away. The rules will apply to legal personal representatives, trustees and beneficiaries of the deceased estate, surviving joint tenants, or any special disability trusts.

Sale of principal home: extension of exemption

Fri, 23 Sep 2022 05:30:11 GMT

In a bid to support pensioners and in conjunction with the announcement to reduce the eligibility age for downsizer super contributions, the government has introduced a measure to extend the existing assets test exemption under social security for principal home sale proceeds which a person intends to use to purchase a new principal home. Under the social security system, the level of income support received by individuals depends on their income and assets. For example, to receive the age pension, Services Australia (Centrelink) will assess an individual and their partner’s income from all sources including financial assets such as superannuation using deeming. Deeming assumes that a financial asset earns a set rate of income regardless of the actual income generated. Applicants for the age pension will also need to pass the assets test, the limits of which change depending on whether they own their own home, are single, or in a couple. Currently, when an age pensioner or other eligible income support recipient sells their principal home to either purchase or build another home, those proceeds are exempt from the assets test for up to 12 months. However, the proceeds will still be subject to deeming. An additional 12 month extension may be granted where the income support recipient has a continued intention to apply the sale proceeds to the purchase, build, rebuild, repair or renovation of a new principal home and have: made reasonable attempts to purchase, build, rebuild, repair or renovate their new principal home (eg signing a contract to purchase or renovate etc); made those attempts within a reasonable period after selling the principal home; and experienced delays beyond their control in purchasing, building, rebuilding, repairing or renovating their new principal home. To reduce the impact of selling and buying a new principal home and encourage pensioners to downsize, the Bill introduced by the government would automatically extend the existing assets test exemption from 12 to 24 months. An additional 12 month extension may be available in particular circumstances, taking the maximum exemption period to 36 months in total. It should be noted that only the value of the principal home proceeds that are intended to be used to purchase/build a new home can be exempt. For example, if an individual sells their principal home for $1,000,000, and intends to purchase a new home for $700,000 and use the remaining $300,000 to buy an investment, then the total amount of sale proceeds that can be exempt from the assets test is $700,000, while the $300,000 is not exempt from the assets test. In addition to extending the exemption, the Bill also seeks to apply a lower deeming rate to the principal home sale proceeds when calculating deemed income for the period during which the proceeds are exempt from the assets test. For deeming purposes, the threshold is currently $56,400 for an individual and $93,600 for couples. Below those thresholds, the financial assets are deemed at a rate of 0.25%, while anything above those thresholds are deemed to earn 2.25%. If this proposed measure becomes law, the exempt principal home sale proceeds will be treated as a separate pool to the other financial assets and deeming calculated at 0.25% instead of 2.25%.

FBT record-keeping: simplification of requirements

grahamelba@gmail.com (Grahame Allen) — Fri, 16 Sep 2022 04:49:46 GMT

The government has released a raft of draft legislation with the intention of reducing FBT record-keeping compliance costs for employers. The measure was originally announced by the previous government in the 2020 Budget but never implemented. In brief, it proposed to give the ATO the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records to finalise their FBT returns. Currently, where an employer is required to lodge an FBT return, they must keep and preserve all records for the fringe benefits they provide for 5 years from the date that the records are prepared, obtained, or from the completion of the transaction. During this period, the ATO may request any of these records for compliance purposes. Under FBT law, there are numerous provisions which require employees to provide information to their employers about the fringe benefits received, and provide them “in a form approved by the Commissioner”. This consists of more than 20 different ATO approved declarations and evidentiary documents, which forces employers to create more records that may be a duplication of existing corporate records. To reduce this potential duplication and simplify record-keeping compliance, the draft legislation proposes to give the ATO the power to make legislative instruments to determine the kinds of adequate alternative records which may be kept and retained by employers in lieu of statutory evidentiary documents for specified fringe benefits. The government has also released Draft Determinations which outlines what adequate alternative records for travel diaries and relocation transport looks like. In general, the minimum amount of information alternative records will need contain for travel diaries consist of the following: be in English; contain the name of the employee receiving the benefit; note the duration of travel; for each activity undertaken by the employee in the course of producing their assessable income while undertaking the travel, the:place where the activity was undertaken; date and approximate time the activity commenced; duration of the activity; and nature of the activity. The minimum amount of information that will be required to be contained in adequate alternative records for relocation transport include: name of employee or associate of the employee receiving the benefit; number of family members travelling in the car; make and model of the car driven; address of the departure location; address of the arrival locations; date(s) of travel; total number of whole kilometres travelled between the address of departure and the address of arrival. For other fringe benefit types, the legislative instruments to be made by the Commissioner will give employers the ability to identify the kinds of alternative documents and records that could be used. It will contain information on the years of tax, the classes of persons, the classes of statutory evidentiary documents applying to the relevant fringe benefit, and the kind of alternative documents that may be used. However, the Commissioner is unlikely to specify alternative record-keeping options for all available fringe benefits or all situations where fringe benefits may be provided. For example, it is anticipated that for records that are exhaustively defined within the legislation, such as log books and odometer records, employers will continue to meet their record-keeping obligations under the current requirements.

Rental properties – borrowing expenses

grahamelba@gmail.com (Grahame Allen) — Fri, 09 Sep 2022 01:30:52 GMT

If you earn income from an investment property, you may be entitled to a deduction for any borrowing expenses. These are expenses directly incurred in taking out a loan for the property. What are borrowing expenses? Borrowing expenses include: loan establishment fees; title search fees charged by your lender; costs for preparing and filing mortgage documents; mortgage broker fees; stamp duty charged on the mortgage; fees for a valuation required for loan approval; and lender's mortgage insurance billed to the borrower. The following are not borrowing expenses: insurance policy premiums on a policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed; interest expenses; stamp duty charged on the transfer of the property; and stamp duty incurred to acquire a leasehold interest in property (such as an ACT 99-year Crown lease). How to deduct borrowing expenses If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If the total deductible borrowing expenses are $100 or less, they are fully deductible in the income year they are incurred. If you repay the loan early and in less than five years, you can claim a deduction for the balance of the borrowing expenses in the year the loan is repaid in full. If you obtained the loan part way through the income year, the deduction for the first year will be apportioned according to the number of days in the year that you had the loan. Need more information? If you earn income from an investment property and wish to have more clarity on any deductions you might be entitled to, we have the expertise to answer your questions. Contact us today!

Bonus deduction for employee training proposal

Fri, 02 Sep 2022 05:37:46 GMT

As a part of its strategy to address the current skills shortage as well as to future-proof Australia’s workforce by building better trained and more productive workers, the government has proposed to implement a temporary “skills and training boost” initiative. This initiative proposes to give small businesses access to a bonus deduction equal to 20% of eligible expenditure on certain training for employees, both existing and new, between 29 March 2022 and 30 June 2024. The bonus deduction will be available to all entities that meet the definition of a small business entity (ie those with an aggregated annual turnover of less than $50m) in the income year in which the eligible expenditure is incurred. Eligible expenditure must satisfy the following criteria: expenditure must be for training employees, either in-person in Australia, or online; expenditure must be charged, directly, or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration – although any additional costs associated with the provider invoicing through an intermediary such as commissions or other fees will not be eligible for the bonus deduction; the registered training provider must not be the small business or an associate of the small business; expenditure must already be deductible under taxation law (ie the training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income) – the deductible training may be either an operating expense or of a capital nature, although GST is usually excluded; expenditure must be incurred within a specific period (between 7.30pm legal time in the ACT on 29 March 2022 and 30 June 2024); and expenditure must be for the provision of training, where the enrolment or arrangement for the provision of the training occurs at or after 7.30pm legal time in the ACT on 29 March 2022. This initiative only covers employees, and as such, the bonus deduction is not available for the training of non-employee business owners such as sole traders, partners in a partnership and independent contractors who are not employees of the business within the ordinary meaning. In addition, the requirement for the expenditure to be incurred on external training means that the cost of any in-house or on-the-job training is not eligible for the bonus deduction. According to the government, this is because the bonus deduction is not intended to cover general business operating costs. Training providers wishing to take advantage of this measure must be registered with at least one of the following authorities to ensure quality and integrity: Australian Skills Quality Authority (ASQA); Tertiary Education Quality and Standards Agency (TEQSA); Victorian Registration and Qualifications Authority; or Training Accreditation Council of Western Australia. It should be noted that this proposal is currently in the draft stage and is undergoing consultation and as such the bonus deduction will not be available until the measure becomes law. No timeframes have been given as to when that will occur.

Period of review changes coming for SMEs

grahamelba@gmail.com (Grahame Allen) — Fri, 26 Aug 2022 05:27:24 GMT

At the start of the COVID-19 pandemic in 2020, the previous government passed a measure to increase the small business threshold from $10m to $50m for the purposes of most of the small business exemptions. This was part of a Bill to implement various Budget measures for economic recovery. Among other things, this legislation meant that the Commissioner was only able to amend an income tax assessment of “medium businesses” (those with a turnover between $10m and less than $50m) for a limited period of 2 years. The Commissioner was still able to amend an assessment at any time if fraud or evasion was expected or to give effect to an objection made by the taxpayer or a decision on review or appeal. While the current government is not seeking to disturb a majority of the measures contained in the legislation, it has recently introduced a proposal to exclude certain small and medium entities (SMEs), with particularly complex tax affairs or significant international tax dealings, from the shorter 2-year amendment period and revert those entities back to the standard 4-year period. Entities which would be subject to a longer period of review should the Draft Regulation be registered include: those with related-party dealings in relation to assets or non-cash benefits with a market value of at least $50,000; entities that derive an assessable income of at least $200,000 from any source that is not an Australian source. To prevent structuring arrangements being undertaken to avoid this, the $200,000 threshold is assessed as a combined threshold including the assessable income from the relevant assessed entity and any entity affiliated with or connected with the entity; foreign controlled Australian entities (including Australian companies, trusts and partnerships) and non-resident entities at any time during the income year; any entities that engage in schemes captured by either the Diverted Profits Tax (DPT) or Multinational Anti-avoidance Law (MAAL); certain entities with at least 10 other entities connected with or affiliated with the entity at any time during the assessment year; entities that may be entitled to the R&D tax offset or certain related deductions, recoupments and adjustments; and entities that claim the following CGT relief: restructure rollover relief; demerger relief; rollovers relating to CGT asset transfers between 2 companies or the creation of a CGT asset between companies within the same wholly owned group, where one company is a non-resident; and entities subject to Div 855 (where a foreign resident can disregard a capital gain or loss in certain circumstances). The Draft Regulations also seek to remove the current requirement that a 4-year period of review only applies where at least one of the related parties already has a 4-year period of review in relation to related party dealings. This means that even if all related parties have a 2-year assessment period, if all other conditions are satisfied, a 4-year period of review may apply to a relevant assessed entity. The above amendments will apply to assessments made after the Regulations commence for income years starting on or after 1 July 2021.

Legislative changes in the pipeline

grahamelba@gmail.com (Grahame Allen) — Fri, 19 Aug 2022 05:15:01 GMT

The new Labor government has wasted no time in introducing a raft of legislative changes in relation to previously abandoned measures and to implement its various election promises covering businesses, individuals and superannuation. Businesses The reporting regime for electronic platform operators in the sharing economy has made a return appearance. This measure would require any electronic platform operators that facilitates a supply that is connected to Australia for a consideration between the entities (other than when ownership of goods is permanently changed) to report information about the transaction to the ATO. This was originally a recommendation of the Black Economy Taskforce to reduce tax compliance risks and was introduced again but not passed during the previous government’s term. When passed, it is expected to apply to the supply of taxi travel and short-term accommodation from 1 July 2023, and to all other transactions from 1 July 2024. Within the same Bill, the government also revived a lapsed measure to enable small business entities to apply to the Small Business Taxation Division of the AAT for an order staying the operation or implementation of certain decisions of the Commissioner that are being reviewed by the AAT (including debt recovery action). This measure seeks to reduce the cost to small businesses of having to apply to a Court for a stay and will apply to applications for review made on or after the day after the Bill receives Assent. Another lapsed measure which has been brought back is to give the ATO the power to direct a business entity to complete an approved record-keeping course in lieu of imposing penalties for failing to comply with record-keeping obligations in some circumstances. The Commissioner will be able to issue a tax-records education direction to an entity 3 months after the day the measure receives Assent. Individuals For individuals, the removal of the $250 threshold to claim self-education expenses is back on the cards. While self-education expenses are generally deductible if there is a sufficient connection with the taxpayer’s income producing activities, the amount of deduction is currently limited by s 82A of the ITAA so that only the excess over $250 may be deductible. This measure was previously introduced during the last government but the Bill was put on hold when the Senate was prorogued due to the election. When passed by Parliament, this measure will apply from the 2022-23 income year. Superannuation The measure to give effect to the government’s election promise of reducing the age of eligibility to make downsizer contributions into super from 60 to 55, has been introduced. Note that all other eligibility requirements to make the downsizer contribution will remain the same. According to the government, this will allow greater flexibility for older Australians to contribute to their super and may encourage individuals to downsize sooner to a home that better suits their needs, thereby freeing up the stock of larger homes for families. It will apply to contributions made from the first quarter after Assent to the Bill. The government has also reintroduced the measure to make amendments associated with the transition of super-related complaints from the Superannuation Complaints Tribunal (SCT) to the Australian Financial Complaints Authority (AFCA), including transfer of records and documents. It will apply the day after the measure receives Assent.

TPAR due soon

Fri, 12 Aug 2022 04:14:21 GMT

Businesses that have made payments to contractors for certain services in the 2021-22 income year are required to lodge a Taxable Payments Annual Report (TPAR) by 28 August 2022. This includes businesses that made payments to contractors or subcontractors for building and construction services, cleaning services, courier services, road freight services, IT services, and security, investigation or surveillance services. Contactors or subcontractors in the context of TPAR also encompasses consultants and independent contractors, who can operate in a variety of structures such as sole traders (individuals), companies, partnerships or trusts. Where the contractor has issued a business an invoice that includes both labour and materials, the total amount will need to be included in the report. However, certain payments (such as the following) will not need to be reported in the TPAR: payments for materials only; incidental labour (ie labour was incidental to the supply of materials); unpaid invoices after 30 June each year; workers engaged under labour hire or on-fire arrangements; PAYG withholding payments; payments to foreign residents for work performed in Australia which are subject to PAYG foreign resident withholding (if the payments are not subject to PAYG withholding, they will need to be reported in the TPAR); foreign residents for work performed overseas; contractors who do not quote an ABN – if an ABN is not provided, businesses may be required to withhold an amount from payments. The withheld amount will then need to be reported either on the TPAR or the PAYG payment summary – withholding where ABN not quoted form, not both. payments in consolidated groups; and payments for private and domestic projects – if you are a homeowner building or renovating your main residence, or a business making payments to contractors for services for private purposes (eg the owner of a cleaning business asking a contractor to clean their main residence). According to the ATO, around $11bn a year goes missing in taxes and the TPAR system is just one of the tools used to identify non-compliance and keep things fair for all businesses. In the previous financial year, around $350bn in payments made to 950,000 contractors was reported through the TPAR. This year, the ATO expects more than 270,000 businesses to complete the report. “We know most small businesses do the right thing, however there are some contractors out there who deliberately don’t report or under-report their income, making it unfair for honest businesses.” – ATO Assistant Commissioner Peter Holt TPAR information reported is used by the ATO in data analytics to identify non-compliance with a range of tax obligations, such as lodging income tax returns, reporting the correct amount of income, lodging BASs, being registered for GST when required, and using valid ABNs. This information will also flow through to pre-filling information for sole traders with contracting income, making it easier to lodge correctly the first time. Although businesses will have until 28 August to lodge their TPARs, contractors should ensure that the pre-filled information is complete and finalised before lodging, especially in cases where contracting income from a business or in general has not been reported previously.

Tax time focus on rental properties

Fri, 05 Aug 2022 05:18:57 GMT

Just as with previous income years, tax time 2022 is no different, the ATO has again cited rental property income and deductions as one of the 4 key focus areas, along with record-keeping, work-related expenses, and capital gains from crypto assets/properties/shares. The focus is no surprise considering that a recent ATO Random Enquiry Program found that 9 out of 10 tax returns that reported rental income and deductions contain at least one error. The ATO warns taxpayers that it receives rental income data from a wide range of sources including share economy flatforms, rental bond authorities of various States, property management software providers, and State and Territory revenue and land title authorities. This information will then be matched to the information provided by taxpayers on their tax returns meaning that there is no hiding income from the all seeing eye of the ATO. One of the income categories for rental properties that may be important for this year and that many landlords may not know to include is insurance payouts. With the La Nina weather event causing flooding along large parts of the country, if you obtained insurance payments in relation to loss of rental income or repairs, that would need to be included. For those renting out their investment property, their home, or part of their home on a short-term basis on digital sharing platforms such as AirBnB, that income will need to be included, and any expenses will need to be apportioned according to the space rented out. There may also be CGT consequences upon selling the property so taxpayers will need to be careful. Joint owners of properties will need to ensure that their income and deductions are in line with the rental property’s ownership interest, which generally depends on legal documents at the time of purchase. As for expenses, the ATO notes that while some expenses such as rental management fees, council rates, repairs, interest on loans, and insurance premiums can be deducted in the year its incurred. Other expenses, such as borrowing costs, capital works, and some depreciating assets can only be claimed over a number of years. Capital works include replacing a roof or a new kitchen or bathroom. Depreciating assets such as dishwashers or ovens over $300 will need to be claimed over their effective life. In addition, taxpayers should also be aware that if they redraw on a rental property loan for private expenses or to purchase a private asset, the amount of interest relating to the loan for the private expense or asset cannot be claimed as a deduction. There may also be other instances where a deduction in relation to a rental property will be denied such as when a property is advertised significantly above reasonable market rate, or where unreasonable restrictions are imposed on potential tenants. Taxpayers that have sold a property during the 2021-22 income year will need to be cautious as capital gains is also one of ATO’s focus areas for this year. Those that have rented out a part of their property may only be entitled to a partial main residence exemption depending on the amount of space rented out.

Beware of payment redirection scams

Fri, 29 Jul 2022 03:02:45 GMT

The Australian Securities and Investment Commission (ASIC) has warned small businesses to be alert for payment redirection scams. These scams typically involve scammers impersonating legitimate businesses or their employees and operate via email by requesting an upcoming payment be redirected to another bank account which is fraudulent. In some cases, this may involve the actual hacking of legitimate business email accounts to send scam emails. Other methods fraudsters use to carry out payment redirection scams include intercepting legitimate invoices and amending bank details before releasing the email to the unsuspecting business customer and registering email addresses that are very similar to one from a legitimate business. According to the most recent scams activity report from the Australian Competition and Consumer Commission (ACCC), redirection scams came only second to investment scams in terms of financial losses at $227m in 2021. This figure includes data from both individuals and businesses. Research also indicates that a third of scam victims do not make any reports, so the true cost of the scam is likely to be much higher. However, just looking at the business population, payment redirection scams take the top spot as the scam that caused the highest losses. Small businesses had the highest median loss of $3,812 per business and overall lost a total of $3.5m. ACCC data also points to false billing scams which includes payment redirection reports as a concern. Overall, for the 2021 income year, 3,624 reports were received by the ACCC Scamwatch program from businesses. Of the total $13.4m lost by businesses, $7m can be attributed to micro (0-4 staff) and small (5-19 staff) businesses. While the most common contact method reported to ACCC for scams was by phone or text message, bank transfers continued to be the most common payment method for scams with $129m reported lost, up 32% compared with the 2020 income year, in which only $97m was reported as lost. Small businesses should take immediate action if they have inadvertently fallen prey to a scam by contacting their financial institution to see if anything can be done to recover the money, and then reporting the scam to either Scamwatch or the Australian Cyber Security Centre. Financial institutions may be able to find out where the money was sent and block scam accounts. ASIC notes that businesses should also be aware of falling victim to a follow-up scam which may offer to recover your lost money for a fee (ie money recovery scams). Money recovery scammers will usually target victims of previous scams with the promise of recovering lost money for an up-front payment and/or retrieving detailed personal information. They often contact previous victims uninvited and pose as trusted organisations such as a law firm, fraud taskforce, or a government agency. Some more sophisticated scams will have official looking websites with fake testimonials. Once the previous victims are convinced of the scam’s authenticity, the scammers will ask the victims to fill out false paperwork or provide identity documents as well as a payment. In some cases, they may also request remote access to computers and smartphones. Another tactic that these money recovery scammers may use is to make contact and attempt to convince a target that they have unknowingly been involved in a scam and are entitled to compensation or a settlement refund.

ATO strategy update: small business and individuals

Fri, 22 Jul 2022 05:25:50 GMT

Speaking at a conference, Jeremy Hirschhorn, Second Commissioner Client Engagement Group delivered an update on the ATO’s strategic focus areas as well as improvements that the ATO has been making over the past few years to keep up with the digitisation of many processes. While Mr Hirschhorn noted that many businesses are doing the right thing and paying their fair share of taxes, in particular the larger companies “supported by special funding under the Tax Avoidance Taskforce”, the focus is now turning to smaller businesses and individuals. According to the ATO, small business across all types of taxes represents as much as $15bn of the total $33.5bn tax gap. The appears to be a combination of deliberate avoidance (ie being a part of the shadow economy), simple mistakes by a large number of small businesses, and non-engagement with debts. This lack of engagement by small businesses is said to have caused the ATO’s collectable debt book to grow significantly during the COVID-19 pandemic. While the ATO has taken a relatively relaxed position to debts of small businesses thus far, it is now “looking to normalise [the debt book] over time”. This acknowledgment, coupled with previous news that the ATO has resumed collecting aged debt can only mean that debt collection activities will be ramping up in the coming months. With this increase in activity as well as potentially recommencing audits, the ATO will be seeking to engage with taxpayers earlier and more transparently. It points to the recent issuance of 30,000 awareness letters for disclosure of business tax debts, and 52,000 awareness letters about the use of director penalty notices, which have prompted more than 20,000 taxpayers to respond and enter into payment plans worth around $4bn. In addition to early engagement, a digital improvement that the ATO has made to help small businesses avoid mistakes in the first place is real-time prompts. For example, GST reporting now incorporates client-specific messaging before the lodgment of an activity statement to allow for self-correction. Through this system, the ATO has assisted taxpayers to correct their GST reporting with adjustments of around $73m. In relation to individuals, the over-claiming of work-related expenses was a concern for the ATO. Again, this involved both deliberate over-claiming using creative methods and/or mistakes such as being overly optimistic about what is allowable. Property investments also remain on the ATO’s area of focus. Mr Hirschhorn noted that there was a “spectrum from true investment properties through to holiday homes which are occasionally let out in the low season (or listed on Airbnb at exorbitant rates ‘just for show’)”. To address this, the Mr Hirschhorn outlined the ATO’s strategy of sharing data with taxpayers pre-lodgment to avoid mistakes happening in the first place, while also attempting to obtain third party data sources where the “intrusiveness” of the request is outweighed by the tax gap it is trying to tackle. With this in mind, in areas such as rental properties where there is significant non-compliance, the ATO has a “high appetite to obtain third party data”.

TBAR to be streamlined

Thu, 14 Jul 2022 05:16:19 GMT

In good news for trustees of SMSFs and after much community consultation, transfer balance account event-based reporting (TBAR) will soon be streamlined for convenience. The current event based reporting framework for SMSFs commenced from 1 July 2018 and facilitated the administration of the transfer balance cap by the ATO. SMSFs were generally required to start reporting when its first member commenced a retirement phase income stream. The TBAR allows the ATO to record and track an individual’s balance for both their transfer balance cap and total superannuation balance. That information is not extracted from the SMSF annual return, or any information shared through a rollover. Under the existing framework, an SMSF must report common events that affect a member’s transfer balance account when they happen; including: details of when a member commences a retirement phase income stream, and death benefit income streams; details of commutations of retirement phase income streams, and commutations of a pension that occurs before it is rolled over to another fund; details of limited recourse borrowing arrangement payments; compliance with a commutation authority issued by the ATO; and details of personal injury (structured settlement) contributions. For SMSFs with members with a total super balance of $1m or more on 30 June the year before the first member starts their first retirement phase income stream, events must be reported within 28 days after the end of the quarter in which the event occurs. In instances where all members of an SMSF have a total super balance of less than $1m, the SMSF can report events at the same time as when the annual return is due. An SMSF may be required to report earlier if a member has exceeded their personal transfer balance cap. For individuals who start their first retirement phase income stream on or after 1 July 2021, their personal transfer balance cap will be $1.7m. If no reportable events occurs, the SMSF is not required to report. From 1 July 2023, TBAR will be streamlined by removing the total super balance threshold and requiring all SMSFs to report 28 days after the end of the quarter in which a reportable event has occurred (ie 28 Jan, 28 April, 28 July, 28 October). However, the obligation to report earlier will continue in cases where a commutation of an income stream occurs in response to an excess transfer balance determination. This will still be required to be reported 10 business days after the end of the month in which the commutation occurred. Similarly, the obligation to report earlier will also continue for responses to a commutation authority, which must be reported by the legislated due date as specified in the notice. Under the new streamlined framework, trustees of SMSFs will still be allowed to report transfer account balance events more frequently if they wish. This may be beneficial in instances where members are close to their personal transfer balance cap, and will avoid excess transfer balance determinations.

Current compliance issues in the SMSF space

grahamelba@gmail.com (Grahame Allen) — Fri, 08 Jul 2022 04:45:00 GMT

In a recent presentation, the Director of ATO’s superannuation and employer obligations area, Paul Delahunty, shared some key compliance issues that the ATO is currently prioritising in the SMSF space, some identifiable compliance trends to emerge from audit contravention reports and some key statistics on the overall SMSF population and details on asset classes. Recent statistics indicate that there are around 600,000 SMSFs, with over 1.1m members holding an estimated total asset value of $876bn. By far the most popular investment class by dollar value is listed shares ($241bn invested by SMSFs), which is almost double the amount invested in the second asset class of cash and term deposits ($147bn). These investments are then followed in descending monetary value by unlisted trusts ($115bn), non-residential property ($91bn), and residential property ($49bn). During COVID-19 and until recently, the ATO had put compliance action in the sector on hold and provided various forms of relief, including the in-house asset rules for rental relief provided to related party tenants. However, in the 2022-23 financial year, the ATO is looking to scale up its compliance program as a reaction to indicators of heightened risk. While the ATO’s main compliance focus will always be on any activity that puts retirement savings at risk or inappropriately takes advantage of the concessional tax environment, in the near term it will be dedicating its focus specifically on illegal early release in all forms. This is when individuals access their retirement savings before a condition of release has been met. This, according to the ATO, is currently on the rise. The three main routes for illegal access according to the ATO are as follows: new registrants entering the SMSF space purely for the purpose of illegal access; existing trustees of SMSFs no longer lodging SMSF returns after illegal access; and existing trustees that continue to lodge but have illegally accessed some of their super. One of the big red flags that the ATO looks out for is when individuals establish their SMSF and initiate a rollover but fail to lodge a corresponding first annual return. It notes that this is a good predictor that an illegal early release has occurred, either as a result of deliberate behaviour or participation in a scheme. Data obtained from lodgment of the 2020 annual return showed a significant growth in the number of SMSFs failing to lodge their first annual return and accounted for 26% of all returns. Even more concerning for the ATO, early data from the 2021 year seems to indicate that the percentage of outstanding returns for new registrants has increased yet again. For context, the percentage of new registrants failing to lodge their first return was only 3% in 2013. New registrants that ignore the extensive ATO communications campaigns to lodge will now be targeted with a “3 strikes and you’re out” compliance campaign. This campaign consists of the ATO firstly issuing a “blue letter” that encourages trustees to take immediate action to lodge and provides a pathway for those who need support. If no response is received from the “blue letter”, the ATO will follow up by issuing an “amber letter” warning trustees of the consequences of failing to lodge their return. Finally, if no response is received from the “amber letter”, a final warning or “red letter” will be issued advising trustees that the ATO have commenced the disqualification process and will consider other enforcement action. So far, the ATO has issued its first and second batch of “red letters” to funds in early April and June 2022, with presumably more to follow.

ATO warns against asset wash sales

Tue, 05 Jul 2022 01:31:20 GMT

With COVID-19 lockdowns and restrictions in the rear-view mirrors of most of the country, the ATO is also beginning to resume normal compliance activity levels. One of the many areas it will be paying close attention to this tax time is asset wash sales which may artificially increase tax losses and reduce gains or expected gains. The ATO considers asset wash sales to be transactions which involve the disposal of assets just before the end of the financial year. After a “short period of time”, the taxpayer then reacquires the same or substantially similar assets. Other arrangements that achieve similar economic and tax effects using similar techniques may also be a wash sale. These include situations where: a taxpayer enters into an arrangement to acquire the same, or substantially the same asset at a future point in time at a price that is substantially the same as the sale proceeds received for the original asset, either shortly before, after or at the time of disposing the asset; an asset is transferred from one wholly owned company to another, or between two trusts with the same trustee and class of beneficiaries; and a taxpayer disposes of an asset to family members and an arrangement or understanding exists between the parties to the effect that the asset will be re-acquired by the taxpayer. These transactions are viewed by the ATO to be a form of tax avoidance and are often used to create a loss to offset a gain. In terms of wash sales, an asset is considered to be “substantially the same” where it is economically equivalent to, or fungible with, the original asset, or if there are immaterial differences between the two assets such that, in substance, the assets are economically equivalent. According to the ATO, the assets involved in these wash sales are not necessarily traditional assets such as shares. Taxpayers could also be disposing of crypto-assets and reacquiring them later as a part of a wash sale. With the price of many crypto-assets at a low ebb, taxpayers looking to rid themselves of these assets need to be careful they do not inadvertently attract the attention of the ATO. Although there may be legitimate reasons for taxpayers to be selling and then reacquiring the same or substantially similar assets, the ATO notes that a wash sale is different from normal buying and selling as it is usually undertaken for the artificial purpose of generating a tax benefit such as a capital loss in the current financial year. To stamp out this behaviour this tax time, the ATO will be using data analytics to identify wash sales through data from various share registries and crypto asset exchanges. Where the system identifies a wash sale, the capital loss claimed by the taxpayer in their tax returns will be rejected. The commissioner may then make a determination known as a compensating adjustment to adjust the taxation situation of the taxpayer. In addition, compliance action and additional tax, interest and penalties may also be applied at the discretion of the ATO.

ATO reminder to small businesses this tax time

Fri, 24 Jun 2022 05:23:04 GMT

This tax time, the ATO has once again reminded small businesses of their tax obligations and highlighted specific areas it will be focusing on, including deductions not related to business income, overclaiming of business expenses, omission of business income and insufficient records to substantiate claims. Regarding deductions, the ATO reminds businesses that they can only claim what they are entitled to, and the claiming method may differ depending on the type of structure used (ie sole trader, partnership, trust, or company). For example, sole traders will need to claim deductions in their individual tax return in the “Business and professional items” schedule, while partnerships, trusts, and companies will need to claim deductions in their respective tax returns. If your small business has purchased equipment or capital items in the 2021-22 financial year, you may be able to claim an immediate deduction for the cost of those assets subject to meeting eligibility criteria. However, only the business portion of the cost of the asset is eligible for immediate deduction. For example, if the business purchased a printer for $500, but it is used for both business and private purposes on an 80/20 basis, then the business can only claim a deduction for $400. Because of COVID-19, many small businesses may have downsized their operations and relocated their offices to their homes. The ATO notes that a deduction can be claimed for the portion of expenses that relate to running the business. This includes occupancy expenses (ie mortgage interest or rent, council rates, land taxes, and home insurance premiums), running expenses (ie electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, and cleaning), and expense of business motor vehicle travel between home and other locations. However, small business owners should be aware that if they decide to claim a deduction for the portion of expenses in relation to running their business from home, they may be subject to capital gains tax (CGT) on that portion of their home if they later sell, even if the home was their main residence. On the other side of the coin, the ATO will also be focusing on the income of small businesses; their focus will not only be cash, EFTPOS, and credit or debit card transactions, but also coupons, online transactions, and income from platforms such as PayPal, WeChat or Alipay. According to the ATO, almost half of the 1.9m sole traders have non-business income such as salary and wages, or income from investments which can be data-matched. In addition, those small businesses (including sole traders) in the building and construction, courier, cleaning, information technology, road freight, security, and investigation or surveillance industries will have their payment information provided to the ATO through the taxable payments reporting system, which will ultimately flow to data-matching. Therefore, completeness and accuracy are important this year.

Tax Time 2022 is around the corner

Fri, 17 Jun 2022 05:03:31 GMT

As the end of another tax year approaches, the ATO has reminded businesses that it is time to: see if there are tax-deductible items the business needs before 30 June; check if there are any concessions the business can access before 30 June - for example, the small business restructure rollover CGT concession or the increased small business income tax offset (now 16%) for sole traders (capped at $1,000); think about record keeping habits this past year – would anything be done differently? If your business has employees, the Single Touch Payroll information for 2021-22 must be finalised by 14 July. Remember that your tax adviser can help you with your business’ tax. Deductions Increasing tax deductions will lead to a lower tax bill. For example, your business may be able to deduct the full cost of a depreciating asset under the temporary full expensing rules. An immediate deduction is also available for start-up costs and certain prepaid expenses. If your business is in an industry that requires physical contact with customers, such as healthcare, retail or hospitality, it can claim deductions for expenses related to COVID-19 safety. This includes hand sanitiser, sneeze or cough guards, other personal protective equipment and cleaning supplies. Charitable donations (including, in some circumstances, donating trading stock) are a good way to increase deductions. Check the deductibility status of charities and don’t forget to ask for a receipt. The ATO’s golden rules The ATO has 3 golden rules for a valid business deduction. The expense must have been for business, not private, use. If the expense is for a mix of business and private use, only claim the business portion can be claimed as a deduction. The business must have records to prove it. For example, if your business buys a laptop and only uses it for its business, it can claim a deduction for the full purchase price. However, if the laptop is used 50% of the time for the business and 50% of the time for private use, only 50% of the purchase price can be claimed as a deduction. Need help with your business deductions? To make sure that you understand what records are needed for your business and make accurate and complete record-keeping practices a part of your daily business activities, talk to us about what records your business needs to keep and for how long.

ASIC focus areas for 2022 reporting

Fri, 10 Jun 2022 03:28:06 GMT

As the spectre of COVID-19 becomes less entrenched in the public consciousness, the uncertainty felt during the pandemic has been replaced by the economic challenges presented by high inflation, an increase in energy costs and higher interest rates. ASIC has reminded directors and preparers of financial statements for the year ended 30 June 2022 to review and be aware of the impact of these uncertainties. For the 30 June 2022 reporting period, ASIC will be focusing on areas of concern. One of these is uncertainties and risks which may affect asset values, liabilities, and assessments of solvency and going concern. This includes factors such as COVID-19 conditions and restrictions during the period, the discontinuation of financial and other support from governments/parent companies/lenders etc and the impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities. Other considerations also include the increased likelihood of ongoing geopolitical risks, such as the Ukraine/Russia conflict and the flow-on effects for the broader Australian economy and the industry the business is in. This is compounded by the difficulty in obtaining sufficiently skilled staff and expertise due to the slow ramping up of migration activity after COVID-19. It is perhaps no surprise then that ASIC considers industries that may be particularly affected this year to include the construction industry, owners of commercial properties and large carbon emitters. Flowing on from these uncertainties, one of the other important areas that ASIC will be focusing on will be asset values, which encompasses the following: impairment of non-financial assets – including goodwill, indefinite useful life intangible assets and intangible assets not yet available for use. The appropriateness of key assumptions and disclosure of estimation of uncertainties will need to be reviewed and justified. value of property assets – factors that could adversely affect commercial and residential property values should be considered, including levels of migration, changes in shopping habits and future economic or industry impacts on tenants. expected credit losses on loans and receivables – key assumptions used in determining expected credit losses should be reasonable and supportable. value of other assets – including the value of investments in unlisted entities, whether deferred tax assets will be realised, and the net realisable value of inventories. According to ASIC, financial report preparers and directors should also pay close attention to disclosures. It notes that when considering what information should be provided in the financial report, those responsible should consider what their backers and potential investors would want to know. Salient changes from the prior year should also be disclosed. Given the challenging economic conditions, the adequacy of provisions for such things as onerous contracts, leased property make good, financial guarantees and restructuring need to be carefully considered. In addition, subsequent events after the reporting period which may affect assets, liabilities, income, expenses or disclosures also need to be reviewed and disclosed.

Personal super deductions: remember the notice

Fri, 03 Jun 2022 05:23:54 GMT

If you are considering making a personal contribution to your super and would like to claim a deduction on the contributions made, it is important to remember to give the required notice to your super fund before making a claim in your tax return. There have been casesof taxpayers being denied deductions for personal super contributions made where the required notice to a super fund was not made on time. There are a few different types of contributions that can be made to super funds. These include compulsory super guarantee that is paid by an employer, salary sacrifice super amounts usually paid from before-tax income, reportable employee super contributions such as having a bonus paid directly into super, and personal contributions to super funds made from after-tax income. With regard to personal contributions to super funds made from after-tax income, a deduction can only be claimed by an individual if eligibility requirements are met. A deduction for a personal contribution can be claimed if the income earned came from salary and wages, a personal business, investments, government pensions or allowances, superannuation, partnership or trust distributions, or a foreign source. An individual between 67 to 74 years old must also meet the work test or satisfy the work test exemption criteria to be able to claim a deduction for any personal contributions made. To satisfy the work test, an individual must work at least 40 hours during a consecutive 30 day period each income year. For those individuals 75 years or older, a deduction for personal contributions can only be claimed if made before the 28th day of the month following the month in which they turned 75. Provided an individual satisfies the eligibility criteria and has made a personal contribution for the year, a notice of intent to claim or vary a deduction must be made to the super fund by the earlier of: the day you lodge your tax return for the year in which you made the contributions; or the end of the income year following the one in which you made the contributions. The ATO provides a standard form for giving this notice to super funds. However, many super funds have their own online forms which can be lodged easily. A super fund will then send a written acknowledgment indicating that they have received a valid notice from an individual. Only then can a claim for deduction in your tax return be made. Remember, the notice must be given “earlier of” the two options, so if an individual inadvertently forgets to give notice by the time the tax return is lodged, they will be unable to claim a deduction for the personal contributions made for the year. Cases have shown that there is no discretion in s 290-170, or in any other provision of legislation, to extend the time for giving the notice or to disregard non-compliance with the time frame specified in s 290-170, even if the delay is caused by external factors.

ATO to resume collecting aged debts

Fri, 27 May 2022 05:26:15 GMT

The ATO has recently announced that it will resume collecting aged debts by offsetting tax refunds or credits. Age debts are a collective term the ATO uses to refer to its uneconomical non-pursued debts that it has placed on hold and has not undertaken any recent action to collect. These debts do not typically show up on the online accounts of the taxpayers as an outstanding balance as the ATO has made then “inactive”. Usually when a debt is put on hold, the ATO notifies the taxpayers via a letter that the debt collection has been paused and that any credits that the taxpayers are entitled to will be offset against the debt. In addition, the ATO will also note that it reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection. While most taxpayers should have received their aged debts letter by now, some may not have received anything, due to a change of address or the patchiness of the postal service. The first clue for those taxpayers that they may have an aged debt may be when they notice that their refund is less than expected or a credit on one account is less than it should be. To avoid surprises, taxpayers who are unsure whether they have aged debt can check their online services for a transaction with the description “non-pursuit” on their statement of account. Taxpayers with aged debts who are unable or choose not to pay all or part of the debt may find that they end up paying more, as general interest charge may be automatically applied even though the debt is “on hold”. Where the ATO offsets aged debts either from ATO accounts or credits from other government agencies, taxpayers will be notified that the debt has been re-raised and offset. If it is offset against an ATO account, taxpayers will be able to find a transaction on online services with the description “offset”. By law, the ATO is required to offset credits against any tax debts owed except in some very limited circumstances, such as having a fully compliant payment plan for outstanding debts, the tax debt is a future debt or is related to a director penalty liability, a deferral has been granted for recovery action, or the available credit is a Family Tax Benefit amount. Taxpayers that do not meet the above criteria and are unable to pay the debt may be able to apply for a review or a debt waiver depending on their circumstances. For example, a permanent release of a debt may be available to on the basis of serious hardship (ie where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education).

Single Touch Payroll: Phase 2

Fri, 20 May 2022 04:35:22 GMT

Single touch payroll (STP) has now entered into Phase 2, although most employers may not yet be reporting under this phase as many digital service providers (DSP) have obtained deferrals to help get their software ready and help their customers transition. Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting solution directly to the ATO when the payroll is run. Entering Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems will need to be reported through the payroll software. A salient example is the start date of employees. While many newer businesses may have that handy, older businesses may have trouble finding an exact start date, particularly for long serving employees. In those instances, the ATO notes that a default commencement date of 01/01/1800 can be reported for STP Phase 2 purposes. Employers will also be required to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN is not available for an employee, a TFN exemption code must be used. If a payee is a contractor and employee within the same financial year, both their ABN and TFN must be reported. In addition to reporting TFNs and commencement dates for employees, employers are now also required to report the basis of employment according to work type. That is, whether an individual is Full-time, part-time, Casual, Labour hire, voluntary agreement (contractor with own ABN but in a voluntary agreement with business to bring payments into the PAYG system), death beneficiary, or non-employee (ie, not in the scope of STP but included for voluntary reporting of super liabilities). The report generated from STP Phase 2 will also include a 6-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from payments to employees. Most STP solutions will automatically report these codes, but employers should still understand what the codes are to ensure that they are correct. For example, RTSXXX refers to regular (R) employees with a tax-free threshold (T), who have study and training support loans (S), who have not asked for a variation of amount withheld due to Medicare levy surcharge (X) or Medicare levy exemption (X), or Medicare levy reduction (X). The income and allowance details attributed to employees will also be further drilled down in Phase 2. For example, instead of reporting a single gross amount of income, employers need to separately report on gross, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payment (lump sum W) and salary sacrifice amounts. While STP Phase 2 commenced on 1 January 2022, most DSPs have obtained deferrals which cover their customers. This means that if your DSP has a deferral in place, you do not need to apply for your own deferral and will only need to start reporting Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral online.

Operation Protego: detecting GST fraud

Fri, 13 May 2022 05:21:13 GMT

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, in order to warn the business community to not engage with fraudulent behaviour and encourage those who have fallen into the trap to voluntarily disclose, before the application of tougher penalties. According to the ATO, Operation Protego was initiated when its risk models, coupled with intelligence received from the banks, AUSTRAC-led Fintel Alliance, and the Reserve Bank of Australia (RBA), identified escalation of suspicious refunds. The Operation itself is investigating taxpayers inventing fake businesses to obtain an Australian Business Number (ABN), which is then used to submit fictitious Business Activity Statements (BASs) in order to get a false GST refund. The refund amounts involved in these schemes are significant, with $20,000 being the average amount. The ATO are currently investigating around $850m in potentially fraudulent payments made to around 40,000 individuals and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts. The ATO notes that while $850m in fraudulent payments is substantial, under the Operation, it stopped many more fraud attempts. It may be the case that not all of the individuals involved in these refund schemes know that they are doing something illegal. For example, schemes promoting loans from the ATO or obtaining government disaster payments from the ATO have been on the rise on various social media platforms. These scheme promoters will also sometimes require the myGov details of the individual or business as a perquisite to obtain either the fictitious loan or government disaster payment. “We are working with social media platforms to help remove content promoting this fraud, but if you see something that sounds too good to be true, it probably is…[t]he people who have participated in this fraud are not anonymous…[w]e know who they are, and we will be taking action.” – Will Day, ATO Deputy Commissioner and Chief of Serious Financial Crime Taskforce. The ATO makes it clear that it does not offer loans or administer government disaster payment, and any advertisement indicating that they do is a rort. Government disaster payments are administered through Services Australia if they are Federal Government payments (eg Australian Government Disaster Recovery Payments), or through various State government bodies they are State government payments (eg Disaster Relief Grants from the NSW government administered by Resilience NSW). Another red flag the ATO is on the look-out for as a part of the Operation is backdating when a business is set up. It notes that backdating in conjunction with seeking a refund will flag the business as high risk and will subject it to more scrutiny as well as compliance action. While Operation Protego is running, the ATO notes that legitimate taxpayers may be affected by the extra controls put in place to stop fraudulent refunds, these controls may require taxpayers to take extra steps to receive their legitimate refunds. Taxpayers that have shared myGov login details for themselves or their businesses with scheme operators are encouraged to contact the ATO for assistance.

More ATO action on super guarantee non-compliance

Fri, 06 May 2022 01:36:09 GMT

The Australian National Audit Office (ANAO) has recently issued a report on the results of an audit conducted on the effectiveness of ATO activities in addressing super guarantee (SG) non-compliance. While ANAO notes that the SG system operates largely without regulatory intervention as employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance. To measure this non-compliance, the ATO uses a measure called the SG gap, which is an estimate of the difference between the amount the ATO collects and what would have been collected if every taxpayer was fully compliant. The most recent data from the ATO was published in 2021 and indicated that the net SG gap in 2018-19 was around $2.5bn. Overall, the ANAO report found that ATO activities addressing super guarantee non-compliance were only partly effective. This also held true for the risk-based SG compliance framework in which the ATO operates. It noted that while there was some evidence that the ATO’s compliance activities were improving employer compliance, the extent of improvement could not be reliably assessed. The report made three recommendations to improve ATO compliance activities in relation to SG non-compliance. The first was that the ATO implement a preventative approach to SG compliance. The second was that the ATO assess its performance measures against the Public Governance Performance and Accountability Rule 2014 and enhance its public SG performance information. This includes setting targets for measures such as the SG gap and having explanations for performance results, as well as changes over time. While the first two recommendations will have a negligible practical impact on day-to-day operations for employers in general, ANAO’s third and final recommendation may be a different story. Among other things, ANAO recommended that the ATO maximise the benefit to employee’s super funds by making more use of its enforcement and debt recovery powers, and to consider the merit of incorporating debtors holding the majority of debt into prioritisation of debt recovery actions. In its reply, the ATO agreed with this recommendation and stated that while it paused much of its firmer super guarantee related recovery actions through the COVID-19 pandemic, those have now recommenced. With the recommencement of recovery actions, its focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with super guarantee debts irrespective of value. The ATO also agreed with the first two recommendations in whole or part. It says that it has already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll and regular reporting from super funds. It expects to continuing prioritising a preventative approach while also strengthening its data capability. In addition, the ATO have indicated that they will continue to investigate every complaint received in relation to the non-payment of SG, and take action where non-payment is identified. These actions include the imposition of tax and super penalties, as well as the recovery and back payment of super to employees. In addition, it will be increasing transparency of compliance activities and employer payment plans so that affected employees are aware of the expected timing of back payments of super.

Election 2022: Bills not passed

Fri, 29 Apr 2022 05:00:22 GMT

Now that the Federal Election has been called for 21 May 2022, and with the Governor-General proroguing the Senate and dissolving the House of Representatives, the government is now in caretaker mode, meaning that major decisions cannot be implemented during this period until the results of the election are clear. This is bad news for any Bills that had not passed both Houses and the associated measures they were supposed to implement. These Bills have now either lapsed - if they were still before the House of Representatives when the election was called - or optimistically on-hold if they were still before the Senate. Some of the lapsed business measures include: allowing small business entities to apply to the Small Business Taxation Division of the AAT for an order staying the operation or implementation of certain decisions by the ATO, thereby reducing the cost for small businesses of having to apply to a Court for a stay; giving power to the ATO to direct a business entity to complete an approved record-keeping course in lieu of imposing penalties for failing to comply with record-keeping obligations in some circumstances; and allowing taxpayers to self-assess the effective life of certain intangible depreciating assets that they start to hold on or after 1 July 2023. Some of the superannuation and financial services measures contained in Bills that have now lapsed include: establishing a framework for compensation scheme of last resort to facilitate compensation payments to up to $150,000 to eligible consumers who have received a relevant determination from AFCA which was unpaid; implementing remaining recommendations from the Hayne Royal Commission; and allowing age pensioners and certain veterans to have their social security payments suspended for up to 2 years instead of cancelled if their income from employment is over the payment threshold. For Bills that have lapsed (ie those that were before the House of Representatives), if the next government decides to proceed with the measures, it will necessitate the introduction of new legislation. This may be one hurdle too many if the incoming government does not have a clear majority or wants a clean slate on legislation. Bills before the Senate when it was prorogued are still considered to be “active” but whether they proceed when Parliament resumes will largely depend on the makeup of the next Parliament. Some of these measures include: requirement for electronic distribution platform operators (ie operators in the sharing economy) to provide information to the ATO about transactions made through their platform; removal of the $250 threshold for the deduction of self-education expenses; and removal of responsible lending obligations with exception of small amount credit contracts. The Bills and measures outlined above do not include some of the more recent Budget promises made by the Morrison government such as those aimed at small businesses, including the 20% deduction boost for skills training and digital adoption, which had not yet been introduced into Parliament and is likely to fall by the wayside if the current government is not returned with a clear majority.

Changes coming for cryptocurrency and digital assets

Fri, 22 Apr 2022 05:06:44 GMT

It is estimated that more than 800,000 Australians participated in the crypto/digital assets market in the last 3 years. According to the ATO, 2021 saw a jump in participants of 63% compared with the 2020 year. However, this surge in participation and the associated losses from financial scams have amplified calls for regulation. To placate the various voices calling for increased regulation of the digital assets space, and only a month out from the Federal election, the government has recently released the terms of reference for a review by the Board of Taxation into the appropriate policy framework for the taxation of digital transactions and assets such as cryptocurrency in Australia. “The Morrison Government is…progressing to the next stage of the most significant reforms to Australia’s payment systems in more than 25 years, ensuring Australia can capitalise on the significant opportunities being created by new payment and crypto technologies.” – The Hon Josh Frydenberg, Treasurer. The Board of Taxation has been tasked with consulting with taxpayers, tax representative bodies, industry stakeholders and academics on the implications of various digital assets and transactions, without increasing the overall tax burden. Specifically, the Board will consult on: the current Australian taxation treatment of digital assets and transactions and emerging tax policy issues; the awareness of the taxation treatment by both retail and wholesale investors and those transacting in digital assets as part of their business; the characteristics and features of digital assets and transactions in the market, including the rapid evolution of technology supporting the broader digital asset ecosystem; analyse the taxation of digital assets and transactions in comparative jurisdictions and consider how international experience may inform the taxation of digital assets and transactions in Australia; and consider whether or not any changes to Australia’s taxation laws and/or their administration are warranted in the context of digital assets and transactions, both for retail and wholesale investors. It is expected that the review will be completed by 31 December 2022. At the same time, the government has also released terms of reference covering its request for advice from the Council of Financial Regulators (CFR) on potential policy responses to address the issue of de-banking for financial technology firms, digital currency exchanges and remittance providers. It is expected that the CFR will provide the advice to the government by June 2022. In conjunction with the release of the terms of reference for the review and advice, government has also reminded interested parties that a consultation paper is currently active until May 2022 on licensing and custody requirements for crypto asset secondary service providers. Under the terms of the consultation paper, secondary service providers include any natural or legal person, who, as a business conducts exchanges (eg between crypto assets and currencies or one or more forms of crypto), transfers and safekeeping/administration, among other things. It is proposed that a tailored licensing framework would apply to all secondary service providers, but not to decentralised platforms of protocols.

Super pension drawdown reduction extended

Thu, 14 Apr 2022 01:26:39 GMT

The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities has been extended by a further year to 30 June 2023. This temporary measure was first introduced by the government in response to the COVID-19 pandemic causing significant losses in financial markets, which negatively impacted account balances of super and pension/annuity of many retirees. The reduction in the minimum pension drawdowns applied for the 2019-20, 2020-21 and 2021-22 income years was due to end on 30 June 2022. However, as a part of the Budget, the government announced and subsequently introduced SIS Regulations to extend this temporary reduction to the 2022-23 income year. According to the government, given ongoing volatility, the extension of this measure to 2022-23 will ensure that retirees will not be forced to sell assets in order to satisfy the minimum drawdown requirements. In general, minimum payments are determined by age of the beneficiary and the value of the account balance as at 1 July each year. For market linked income streams, the minimum payment amount from 1 July 2022 is a little more complicated. In most cases, it must be not less than 45% (and not greater than 110%) of the amount determined under the standard formula in the SIS Regulations. Minimum annual payments are usually calculated by the superannuation and/or annuity providers at 1 July each year based on the account balance of the member or annuitant. For example, Jerry is 67 years old and decides to retire. On 1 July 2022, Jerry’s account based pension balance was $600,000. The minimum drawdown rate according to Jerry’s age is 2.5% and Jerry’s required annual minimum pension payment for the 2022-23 income year is $15,000 ($600,000 x 2.5%). While the minimum annual payments are mandated, there are no maximum annual payments, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year. This means that retirees do not have to adhere to the 50% reduction in the minimum annual pension payments and can continue to draw a pension at the full minimum drawdown rate or above. In the example of Jerry, if he has no other income, he may find that $15,000 per year is not enough to fund his lifestyle, in which case, he can choose to drawdown at the full rate of 5% which will give him $30,000 per year. However, it should be noted that drawing more than the minimum rate in the form of a pension payment may have unintended effects for the pension transfer balance cap, so professional advice should be sought before changing minimum annual payments.

Div 7A and financial accommodation

Tue, 29 Mar 2022 03:18:26 GMT

The ATO has recently released a significant draft ruling around Div 7A, which operates to ensure that private companies cannot make tax-free distributions of profits to shareholders or their associates in the form of payments, loans, or forgiven debts. Generally, a private company is taken to have paid an unfranked dividend in the income year if a loan made to a shareholder/associate is not fully repaid before lodgment day. Within private groups, a common practice is for trustees to appoint trust income to a related private company (ie a private company beneficiary). The appointed trust income is then included in the profits of the corporate beneficiary and the company is assessed on its share of the trust net income. However, in some cases, while a private company beneficiary is made presently entitled to income of the trust, that entitlement remains unpaid (ie unpaid present entitlement – UPE), or the trustee will set aside the entitlement amount into a separate sub-trust for the exclusive benefit of the private beneficiary. In its previous substantive ruling on Div 7A and trust entitlements, the ATO took the position that a loan was taken to have been made on any UPEs not called for by a corporate beneficiary unless the funds were held on sub-trust for the beneficiary’s sole benefit. This, it argued is because a Div 7A loan includes the provision of credit or any other form of “financial accommodation” which includes the supply or grant of some form of pecuniary assistance or favour. The new draft ruling outlines the circumstances in which “financial accommodation” applies and differs from the views of the ATO in its previous substantive ruling. Specifically, the new ruling states that the phrase “financial accommodation” has a wide meaning and extends to cases where an entity with a trust entitlement has knowledge of an amount that it can demand and does not call for the payment. For example, “financial accommodation” is said to occur where a private company beneficiary with a UPE, by arrangement, understanding or acquiescence, consents to the trustee retaining an amount to continue using it for trust purposes (i.e. the company has knowledge of the amount that it can demand immediate payment from the trustee and does not demand the payment). In that instance, the private company beneficiary is taken to have made a loan to the trustee under the extended definition of loan in Div 7A. Where a private company beneficiary and the trustee have the same directing mind and will, the private company beneficiary will be taken to have knowledge of the amount that it can demand immediate payment of from the trustee. Therefore, if no payment is demanded, “financial accommodation” will be taken to have occurred. The new draft ruling also covers instances where a trustee sets aside an amount from the main trust and holds it on sub-trust for the exclusive benefit of the private company beneficiary. When the amount is set aside, the trustee’s obligation in respect of the entitlement to distributed income comes to an end and a new obligation arises for the sub-trustee under a separate trust. In that scenario, a choice by a private company beneficiary not to exercise a right to call for the sub-trust to end does not constitute “financial accommodation” in favour of the trustee. However, “financial accommodation” is said to have been provided and thus a Div 7A loan occurs when the private company beneficiary has knowledge of the use of an amount of the sub-trust fund and does not call for payment of that part of the sub-trust fund by the private company beneficiary’s shareholder or their associate. Again, if the private company beneficiary and the trustee has the same directing mind and will, the private company beneficiary is taken to have knowledge of the use of the sub-trust fund when the trustee does.

Get ready for FBT time

Fri, 25 Mar 2022 03:19:19 GMT

The end of the FBT year is approaching once again. Employers who have provided their employees with fringe benefits any time during the 2022 FBT year – 1 April 2021 to 31 March 2022 – will need to lodge a FBT return and pay any liability by 23 May 2022. As an employer, you may not have previously provided employees with fringe benefits. However, the situation may be different for the 2022 FBT year due to COVID-19 related benefits. Many businesses may require employees to test negative to COVID-19 before attending work. This may consist of taking both polymerase chain reaction (PCR) tests and/or rapid antigen tests (RATs). As an employer, if you provide a test to your employee or reimburse them for the cost of a test (whether it be a PCR or RAT test), it could be considered a fringe benefit. There are circumstances in which an FBT exemption under work-related medical screening could be obtained, but that requires the testing to be carried out by a legally qualified medical practitioner or nurse and be available to all employees. However, not all employees need to be tested for the exemption to apply. It only needs to be offered to all employees, even if only some take up the offer. If the provision or reimbursement of COVID-19 tests by your business does not meet the criteria for exemption under work-related medical screening, FBT will need to be paid unless the minor benefits exemption or the otherwise deductible rule apply. For the minor benefits exemption to apply, the tests will have to provided infrequently or irregularly and the cumulative value of the tests provided during the FBT must be less than $300, which may not help those businesses that require a negative test before every shift/work day. In February 2022, the government announced that it will legislate to make COVID-19 testing expense deductible, thus allowing the otherwise deductible rule to be applied to ensure that employers do not incur FBT for tests provided. The legislation to enact this has still not been introduced into Parliament. With the fast-approaching Federal election and the reluctance of the ATO to release detailed guidance before the legislation is enacted this could mean that the otherwise deductible rule is unlikely to apply to COVID-19 tests provided by businesses, at least for the 2021-22 FBT year. Other protective items provided to employees while at work such as gloves, masks, sanitisers and anti-bacterial spray are most likely to be exempt from FBT under the emergency assistance exemption, provided they are given to employees who have physical contact or are in close proximity to customers or clients while carrying out their duties, or those involved in cleaning premises. In other cases, where an employee’s specific employment duties do not either involve physical contact with customers or cleaning, the minor benefits exemption could be applied so no FBT is incurred. Again, the benefit needs to be minor, infrequent and irregular, and under $300. Where a travelling employee was required to self-isolate or quarantine, the costs related to that paid for by the business may not be subject to FBT under the emergency assistance exemption. These and many other COVID-19 specific benefits - such as rewarding employees for getting boosters - and associated exemptions highlight the complexity of the 2022 FBT return for businesses.

Super guarantee minimum threshold removed

Fri, 18 Mar 2022 05:13:55 GMT

Low-income employees should rejoice that the minimum threshold at which an employer has to pay super under the super guarantee scheme will no longer apply from 1 July 2022. Under the current scheme all employers must pay a minimum level of super contributions on behalf of their employees, but only if each individual employee makes more than $450 per month. This is the minimum threshold. It is estimated that around 300,000 people are affected by this minimum threshold, equating to around 3% of all employees. These generally consist of young, lower-income, or part-time workers, skewing towards female workers. Because the threshold applies on an employer level, a disproportionate amount of employees with fewer shifts at multiple jobs are also affected. Example Stuart is studying at university part-time and working part-time with 3 different employers (a café, a clothing retailer, and a book seller). Over the course of a month, Stuart makes $400 before tax with each employer. Even though at the end of the month he has made $1,200 before tax, because his earnings with each employer were below the $450 threshold, no super guarantee amounts would have been made on his behalf to his super fund by his employers. While the original rationale for the minimum threshold was to reduce the administrative burden on employers having to deal with and pay small amount of super guarantee, the digitisation of payroll systems has made the original rationale redundant. Coupled with measures that prevent the erosion of low-balance accounts – such as capped administration and investment fees and insurance changes for inactive accounts – low-income earners, those working part-time and other workers currently under the threshold will have a chance to build their super for retirement. Practically, what this change means for employers is that, from 1 July 2022, regardless of what each individual employee makes each month, that amount of before tax salary and wages will be used as a basis to calculate the amount of super guarantee that the employer is obliged to pay on a quarterly basis. The super guarantee percentage will be 10.5% for the 2022-23 income year (ie 1 July 2022 to 30 June 2023) when the minimum threshold is removed. In the example of university student Stuart, if he continues to make the same amount (ie $400 per month with each employer on an ongoing basis), from 1 July 2022, each of his employers will be required to contribute $42 per month to his super ($400 x 10.5%). If they pay super guarantee on a quarterly basis, Stuart should be getting $378 each quarter in total from all his employers. Over the course of a year, $1,512 in super guarantee contributions will be made to his super fund which he would not have received before the minimum threshold removal.

Downsizer contributions: Age limit change

Fri, 11 Mar 2022 05:33:22 GMT

To help those nearing retirement boost their super balances, those aged 65 and over are able to make downsizer contribution of up to $300,000 from the proceeds of the sale of their home. This measure was originally envisaged as a way to encourage older people get into more suitable homes as well as increase the level of housing stock in a bid to reduce soaring house prices. Downsizer contributions are separate from concessional and non-concessional contributions, which means that amounts contributed do not count towards the contribution caps (ie $27,500 for concessional and $110,000 for non-concessional). However, these amounts will count towards the transfer balance cap which applies when super is moved into the retirement phase. As part of a suite of measures introduced to provide more flexibility for those contributing to super, from 1 July 2022 the age limit for those making downsizer contributions will be decreased to those individuals 60 years or over. Optimistically, the government expects this decrease in age will encourage more older Australians to downsize sooner and “[free] up the stock of larger homes for younger families”. If you or your spouse are thinking of selling the family home to capture a premium, especially in regional areas, besides the age qualification, other criteria that must be satisfied in order to make a downsizer contribution to super include: the location of the home must be in Australia; the home must have been owned by your or your spouse for at least 10 years; the home must not be a caravan, houseboat, or other mobile home; the disposal must be exempt or partially exempt from CGT under the main residence exemption; and a previous downsizer contribution must not have been made from the sale of another home or from the part sale of the current home. The downsizer contribution must be made within 90 days of receiving the proceeds of sale (ie from the date of settlement), and your super fund must be provided with the appropriate downsizer contribution form before or at the time of making the contribution Each individual is able to make the maximum contribution of $300,000, so for a couple, a total contribution of $600,000 can be made. However,, the total contribution amount cannot be greater than the total proceeds from the sale of the home. In instances where a home is owned only by one spouse and is sold, the spouse that did not have ownership is also able to make a downsizer contribution or have one made on their behalf, provided all other requirements are met. There is no maximum age for downsizer contributions. As long as the individual or couple are 60 years or older at 1 July 2022 and satisfy the other conditions, a contribution up to the maximum amount can be made.

Record-keeping education in lieu of financial penalties

Fri, 04 Mar 2022 01:21:58 GMT

The ATO could soon have the power to issue a direction to complete an approved-record keeping course in instances where it believes an entity has failed to comply with tax-related record-keeping obligations in lieu of financial penalties. Legislation has been introduced into Parliament, but not yet passed. Currently, in instances where a business is required to keep or retain records under tax law but fails to do so, it will be liable to an administrative penalty. However, this penalty does not apply to record-keeping obligations related to retention of statutory evidentiary documents under Fringe Benefits Tax. Nor does it apply to record-keeping obligations related to keeping and retaining documents required to substantiate expenses. In addition, the Commissioner also has the power to remit all or part of the administrative penalty imposed. Under the proposed new laws, the Commissioner may issue a tax-records education direction in appropriate situations which will require the appropriate person within a business to take an approved course of education specified by the ATO and provide it with evidence of completion. This will be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps, variations in levels of digital literacy, or where the Commissioner reasonably believes that the entity has made a genuine attempt to comply with their obligations. The tax-records education direction will not be available to those businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will be applied, and if there is evidence of serious non-compliance, criminal sanctions may also be considered by the ATO. Appropriate persons within a business include any individuals that make or participate in making decisions that affect the whole or a substantial part of the business. In the case of sole traders, the individual acting as the sole trader would be the appropriate person to complete any course of education. Businesses that are issued a written tax-records education direction must either complete or arrange for the completion of an approved course before the end of the period specified in the direction. Businesses that fail to comply with a tax-records written education direction either by not completing the course, or not completing the course by the set date will be liable for the original administrative penalty. It should be noted that since some record-keeping obligations under fringe benefits tax and substantiation provisions do not give rise to an administrative penalty, the Commissioner will not be able to issue an education direction in those cases. Similarly, a tax-records education direction will not be able to be issued to an entity that has failed to comply with its record-keeping obligations under the Super Guarantee Act. This is dealt with separately and covered by the super guarantee education direction. The main difference being failure to comply with a super guarantee education direction is an absolute liability offence and results in an administrative liability of 5 penalty units, whereas failure to comply with tax-records education direction attracts no additional penalty.

Temporary full expensing of assets extended

Fri, 25 Feb 2022 03:45:11 GMT

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Contributions into SMSFs: minimum standards

Fri, 18 Feb 2022 03:19:03 GMT

Trustees of self-managed super funds (SMSF) should be aware that there are minimum standards for accepting contributions from members. Broadly, whether a contribution can be accepted depends on the type of contribution, the members’ age, certain caps, and whether or not the fund has the TFN of the member. When a member joins an SMSF, they need to provide their TFN, which will then need to be passed on to the ATO through the registration process. It should be noted that by law, a member is not required to provide their TFN. However, if the TFN is not provided, the fund cannot accept certain member contributions, including personal, eligible spouse contributions, and super co-contributions. Employer contributions including salary sacrifice contributions or other assessable contributions may be liable for additional income tax of 32% on top of the 15% tax already paid. As the trustee you must ensure that the correct TFN for members are reported to the ATO. If you do not know a member’s TFN, you cannot report an exemption code such as 444 444 444. According to the ATO, the use of exemption codes is intended as an exemption from withholding tax on interest and other investment income by banks/investment bodies and not for when an SMSF member has not provided a valid TFN. In circumstances where the SMSF mistakenly accepts a contribution it should not have, the fund must return it within 30 days of becoming aware of the error. The 30-day limit is a grace period allowing the fund to remove the contributions from the super system without breaching the payment or contribution rules. Failure of the SMSF to comply with the time limit does not affect the fund’s legal obligation to return contributions. Even if a member has provided their TFN, the type of contribution combined with the age of the member can affect what is acceptable. For example, mandated employer contributions such as super guarantee contributions from a member’s employer can generally be accepted at any time, regardless of the member’s age or the number of hours they work. Non-mandated contributions largely cannot be accepted if members are 75 years or older. Non-mandated contributions include the following: contributions made by employers over and above super guarantee or award obligations (ie salary sacrifice contributions); and member contributions, including personal contributions, downsizer contributions, super co-contributions, eligible spouse contributions and contributions made by a third party such as an insurer. Lastly, there are restrictions on when an SMSF can accept an asset as a contribution from a member. These are referred to as “in specie contributions” which are just contributions to the fund in the form of a non-monetary asset. Generally, an SMSF must not intentionally acquire assets (including in specie contributions) from related parties to the fund; however, there are exceptions for listed shares and other securities, as well as business real property.

COVID-19 tests may be deductible?

Fri, 11 Feb 2022 05:32:06 GMT

After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of Polymerase Chain Reaction (PCR) tests at many testing sites, the government is hoping for some good press with the announcement that they will legislate to make both PCR tests and RATs tax deductible where they are purchased for a work-related purpose. According to the government, deductibility of tests will take effect from the beginning of the 2021-22 tax year (ie starting 1 July 2021) and will be ongoing. Individuals will also be able to deduct the cost of the test regardless of whether they are required to attend the workplace or has the option to work remotely. How individuals will benefit from this proposal depends on their individual tax rate. As a simple example, assuming that there are 249 working days in a year and that each RAT costs $20, if an employee was required to take a RAT every day that they work, the total cost over the year would be $4,980. If that employee makes the minimum wage rate of $20.33 per hour and works 7.5 hours each day then their yearly before tax income would be $37,966. Based on that before tax income, the individual would usually have to pay around $3,755 in tax. If the deduction for the COVID-19 test was included, it reduces the tax paid to $2,809. A tax saving of $946 to the individual. However, given that the initial outlay for the entire year was close to five thousand dollars, it certainly won’t have the same monetary effect as giving essential and hospitality workers free tests. For businesses that are able to obtain enough RATs for their workforce, the government has also proposed that COVID-19 tests provided by employers to employees will be exempt from FBT, if they are used for work-related purposes. This essentially means that the tests will be excluded from the definition of a fringe benefit and employers do not have to pay FBT on the costs of the tests given to employees in a work-related context. With the Federal election fast creeping up, there are very few Parliamentary sitting sessions left where this proposal can be introduced and passed. A possible change in government may mean that this proposal remains just that, a proposal. There is uncertainty as to whether a Labor government would champion this measure, in particular due to their election pledge of providing free RATs to all Australians through Medicare. With all this in the background, the ATO has not provided any detailed advice or guidance on the practical aspects of this proposal. It notes that as these measures are not yet law, in the interim, it is recommended that individuals and/or businesses that have incurred expenses for COVID-19 tests should keep a record of the expenses (ie receipts or other documentary evidence of purchase), should they be able to deduct it in the future.

SMSFs investing in crypto-assets

Fri, 04 Feb 2022 05:35:10 GMT

Current record low deposit rates and volatility in stock markets around the world has motivated many retirees to seek alternative asset classes to either protect their investments or get a higher return. In conjunction with these sentiments, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many recommending switching from retail or industry super funds in order to do so. While promoters of these investments often bill them as high return and low risk, that is far from the truth. ASIC has recently issued a warning to SMSF trustees on the nature of crypto-assets which it says are a high risk and speculative, in addition to being an attractive target for scammers. For example, late last year, ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained from investors was allegedly used by the directors of the business for personal benefit, including acquiring real property and luxury vehicles in their personal names. Professional advice should be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose test”. Remember, trustees bear all the responsibility for the decisions of the SMSF complying with the law, and breach or non-compliance may lead to administrative or civil and criminal penalties. This is the case even if you as the trustee rely on the advice of other people, licensed or otherwise. SMSFs are not generally prohibited from investing in crypto-assets, if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you are able to do so. Although, consideration must be given to the following factors: fund's governing rules – trustees need to ensure that any investments in crypto-assets are allowed under the SMSF’s deed; investment strategy – documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity, and ability of the fund to discharge its liabilities. Trustees need to consider the level of risk of the crypto-assets invested in, and review/update the fund’s investment strategy to ensure the investment being considered is permitted; ownership and separation of assets – crypto-assets must be held and managed separately from any personal or business investments of trustees and members. The SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”; and valuation – SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances. In addition, other considerations include restrictions on related-party transactions (ie if you currently own crypto-assets and want to transfer it to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occur upon a condition of release.

Tax debts may affect business credit score

grahamelba@gmail.com (Grahame Allen) — Fri, 28 Jan 2022 04:55:39 GMT

If your business has had issues paying your tax debt due to the ongoing effects and uncertainty surrounding the COVID-19 pandemic, remember that the best option is to engage with the ATO to manage those debts. Failure to get in touch with the ATO to come to an arrangement will not only affect the potential penalties imposed, but may also your business’ credit score. By way of background, laws were passed in 2019 which allow ATO to disclose overdue business tax debts to credit reporting agencies including Equifax, Experian, and Illion. The laws were originally promoted as a way to support businesses to make more informed decisions around dealings with various parties by making overdue tax debts more visible. The flow-on effects from that include reducing unfair financial advantage obtained by businesses that do not pay their tax on time, and encouraging businesses to engage with the ATO to manage their tax debts to avoid having those debts disclosed. To protect taxpayers, the laws passed contained safeguards in that not all ATO debts can be disclosed and only those business debts that meet the following criteria may qualify for disclosure: the business has an ABN and is not an excluded entity (ie excluded entities include deductible gift recipients, a complying super funds or SMSFs, registered charities, and government entities); the business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days; the business operators have not engaged with the ATO to manage the debt; there is no active complaint with the Inspector-General of Taxation and Tax Ombudsman regarding the ATO’s intent to report tax debt information. Even if your business debt satisfy the above criteria, the ATO may still have the discretion to not report the debt information to credit reporting agencies where you may be experiencing exceptional circumstances. These include, but are not limited to, family tragedy, serious illness, impact of natural disasters etc. If you believe your business has been impacted by one of more of these exceptional circumstances, the ATO will assess your claim on a case-by-case basis. It should be noted that the ATO does not consider cash flow issues nor financial hardship to be “exceptional circumstances”, although it still recommends taxpayers that are experiencing these issues to initiate contact as soon as possible to discuss debt management options. Before any debt is disclosed to credit reporting agencies, the ATO will be required send your business a written notice confirming its intent to report the debt information, the criteria that your business has met, and the debt information that will be disclosed. The letter will also outline the steps which the business can take to avoid having the tax debt reported and will need to be taken within 28 days of receiving the notice. Taxpayers that believe the ATO has made a mistake or disagree with the disclosure decision are advised to contact the ATO immediately upon receiving the notice.

COVID-19 vaccination rewards: tax implications

grahamelba@gmail.com (Grahame Allen) — Fri, 21 Jan 2022 04:17:23 GMT

With most of Australia and the world still in the grips of the COVID-19 pandemic, many businesses, both public and private, are offering rewards and incentives for their employees to get vaccinated and/or get the booster dose. Depending on the type of reward or incentive offered, and whether it is exclusive to employees or the general public, there may be tax consequences for the business.

Non-cash benefits provided to the general public: Businesses that provide free or discounted goods, services, vouchers, gift cards, rewards points, or other non-cash benefits (eg entries into a draw to win prizes) to everyone that has had their COVID-19 vaccinations will not be subject to FBT, even if employees take part in the program. This is because the benefit is not provided in respect of the employee’s employment. “Public” in this case denotes both public in general, and a section of the public (ie all members of a particular club).

Non-cash benefits provided to employees: Providing non-cash benefits to employees such as goods and services, vouchers and gift cards, or points in a rewards scheme may be subject to FBT. However, a benefit that has a value of less than $300 may qualify for a minor benefits exemption subject to meeting certain criteria. In the event that the non-cash benefit provided to employees does not qualify for the minor benefit exemption, your business may be entitled to a reduction in taxable value of FBT if the benefit is an in-house benefit. Businesses can reduce the aggregate taxable value of these benefits by $1,000 if the benefits are not provided under a salary packaging arrangement. If you provide transport or pay for an employee’s transport to get their COVID-19 vaccination or booster, the travel would be considered to be work-related preventative health care and is exempt from FBT. For businesses that offer their employees entry into a draw to win prizes as a reward for vaccination, there will be no FBT consequences when the entry to the draw is given to the employee, however, FBT may apply when the winner receives their prize unless an exemption or reduction applies. Cash payments If your business gives your employees a cash payment for getting vaccinated, you’ll need to report the payment via Single Touch Payroll (STP) as part of the employee’s salary or wages, withhold tax from the amount under PAYG withholding, and include the amount in your employee’s ordinary time earnings for the purposes of determining super contributions for your employee. According to the ATO, businesses that have already made cash payments to their employees and have inadvertently failed to withhold tax, should make contact with it as soon as practicable to facilitate the possible remission of any failure-to-withhold penalties. In addition, it reminds businesses that super contributions on cash payments should be made no later than 28 days after the end of the quarter in which the payment was made, otherwise super guarantee charge may apply.

ATO tax gap and beyond

Fri, 17 Dec 2021 05:20:10 GMT

Since the heady days of 2012, when the ATO published its first tax gap estimates by releasing the GST and LCT (luxury car tax) gaps, the latest figures released by the ATO encompass every income and transactional tax as a measure of the total tax performance of the system. The most recent overall estimate of tax performance is around 92.7% which means that the ATO received 92.7% of the total tax revenue that should be reported according to current law, equating to around $428bn. This in turn means that another 7.3% or $33.5bn was not collected, which is the tax gap (ie the amount not correctly reported under current law). This figure varies according to different markets, and different types of taxes. For example, while most indirect taxes perform at more than 90%, FBT tax performance is under 80%. Similarly, large and medium business tax performance hover at around the 92% lodgment mark, which is noticeably lower compared to individuals. Now that the ATO has consistently estimated the tax gap data, it notes that the next logical step is “beyond tax gap thinking” which involves the use the operational intelligence to determine the changes that need to be made to improve tax performance. Currently, this is done by inspecting the building blocks of each gap closely to get a clearer picture of how the ATO’s actions impact on the performance of the tax system and more importantly, how sensitive performance is to the action and inaction of the ATO. To realise this beyond gap thinking, the ATO has developed 4 new concepts: maximum tax performance (or addressable gap) – is the theoretical maximum revenue that could be collected within the current legislative framework and plausible levels of resourcing. baseline tax performance (or gap at risk) – is the performance that would result if the ATO reduced its investment and strategies to a baseline investment. aspirational tax performance – is the performance the ATO is targeting through its strategies and resourcing. tolerable tax performance – is the bare level of performance acceptable to stakeholders in the tax system. The ATO hopes that this strategy will help set not only the optimal investment across each of the gaps to drive towards the aspirational gap in each market and type of tax, but also with the best knowledge of the areas that it can disinvest without significant disruption to the tax system. The challenge now, according to the ATO is to reduce the income tax gap which requires performance improvements across all segments. It notes that short-term success will see the tax gap component decrease and a commensurate increase in amendments. Long-term success will be accompanied both a reduction in the tax gap and amendments but more than offset by an increase in voluntary payments. This will represent a system where the correct amount of tax is correctly reported to the ATO at lodgment.

Are cryptocurrency losses from scams deductible?

Fri, 10 Dec 2021 05:36:21 GMT

With the recent collapse of a second Australian cryptocurrency exchange in as many months, along with persistent reports of a range of sophisticated cryptocurrency scams targeting Australians, many cryptocurrency owners are asking if you lose money in a scam can you deduct the loss? The short answer is it depends. Scamwatch, a part of the ACCC (Australian Competition and Consumer Commission), estimates that Australians lost over $70m in investment scams in the first half of 2021. Of this $70m, around half, or $35m were lost to cryptocurrency, especially Bitcoin. Cryptocurrency scams were also incidentally the most commonly reported type of investment scam in 2021, with around 2,240 reports. Cryptocurrency scams can come in a variety of forms, the most common being impersonation, where scammers pretend to be from a reputable trading platform and have a legitimate-looking digital assets (eg fake trading platforms which look like the real thing, email addresses that approximate a genuine company they are impersonating etc) to lure investors in. Investors who fall into this trap will usually see the initial money they invested skyrocket on fake trading platforms and may even be allowed to access a small return. Once hooked, the scammers will ask for further investments of large sums of money before cutting off contact and disappearing completely. So, back to the original question of can you deduct a loss? It all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely that are able to claim a capital loss. Similarly, this would also apply if the cryptocurrency you own is stolen in a scam. According to the ATO, to claim a capital loss on cryptocurrency, you may need provide the following kinds of evidence: when the private key to the cryptocurrency was acquired and lost; the wallet address that the private key relates to; costs incurred to acquire the lost or stolen cryptocurrency; amount of cryptocurrency in wallet at the time of loss of private key or access; able to show that the wallet was controlled by you (ie transactions linked to your identity) and that you are in possession of the hardware that stores the wallet; and transactions to the wallet from a digital currency exchange for which you hold or held a verified account or is linked to your identity. For those individuals that have been scammed into investing in cryptocurrency, although no actual cryptocurrency ownership occurred, it is unlikely that deduction can be claimed, capital or otherwise. This is because you have not technically lost an asset as you did not own it in the first place and under tax law, money is not considered to be a CGT asset.

Building delays may cost you in more ways than one

grahamelba@gmail.com (Grahame Allen) — Fri, 03 Dec 2021 05:18:00 GMT

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Overview of small business CGT concessions

Fri, 26 Nov 2021 05:25:42 GMT

If you’re a small business owner and the pandemic has made you reassess your future, whether it be retirement or selling your business and starting afresh somewhere else, just remember that there may be capital gains tax (CGT) consequences to such a move. However, the tax law does provide four concessions to enable eligible individuals to eliminate or at least reduce the capital gain on a CGT asset provided certain conditions are met. To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6m (ie the net value of assets owned by the business and related entities), or failing that, the business must qualify as a CGT small business entity. The definition of a CGT small business entity is essentially the same as a small business entity except that the aggregated turnover threshold to qualify is $2m and not $10m. In addition, the CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. It should be noted that shares in a company or trust interests in a trust can qualify as active assets although additional conditions may apply. Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another to completely eliminate the entire capital gain in some cases. The concessions consist of the following: 15 year exemption – the business may be entitled to a total exemption on a capital gain if the asset has been continuously owned for at least 15 years up to the time of the CGT event. 50% reduction – the business may be entitled to an automatic 50% reduction of a capital gain if the basic conditions are satisfied, and the asset does not have to held for more than 12 months. retirement exemption – a business that is an individual, company or trust, may be able to choose to disregard all or part of a capital gain made from a CGT event, up to a lifetime limit of $500,000. roll-over concession – a business can choose to roll-over all or part of the capital gain and then acquire a replacement asset if the basic conditions are met. In the event a replacement asset is not acquired within the required timeframe, the rolled over capital gain will be reinstated. The 15 year exemption takes precedence over the other concessions listed and is applied without first having to use prior year capital losses. If the 15 year exemption cannot be applied, then depending on the circumstances of the capital gain, the other concessions can be used in any order to reduce the amount of tax payable.

ATO concerns on luxury car tax

grahamelba@gmail.com (Grahame Allen) — Thu, 18 Nov 2021 05:19:37 GMT

Businesses and individuals that sell cars in the course of their business over a certain threshold (the luxury tax threshold) is subject to luxury car tax (LCT). This is a requirement if your business is registered or required to be registered for GST. LCT doesn’t just apply to instances where a dealer is selling a car to an individual or a business, it also applies in instances where a business sells or trades in a car that is a capital asset. For the 2021-22 financial year, the luxury car threshold is $79,659 for fuel efficient vehicles and $69,152 for all other vehicles. This means that if your business buys a car with a GST-inclusive value above these thresholds, you are liable to pay LCT except in certain circumstances. If you’re the seller of a luxury car, whether or not it is within your usual course of business, you’re required to charge LCT to the recipient and report the associated LCT amount in your BAS and remit the requisite amount to the ATO by the due date for BAS payment. You cannot avoid LCT by selling a luxury car to an employee, associate, or an employee of your associate for less than the market value, or by giving it away for no consideration. The LCT value of the car in that instance will always be the GST-inclusive market value. The ATO is currently investigating arrangements where a chain of entities that progressively on-sell luxury cars improperly obtains LCT refunds and evades remitting LCT to the ATO. Usually, in this arrangement, one of the entities will claim a refund of LCT while creating a consequential liability to another entity in the supply chain. Following on from that, one or more of the participating entities down the chain, referred to as a “missing trader” will not correctly report and pay their purported LCT liabilities to the ATO. These entities will then be liquidated to thwart ATO compliance or recovery action. While the primary concern is the evasion of LCT, these arrangement also concern the ATO as it has the potential to result in luxury cars being sold without income tax and GST obligations being met. For example, luxury cars could be sold to end users at more competitive prices, with generally higher profit margins due to the intentional avoidance of tax obligations and false refund claims. This would in turn economically affect legitimate businesses that are meeting all their tax obligations Being aware of these potential illegal practices, the ATO notes that it is engaging with taxpayers to ensure that all parties have correctly met their LCT, GST, and income tax obligations. It warns that it has sophisticated systems in place to identify high risk LCT refunds which will be withheld pending adequate reviews. Further, in high risk cases, the ATO said it will scrutinise contractual obligations that arise under each sale in the supply chain to ensure compliance.

Up and coming changes to super

grahamelba@gmail.com (Grahame Allen) — Fri, 12 Nov 2021 04:45:41 GMT

The government has recently introduced a raft of superannuation and related changes that will affect retirees, first home buyers, and low earning employees. Each of the changes are explained in detail below. Changes to work test and bring-forward rule Under the current law individuals aged between 67 and 75 will either need to pass the work test or satisfy the work test exemption criteria if they want to make non-concessional and salary sacrifice contributions. The proposed amendments will allow individuals aged between 67 and 75 to make non-concessional contributions and salary sacrifice super contributions without meeting the work test, subject to contribution caps. Following on from that, individuals under 75 years of age will also be able to access the bring forward non-concessional contributions in a particular financial year (provided eligibility conditions are met). The age limit to bring forward non-concessional contributions is currently 67. Note, under these proposed amendments the work test or work test exemption would still need to be met if individuals between 67 and 75 wants to claim a deduction for personal contributions. Downsizer contributions age to be lowered Downsizer contributions allows individuals aged 65 or over to make a contribution into their super of up to $300,000 from the proceeds of selling their home. With the introduction of amending legislation, the government is seeking to reduce the age limit of the downsizer contributions to apply to those aged 60 or over. It is expected to apply to downsizer contributions made on or after 1 July 2022, subject to all other eligibility conditions being met. Increase in maximum releasable amount for first home buyers The First Home Super Saver Scheme was designed to help first home buyers save for a deposit by allowing them to make voluntary concessional and non-concessional contributions into super and later withdrawing those eligible contributions and associated earnings for purchasing a home. Currently, the maximum amount that can be released from super is $30,000. This maximum amount will increase to $50,000 which will apply from the day after the amending legislation receives Assent. Note, however, while the overall maximum amount will increase, the amount of voluntary contributions eligible to be released in any one financial year does not change from $15,000. Removing minimum threshold for super guarantee Currently, an employer do not have to pay super guarantee for one of their employees if they earn less than $450 in in a calendar month with that employer. The $450 threshold was originally introduced as a way to minimise the administrative burden on employers. However, with the technological advancement of single touch payroll, the government no longer sees a need for the threshold, which is increasingly affecting young, lower-income, part-time, and female workers. Depending on when the legislation receives Assent, the threshold will either be removed from 1 July 2022 or if it is after that date, from the beginning of the first quarter after Assent is received.

ATO’s use of the GST Analytical Tool

grahamelba@gmail.com (Grahame Allen) — Thu, 11 Nov 2021 05:15:02 GMT

The ATO has recently released details of one of its tools used to obtain assurance that business taxpayers are paying the right amount of GST, called the GST Analytical Tool (GAT). This tool uses a standard method statement applying a top down approach to identify and understand variances between accounting figures reported in financial statements, and GST figures reported in Business Activity Statements (BASs). The GAT provides the ATO with an understanding of the reasons for the differences between accounting and GST figures as well as verifying them with objective evidence. In essence, it is providing ATO with a holistic view of the business, and assurance that the correct amount of GST is being paid relative to the economic activity reported. Although at this stage the ATO is only seeking to apply GAT to the Top 100 and Top 1000 GST assurance programs, the general principle of the analytical tool could be applied to any other sized taxpayer to obtain assurance that the correct amount of GST is being paid. In respect of the Top 1000 GST assurance program, the GAT will be used mostly for taxpayers that predominantly make taxable supplies. Taxpayers in the insurance and property sectors or those with very complex structures will be considered on a case by case basis by the ATO. For the time being, the ATO notes that industries which are predominantly input-taxed will be excluded from applying the current GAT. According to the ATO, it will seek to apply GAT at an early stage in any GST assurance review to provide an informed basis to drive the program, therefore, the GAT will not be looked at as a standalone measure. The process begins with the ATO obtaining figures from both the BASs lodged and the financial statement performance (prior to adjustments). Adjustments are then made consisting of grouping variances, exports, GST-free sales, input-taxed financial supplies, sale of fixed assets, accrued and/or deferred income, and any other adjustments which may affect GST (ie rebates etc). An effective GST expense rate is then calculated after the adjustments to work out the effective GST sales rate, effective GST expenses rate, and the effective net GST rate, as well as any unexplained dollar value variances. In this process, where all the variances can be explained, a “Stage 3 rating” will be achieved. This is predicated on many factors including the extent which adjustments can be assured directly from audited financial statements or GL codes in trial balances that are mapped to financial statements which could form the basis of sample testing. In the course of a review, where there are adjustments that are difficult to support with objective evidence, the ATO notes it will seek to understand how the figure is derived and expect to see the calculations behind it. In cases where that approach is not possible, it will work with the taxpayer to agree on the most appropriate approach, as according to the ATO, the GAT process is collaborative.

New data matching program: government payments

grahamelba@gmail.com (Grahame Allen) — Fri, 29 Oct 2021 04:55:26 GMT

A new data matching program is underway in relation to government payments for the 2018-19 to 2022-23 income years. While it may sound boring, if you dig underneath its innocuous exterior, you’ll find that this program covers a wide range of areas. In essence, it covers most services that the Commonwealth government pay third party providers to deliver in relation to the programs they administer. Specifically, data will be obtained from the agencies below in relation to the following programs: Comcare – services provided under Safety Rehabilitation and Compensation Act 1988; Department of Education, Skills and Employment – VET FEE-HELP scheme, VET student loans program, child care subsidy, and employment services; Department of Health – aged care subsidy, hearing services program, Commonwealth home support program; National Disability Insurance Agency – National Disability Insurance Scheme (NDIS); National Indigenous Australian Agency – Indigenous Advancement Strategy; Department of Home Affairs – youth transition support services, national community hubs, humanitarian settlement program, Australian cultural orientation program, adult migrant English program, free translating service, and settlement engagement and transition support program; Department of Veterans’ Affairs – health treatment program; and clean energy regulator – large-scale renewable energy target and small-scale renewable energy scheme. According to the ATO, the data obtained will be incorporated into the methodologies by which it selects taxpayers for engagement activities. It notes that the data collected will also enhance the information currently received from government entities through the Taxable Payments Annual Report. This means that contactors, subcontractors, and consultants in any type of business structure (ie sole trader, company, partnership or trust) that receive payments from government under any of the above programs may be subject to extra scrutiny. For individual service providers as well as sole traders, basic details collected will include name (first and last), DOB, addresses (residential, postal, etc), ABN, service type, email address, and contact number. For entities, basic details collected will include service provider business name, addresses (business, postal, registered, etc), ABN, ACN, organisation or service type, contact name, email address, and contact number. Details of the payments obtained under the program consist of service provider ID, name of service, type of service (linked to program), value of payments received for the relevant financial years, count and type of claim, and withholding and re-credit amount. It is estimated that 36,000 service providers will be captured under this program each financial year, of that, approximately 11,000 will be individuals and the rest will be companies, partnerships, trusts, and government entities. The ATO will be checking the registration obligations of third party providers (ie ABN, TFN, GST, and PAYG withholding) as well as lodgment obligations (ie outstanding income tax, BAS, FBT returns). It will also be looking at whether service providers have correctly reported income by comparing the data obtained against income records. In addition, the ATO will also be checking for any outstanding tax and super debts and assessing the ability of the entity to pay those debts.

Deadline for Director Identification Number applications

grahamelba@gmail.com (Grahame Allen) — Thu, 28 Oct 2021 04:16:29 GMT

The Director Identification Number regime came into force late in 2020 as a tool for the government to reduce phoenixing and black economy activities. Broadly, the regime will require all directors to confirm their identity with the ATO, at which time they will be issued a unique identifier. This identifier will then be permanently linked to the individual even if they cease to be a director. While this regime was introduced in late 2020, the government has recently introduced an instrument that extends the time available for persons who are eligible officers immediately before the commencement of the director identification number obligations to apply for a director identification number (DIN). Individuals that operate under the Corporations Act and became a director on or before 31 October 2021 are required to apply for a DIN before the end of the transitional period, which is between 4 April 2021 to 30 November 2022. Directors operating under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 and became a director on or before 31 October 2021 will have even more time, these individuals will have until the 30 November 2023 to apply for a DIN (the transition period is 4 April 2021 to 30 November 2023). Any individuals that are appointed directors between 1 November 2021 and 4 April 2022 will have within 28 days of appointment to apply for the DIN and from 5 April 2022, individuals seeking to become directors will need to apply for a DIN before their appointment. It is envisaged 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. It will also assist regulators to investigate a director’s involvement in what may be repeated unlawful activity including illegal phoenixing. ASIC and external administrators will also benefit by saving time and money as the DIN will make it simpler to track the corporate history of various directors and assist liquidators improve the efficiency of the insolvency process. In addition, the DIN is also expected to protect individuals against the fraudulent use of stolen identities to set up companies, and improve overall data integrity and security. To prevent abuse of the regime, any conduct that would be considered to undermine the DIN requirement will be subject to civil and criminal penalties. This includes deliberately providing false identity information, intentionally providing a false DIN, or intentionally applying for multiple DINs. Although we’re currently in the transitional period, directors don’t need to do anything yet. At the moment, the ATO is testing the new DIN application process in private beta to ensure the new system works as intended. It notes that once the testing process is complete, directors will be able to use the new Australian Business Registry Services (ABRS) online services to register.

Directors of private companies: tax return lodgment

grahamelba@gmail.com (Grahame Allen) — Fri, 22 Oct 2021 04:11:36 GMT

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As tax time 2021 draws to a close, the ATO has issued a reminder specifically to directors of private companies. It has noticed through data-matching activities that many directors of private companies has either not lodged their tax returns or have not reported the correct amount of income received from the company in their tax return. Remember, any amounts that you derive as the director of a private company should be included under the “Allowances, earnings, tips, directors fees etc” category and not in the salary and wages category. If you have wrongly included your director’s fees in the salary and wages category of the tax return instead of the directors fees category, or have inadvertently forgotten to include the director’s fee entirely, an amendment can be lodged easily and quickly, either through ATO online services or through a tax professional. You will generally need to wait until you receive notification that your original tax return (or any amendments) have been processed before lodging (another) amendment to avoid processing delays. If the amendment increases the amount of tax you owe the ATO, it will be treated as a voluntary disclosure. Individuals generally have 2 years from the day after the original notice of assessment was sent to submit an amendment to their tax returns. However, in this instance, you’ll need to act fast, the ATO will soon be commencing lodgment reviews for company directors identified as not lodging their returns for either the current or prior years, and/or not reporting the correct amount of income. It will also be reviewing the “connected entities” of these company directors. According to the ATO, those directors that come forward voluntarily to make a disclosure will have certain penalties reduced. For example, if you prepare and lodge your own returns but are not able to make the 2020-21 lodgment deadline of 31 October 2021, you may be liable for a Failure to lodge (FTL) on time penalty. The penalty is calculated at the rate of one penalty unit ($222) for each period of 28 days (or part thereof) that the return is overdue, up to a maximum of 5 penalty units (ie $1,110). According to the ATO, this penalty is only applied in isolated cases of late lodgment and a warning will be issued either by phone or in writing that you’ve failed to lodge before the penalty is applied. If you’re unlucky enough to receive a FTL penalty notice, a remission can be requested either in full or in part where there are extenuating circumstances (ie in cases of natural disaster or serious illness). Other penalties such as the general interest charge, shortfall interest charge, false or misleading statement penalties, etc may also apply in circumstances where there is an increase in tax you owe the ATO and no voluntary disclosures have been made.

COVID-19 relief for SMSFs extended

Wed, 13 Oct 2021 21:18:10 GMT

Due to the ongoing economic impacts of COVID-19 on large parts of Australia, in particular those States and Territories which have had to endure lengthy lockdowns throughout the year, the ATO has announced the extension of various COVID-19 relief for SMSF trustees to the 2021-22 financial year. The relief previously only applied to the 2019-20 and 2020-21 financial years. To be a complying super fund and receive tax concessions, SMSFs must be an "Australian super fund" at all times during the year. This requires, among other things, for the central management and control of the SMSF (ie individual trustees, or directors of a corporate trustee) to ordinarily be in Australia. The fund will still meet this requirement even if its central management and control is temporarily outside of Australia for up to 2 years. Obviously, with the Australian borders pretty much closed during the entirety of the pandemic, and many other countries imposing travel bans, some individual trustees or directors of a corporate trustee may be stranded in another country over the 2 year limit through no fault of their own. In these situations, provided there are no other changes in the SMSF or in the circumstances of the individual trustee (or directors of the corporate trustee) affecting other residency conditions, the ATO has indicated it will not apply compliance resources to determine whether a fund meets the residency test. If your SMSF or a related party has continued to provide rental relief based on the current market conditions, whether it be a rental reduction, waiver or deferral to a tenant, the ATO will provide relief in the form of not taking any compliance action against the fund. However, this is predicated on the rental relief being offered on commercial terms and having proper documentations with regards to the arrangement. The ATO notes that not taking compliance action is only an interim measure. In due course, it will be making a Determination similar to the one made last year to ensure that rental deferrals offered by SMSFs or related parties to a tenant does not cause a loan or investment to be an in-house asset in the current and future financial years. For loan repayment relief provided by SMSF to a related or unrelated party due to the financial impacts of COVID-19, where the relief is offered on commercial terms and the changes to the loan agreement are properly documented, the ATO will provide relief on similar terms as the interim rental relief (ie it will not take any compliance action against the fund). This will also apply to limited recourse borrowing arrangements. Lastly, where an SMSF exceeds the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, trustees must still prepare a written plan to reduce the market value of the fund's in-house assets to below 5% by 30 June 2022. However, the ATO said it will not take any compliance action where the plan has not been executed by the due date (ie 30 June 2022) as a result of the market not having recovered, or in some cases the plan may be unnecessarily owing to the recovery of the market.

Medium and emerging private groups ATO program

Wed, 06 Oct 2021 21:17:19 GMT

The ATO runs many compliance programs targeting privately owned and wealthy groups, while the majority of the attention is focused on the "Top 500 private groups tax performance program" and the "Next 5,000 private groups tax performance program", little or no attention has been paid to the "Medium and emerging private groups tax performance program". The medium and emerging private groups program is a part of the work of the Tax Avoidance Taskforce, which has been funded by the government to operate until the 2022-23 income year. According to the ATO, in the 2020-21 income year, the taskforce helped to raise approximately $1.5bn in tax liabilities from privately owned and wealth groups. Specifically, the medium and emerging private groups program targets private groups linked to Australian resident individuals, who, together with their associates, control wealth of between $5m and $50m. It also covers businesses with an annual turnover of more than $10m that are not public or foreign owned and are not linked to a high wealth private group. The low threshold of $5m of "wealth" coupled with the current high property prices means that many business owners may not even know that they and their associates could be targeted under this program. The ATO uses sophisticated data matching, data mining and analytic models to identify "wealthy" individuals and link them to associated entities, which it then looks at as a whole. It notes that this group approach enables it to understand businesses better including allow it to focus on specific entities when necessary. The process of identifying a group includes connecting entities that are under the effective control of an individual and their associates, this includes companies, trusts, partnerships, and SMSFs. Effective control is defined as where an individual/associates has the primary decision-making role for the group. Once the ATO has identified a group, it uses analytics to identify trends and priority risks specific to the sector, which it then uses to tailor its approach and develop strategies to mitigate these tax risks. This is done by using early engagement and pre-lodgment agreements for commercial deals to provide certainty on significant transactions and events, as well as conducting risk-based reviews and audits, where appropriate. Generally, the ATO will be focusing its attention on larger or higher risk private groups and entities, as well as those private groups experiencing rapid growth, looking to expand offshore, or where controlling individuals are transitioning to retirement. However, it will also be looking at specific topics for various entities for example, companies inappropriately applying the lower company tax rate either when ineligible as a base rate entity, or through artificial or contrived arrangements (ie restructures or income shifting). In addition to the compliance and enforcement activities, the ATO notes that it will also use the intel collected to publish public advice and guidance on significant or important issues faced by medium and emerging private group to enable to best decision to be made by the controllers.

Self education expense threshold to be removed

Wed, 29 Sep 2021 23:00:00 GMT

With the introduction of a recent Bill, the government is finally following through on its promise to remove the $250 non-deductible threshold for self-education expenses. While self-education expenses are generally deductible if there is a sufficient connection with the taxpayer's income producing activities, the amount of deduction is currently limited by s 82A of the ITAA so that only the excess over $250 may be deductible. This $250 non-deductible threshold has a long history, it was first introduced in 1975 alongside a concessional tax rebate of $250 for expenditure on self-education. In effect, the non-deductible threshold was designed to ensure that taxpayers do not claim both the tax rebate and get a tax deduction for the same set of education expenses. However, the concessional rebate was repealed in 1985, but the non-deductible threshold illogically remained, and it has only taken the government 36 years to get around to removing it. The non-deductible threshold currently applies to expenses of self-education necessarily incurred by an individual for or in connection with an organised course of education provided by a school, college or university, on a full or part time basis. Some expenses that are not considered to be generally deductible may still be expenses of self-education and may reduce the non-deductible threshold. For example, childcare costs related to attending self-education activities are not generally deductible as they are considered to be private or domestic, but may reduce the non-deductible threshold up to the $250 limit. Following the removal of the non-deductible threshold, individuals can continue to claim self education expenses if the expense is incurred in gaining or producing assessable income, the expense is not private, domestic or capital in nature, and the deduction is not prevented by legislation. Therefore, it is expected that the current deductibility standards will continue to apply. For example, expenses incurred in maintaining or improving a taxpayer's skills and knowledge in their present occupation should be deductible, particularly if they are likely to lead to a pay increase, but childcare costs can no longer be claimed. Similarly, self education expenses incurred before commencing an occupation or to obtain a new occupation will likely remain non-deductible. The repeal of $250 non-deductible threshold will also not affect the types of self-education expenses that are deductible. For example, the costs of textbooks, stationery, and professional journals will still be deductible, while certain student contributions and payments to reduce HELP, financial supplement and other higher education debts will remain non-deductible. For taxpayers claiming self-education expenses after the removal of the non-deductible threshold, records of deductible self-education expenses will still need to be kept but records no longer need to be kept for any non-deductible self education expenses that was used to offset the non-deductible threshold. Remember, the amendment is not yet law, therefore, the current non-deductible threshold will continue apply until the Bill passes Parliament and receives Royal Assent.

New stapled super changes coming for employers

Wed, 22 Sep 2021 23:00:00 GMT

Employers beware, from 1 November 2021, if you're hiring new employees, there may be an extra step involved in determining which super fund employee contributions need to be paid into. Currently, when a new employee starts a new job, they are eligible to choose the super fund that their super guarantee contributions go to. If they do not choose their own fund, the super contributions will be paid into the employer's default fund. With the passing of recent legislation to make it easier for employees to take their existing super funds with them when they move jobs, from 1 November, if a new employee doesn't choose a super fund, employers may be required to request their "stapled super fund" details from the ATO. A stapled super fund is essentially an existing super account which is linked or "stapled" to an individual and follows them throughout their job changes. To ensure you're ready for this change, your business should check ATO online services to confirm that you have the requisite access levels. If your business does not have full access in ATO online services, you'll need to have the "Employee Commencement Form" permission in order to request a stapled fund. From 1 November, you will still need to offer your eligible employees a choice of super fund and pay their super into the account they tell you, that part of your obligations doesn't change. However, if your employee doesn't choose a super fund, you will need to request the stapled fund details from the ATO. In most cases, a request can be made after you've submitted a TFN declaration or a Single Touch Payroll pay event linking the new employee to your business. There is no limit to the number of requests you are able to make. Responses will usually be received through the online portal in minutes. The ATO will also notify the associated employee of the stapled fund request and the fund details provided. If the resulting stapled fund cannot accept new contributions from the employee due to one reason or another, employers will need to make another request for the employee's stapled super fund through the online portal. In the event that this new request returns the same stapled super fund, employers will be required to call the ATO to obtain an alternative stapled super fund account. At the same time, the ATO will be able to advise whether contributions can be made to a default fund or another fund that meets the choice of fund rules in that situation. Businesses that have over 100 new employees starting are able to make a bulk stapled fund request to the ATO. Bulk requests will need to be in a particular format and can be made through the secure mail function within online services for businesses. Once the file is processed, a response will be sent through the secure mail function and can take up to 5 business days.

Selling property: don’t forget the clearance certificate

Wed, 15 Sep 2021 23:00:00 GMT

With spring weather warming up and Australian property market still running hot in all States and Territories, if you're thinking of selling a property, you probably know all about finding a solicitor or conveyancer and a real estate agent, but did you know that you'll also need to obtain a clearance certificate from the ATO for most properties? This clearance certificate requirement applies to all transactions involving taxable Australia real property or an indirect Australian real property interest that provides company title interests, with a market value equal to $750,000 or more. With the mean dwelling price in Australia at $779,000 (according to the latest ABS statistics), and even higher for NSW, Victoria and ACT, it is highly likely that you'll need to apply for a clearance certificate if you're selling. In the current market conditions, if you're not sure whether your property will have a market value of $750,000 or more (ie if the property is going to auction), the safest thing to do is to apply for a clearance certificate. That way, if the property is sold for less than $750,000 you won't need to provide the purchaser with the certificate, however, if it is sold for $750,000 or more, you'll have the certificate handy. The certificate provides certainty to purchasers of properties regarding their withholding obligations. Presenting the purchaser with a valid certificate confirms that withholding tax is not applicable to the transaction, otherwise, the purchaser must withhold 12.5% of the purchase price and remit the amount to the ATO. In a situation where a vendor is an Australian tax resident but fails provide the purchaser with a clearance certificate, which causes the purchaser to remit a corresponding amount to the ATO. The vendor is able to claim a credit for the withheld amount when they lodge their tax return. This amount may then be refunded if no CGT is payable on the sale of the property. To ensure that you'll receive your certificate on time, the ATO recommends that you apply online at least 28 days before you require it. Applications are processed in order of date of receipt by the ATO, therefore, with the higher volume of property sales during the spring and summer months, vendors should apply at the earliest opportunity. According to the ATO, higher risk and unusual cases may also require greater manual intervention, which could take longer. Once a clearance certificate is issued, it is valid for 12 months from the date of issue. As long as the certificate is provided by the vendor to the purchaser during the time specified on it, and this occurs before settlement, then it does not matter how long into the future the settlement may be. The vendor named in the certificate is also able to use it for multiple disposals of real property that occur within the 12 month period. Remember, because the clearance certificate names specific vendors, if there are multiple owners of a property, each vendor will need to apply for a separate clearance certificate in their own name. That name also must match the name shown on the certificate of title of the property, although some slight variation may be accepted in some circumstances provided additional documents are supplied.

Are State/Territory COVID-19 grants assessable?

Wed, 08 Sep 2021 23:00:00 GMT

After another challenging year, businesses may be wondering whether the amounts they've received from governments as various COVID-19 recovery grants or recovery payments should be included in their assessable income. The short answer is no, but the devil is in the detail, it all depends on type of payment you received and who you received it from so you'll need to be careful when preparing your business return. In general, some COVID-19 recovery payments from various governments to support small businesses will be non-assessable non-exempt (NANE) income for tax purposes will not be a part of your assessable income. A payment will be NANE if it was received under an eligible grant program, in the 2020-21 or 2021-22 financial years by a small business with an aggregated turnover of less than $50m in the income year the payment was received. Eligible grants consist of the following: Alpine Business Fund; Alpine Support Program (Streams 1, 2 and 3); Business Continuity Fund; Business Costs Assistance (Program Round Two and Round Two – July Extension); Business Support Fund 3; Impacted Public Events Support Program; Independent Cinema Support Program; Licensed Hospitality Venue Fund (and July Extension); Licensed Hospitality Venue Fund 2021; Live Performance Support Program; Melbourne City Recovery Fund - Small business reactivation grants; Outdoor Eating and Entertainment Package; Small Business COVID Hardship Fund; Sole Trader Support Fund; and Sustainable Event Business Program. The above grants are all from the State of Victoria. Some grant programs from NSW have also been designated as NANE income recently. These include the 2021 COVID-19 business grant, the 2021 COVID-19 JobSaver payment, the 2021 COVID-19 micro-business grant, and the NSW Performing Arts COVID Support Package. So far, the Federal government has taken a very piecemeal approach to whether various State/Territory based payments are considered to be NANE, so businesses will need to be careful if they have received any payments and check often to see whether the payments they have received has been designated NANE. At this stage, it is not known whether the various grants and business support offered by other State and Territory governments such as Tasmania, ACT, South Australian, and more recently Northern Territory and Western Australia will be designated NANE. This means that unless the Federal government specifically declares the grants to be "eligible grant programs", businesses that received such help may have to declare that income on their tax return and be assessed for income tax on those payments. With COVID-19 overshadowing everything, many businesses may have forgotten the 2021 storms and floods. Small businesses (ie employ less than 20 full-time equivalent staff and not a sole trader business where 50% or less of their income comes from that business) and primary producers affected by storms and floods that occurred between 19 February 2021 and 31 March 2021 were eligible to receive special disaster recovery grants. Grants that are Category D under the Disaster Recovery Funding Arrangements 2018 are NANE income from the 2020-21 financial year and onwards.

Div 293 concessional contributions assessments

Wed, 01 Sep 2021 23:00:00 GMT

Div 293 tax is imposed on individuals that exceed the high income threshold of $250,000. The consequence of this tax is that an addition 15% tax is imposed on their concessional contributions. In effect, this tax means the effective contributions tax on concessional contributions doubles from 15% to 30% for those high income earners. The high income threshold uses a broad definition and includes the following: taxable income including any excess concessional contributions; reportable fringe benefits total; and total net investment losses including both net financial investment losses and net rental property losses. While any reportable super contributions is disregarded, these contributions are included in another part of the calculation to ensure no amount is double counted. Even though you may think that Div 293 tax won't apply to you as you normally don't earn over $250,000, remember that one off events may push you over the limit. For example, if you receive a large eligible termination payment or make a large capital gain in any particular income year. To work out how much tax you're likely to pay, here's a simple illustrative example: Trevor has a Div 293 income of $245,000 for the financial year. He also has $20,000 worth of Div 293 contributions in super. $245,000 + $20,000 = $265,000 which is above the threshold of $250,000 meaning that Div 293 tax applies for Trevor. The next step is to work out which amount is lower, the amount of Div 293 super contribution ($20,000) or the amount above the $250,000 threshold ($265,000 - $250,000 = $15,000). In this case, the amount above the $250,000 threshold is clearly lower at $15,000, which means the 15% Div 293 tax will be applied to that amount. The Div 293 tax payable by Trevor is then $2,250 ($15,000 x 15%). If you're a high income earner and has not yet received any Div 293 assessments for the 2018-19 and 2019-20 income years, it may be coming. According to the ATO, due to a system issue, concessional contributions reported in those financial years were not included in Div 293 assessments where that super account was also reported as closed during the financial year. The ATO notes that the reporting issue was recently resolved which means around 30,000 Div 293 assessments were able to be issued for the 2018-19 and 2019-20 income years. Affected taxpayers would have received either an initial or an amended Div 293 assessment. For taxpayers that believe they have been incorrectly assessed for Div 293 tax due to mistakes in their tax return or in the contribution amounts reported by their super funds, amendments may need to be made to the associated tax return, or a discussion may be required with the super fund. Changes made to either will update Div 293 tax assessment. If you still disagree with your assessment after changes to your tax return and having a conversation with your fund, you are able to lodge an objection challenging the decision.

State Governments’ COVID-19 support: a summary

Wed, 25 Aug 2021 23:00:00 GMT

With the circulation of the Delta variant, many parts of Australia are now under lockdown putting increasing strain on small and large businesses alike. Unlike the previous nationalised COVID-19 support provided at the beginning of last year, this time, the financial support for businesses are fragmented and entirely depends on the State or Territory in which they operate. Victoria Businesses that have previously received funding under the Business Costs Assistance Program Round Two or the Business Costs Assistance Program Round Two July Extension will be eligible to receive an additional $5,600 ($2,800 per week) to cover the costs in relation to the restrictions. Small to medium businesses that have experienced at least a 70% reduction in turnover as a result of the COVID-19 restrictions and are ineligible for other Victorian government business grants will be able to apply to receive grants of $14,000. There are also other specific programs for licensed hospitality venues, live performance event organisers, alpine businesses, manufacturing, agriculture, and regional and rural investments. Commercial tenants will be also offered rental relief and be protected from evictions. While landlords will be provided land tax relief of up to 25% and in cases of acute hardship, may be eligible for payments as a part of a $20m hardship fund. Queensland Queensland businesses that have experienced a decline in turnover of 30% or more will be able to receive: $1,000 one-off grant to non-employing sole traders; payroll-based tiered support for all other businesses: SMEs with payrolls of less than $1.3m may be eligible to receive a one-off grant of $5,000. Medium businesses with a payroll between $1.3m and $10m may be able to receive a one-off grant of $10,000. Large sized tourism and hospitality focused businesses with a payroll of greater than $10m may be able to receive a one-off grant of $25,000. South Australia The business package for South Australia include cash grants of $3,000 for employing businesses and $1,000 for non-employing businesses that have experienced a decline in turnover of 30% or more over a 2-week period as a result of COVID-19 restrictions introduced from 28 July 2021. Eligible businesses in the CBD may also be able to receive an additional grant of $1,000. Organiser of major events that were cancelled, or suffered a significant financial loss will be able to get a grant of up to $25,000. ACT Similar to SA, businesses in the ACT will receive cash grants of $3,000 for employing businesses and $1,000 for non-employing businesses, however, the 30% reduction in turnover will be measured from 13 August to 20 August 2021. The ACT government will also fund a small business hardship scheme where eligible ACT businesses can apply for credits (eg payroll tax, utilities etc) of up to $10,000 per ABN. Tasmania Tasmania has announced a specific package mainly targeted at businesses operating in tourism, hospitality, arts and events, seafood, and transport sectors. Between $2,000 and $10,000 will be available to eligible businesses that have suffered a 30% decline in their turnover. NSW In addition to the previously announced business support payments, rental relief for eligible tenants impacted by COVID-19 will also be implemented along with a hardship fund of $40m for small commercial or retail landlords to provide monthly grants of up to $3,000.

New sharing economy reporting regime proposed

Wed, 18 Aug 2021 23:00:00 GMT

As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term sharing economy, it is usually taken to involve two parties entering into an agreement for one to provide services, or loan personal assets to the other in exchange for payment. Examples in a wide variety of sectors include Uber, Airbnb, Car Next Door, Menulog, Airtasker, and Freelancer to name a few. With the rapid expansion of the sharing economy platforms, the Black Economy Taskforce noted that without compulsory reporting, it would be difficult for the ATO to gain information on compliance of sharing economy participants without the use of targeted audits, and that formal reporting requirements would align Australia with international best practice. On the back of that report, the government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO. This new compulsory reporting regime will apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores, and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply. Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if it relates to a ride-sourcing or a short-term accommodation service unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report unless an exemption applies. While the ATO will ultimately be responsible for determining the exact information to be reported, at a minimum, the following information is expected to be required once reporting commences: seller's identification including full legal name, date of birth, primary address, bank account details, ABN, TFN, telephone and email details; and consideration and transaction information including total gross and net payments to seller, GST attributable to gross payments, total fees/commissions withheld, GST attributable to total fees/commissions, property address (if transaction relates to rental of real property), and period for which property is booked during the reporting period. It is expected only the aggregate or total transactions relating to the seller over the reporting period will need to be provided and information will not need to be provided on a transactional basis. Again, while the ATO will ultimately determine the frequency of reporting, the initial reporting is expected to be on a biannual basis (ie 1 July to 31 December, and 1 January to 30 June) with the relevant information to be reported by 31 January and 31 July respectively.

Tax time 2021: rental property pitfalls

Wed, 11 Aug 2021 23:00:00 GMT

Rental property owners beware, this tax time, the ATO will be expanding the rental income data collected directly from third-party sources including sharing economy platforms, rental bond authorities, and property managers. This was a part of a new and extended data-matching program which aims to gather detailed information about the property and owners for the 2018-19 to 2022-23 financial years. According to the ATO, in the 2019-20 financial year, over 1.8m taxpayers owned rental properties and claimed $38bn in deductions. While it concedes that most taxpayers do the right thing and are able to justify their claims, it notes that over 70% of the 2019-20 returns selected for review of rental information has had adjustments made. The most common mistakes that rental property owners and holiday homeowners make is not declaring all their income and capital gains from selling the property, the ATO notes. This shortfall will obviously be tackled with information obtained from data-matching programs, but also sophisticated data analytics which will single out tax returns with unusually high rental deductions. Another area of concern this tax time includes claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (ie to buy a car, pay off the mortgage of the house you're living in etc), then you cannot claim interest on that part of the loan. Taxpayers should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear to the property are immediately deductible if you're replacing or fixing existing item (eg broken toilet or showerhead etc). The cost of upgrading the property or areas of the property (ie a kitchen or bathroom renovation) would be considered to be capital works and any deduction would be spread over a number of years. For short-term stay property owners that have been affected by COVID-19 and travel restrictions, the ATO notes that if your plans to rent out the property in 2020-21 were the same as previous years, you will be able to claim the same proportion of expenses. Although taxpayers can only do this if the property was not used privately. For example, if you, your family members, or friends have stayed at the property for free or at a reduced rate, you will not be able to claim some or all of the expenses relating to that period. Rental property owners that have provided rental concessions in the form of either reduced or deferred rent to their tenants due to COVID-19 impacts will only need to declare the rent that has been received. Normal expenses can still be claimed on the property as long as the reduced rent was determined at arms' length and in line with current market conditions.

STP phase 2 coming soon

Wed, 04 Aug 2021 23:00:00 GMT

Single Touch Payroll (STP) was originally introduced in 2016 as a way for employers to report their employee's tax and super information to the ATO in real time. Most employers, regardless of the number of employees were required to start reporting from 1 July 2021, this includes small employers with closely held/related payees. However, employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP. In phase 1, the information sent to the ATO through STP included basic salaries and wages, PAYG withholding and super liability information. The amount of information sent to the ATO is being expanded in phase 2, which has a mandatory starting date of 1 January 2022. From that date, each employee included in the STP report will need to have either a TFN or an ABN attached as well as a commencement date. Cessation date and the reasons for employees leaving is another piece of extra information which will need to be included in phase 2 reports. Additional information will also need to be provided on the employment basis of employees according to their work type. For example, full-time, part-time, casual, labour hire, voluntary agreement (ie a contractor to bring work payments into the PAYG withholding system), death beneficiary, or a non-employee (ie a contractor who is included for voluntary reporting of super liabilities only). According to the ATO, the phase 2 report will also include a 6-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments. For example, it'll let the ATO know whether they are regular employees that have the tax-free threshold applied or not. It will also let the ATO know if they are in a special category of employee, such as actors, horticulturists/shearers, working holiday makers, seasonal workers, foreign residents, or seniors. The basic information of salary and wages and super liability information in phase 1 will also be further drilled down in phase 2. Instead of reporting the gross amount, employers will need to report the following separately: gross salary and wages; paid leave – including annual, long service, personal/carer, RDOs, study leave, compassionate leave, family and domestic leave, paid parental leave, workers' compensation, etc; allowances – including cents-per-km, award transport payments, laundry, over time meal allowance, domestic or overseas travel, tool allowances, etc; overtime – including on-call, stand-by or availability allowances, call back payments, excess travel etc; bonuses and commissions; directors' fees – including remuneration paid to both working and non-working directors; lump sum W – return to work payment; and salary sacrifice – including reporting pre-sacrifice amounts as well as separate reporting of salary sacrifice. While most of this increase in information will be automatically taken care of in most employers' software solutions, the increased stratification of reporting requires more attention to be paid to payroll to ensure all the information entered into the system is correct.

Tax consequences of rent deferral or waiver

Wed, 28 Jul 2021 23:00:00 GMT

As many tenants and landlords turn their attention to their 2020-21 tax returns, one of the big questions is perhaps how they should treat rental concessions provided and received during the last financial year as a result of COVID-19. Tax treatment of these rental concessions depends on a variety of factors and are outlined below. Tenants For tenants the tax treatment of a rental waiver depends on whether it is related to a past or future occupancy. In relation to past occupancies, tenants that have already paid the incurred rent which was subsequently refunded will need to include this amount in their assessable income when it is received. In instances where the tenant has not paid the incurred rent which has been waived, the rent waiver will be considered to be debt forgiveness. The commercial debt forgiveness rules may apply in some instances. If the rental waiver is in relation to a future period of occupancy, tenants will not be entitled to a deduction for the amount. Businesses will need to account for the reduced amount of rent paid, or if your business has already accounted for the original rent in your accounts, you'll need to make appropriate adjustments in either the accounts or your tax return to ensure you don't claim the waived amount as a tax deduction. Tenants that have received a rental deferral will be entitled to a deduction for the deferred rent when it is incurred. Rent is generally incurred in the period that the rent relates to or when it is paid. Landlords The tax treatment of rental waivers for landlords depends on the accounting method used (ie cash or accruals accounting). For landlords that use cash accounting, rental waivers mean that you never collect the waived amount of rent and therefore you don't have to pay any income tax on that amount. For landlords that use the accruals accounting method, if the waived rent relates to past periods of occupancy and has already been included in your assessable income, you may be entitled to a deduction. If the rental waiver relates to future periods of occupancy, the assessable income that you account for should only include the reduced rent that you have agreed to receive and therefore cannot claim a deduction for the waived rent (which would relate to the future period of occupancy). There'll be no tax effects for landlords that give rental deferrals and uses the cash accounting method as the rent only becomes taxable when it is received. However, those that use the accruals accounting method will need to pay income tax on the accrued but deferred rent even if there is a change to the pattern of receiving the payments (ie rent not paid until a later date). In those circumstances, if you as a landlord have included the deferred rent in your assessable income, but do not later receive the accrued rent from your tenant, you may be able to claim a deduction for the amount.

Employers beware: increase in super guarantee

Wed, 21 Jul 2021 23:00:00 GMT

With the advent of a new financial year, there is an important change from 1 July 2021 that employers should be aware of. The rate of super guarantee you're required to pay your employees has increased from 9.5% to 10%. This is the minimum percentage now required by law but you may pay super at a higher rate under an award or agreement. Depending on how your employment contracts are structured (ie a package or base pay plus superannuation), the extra 0.5% may either come from the employee's existing gross pay or be extra on top of their salary. Most payroll and accounting systems will have incorporated the increase in their super rate, but it's always good to check. If you're still using a manual process to pay your employees, you'll need to work out how much super to pay your employees under the new rate. The process is fairly simple, you'll just need to multiply your employee's ordinary time earnings based on salary and wages paid in the quarter by 10% (or a higher rate under an award or agreement). Remember, the rate you use to calculate super contributions depends on the quarter that you're paying your employees in, it does not matter if the work is performed in a different quarter. The 10% super guarantee applies to all super payments made after 1 July 2021. Example Trevor is an employee of Ian and is paid fortnightly. For the pay period ending 27 June 2021, Trevor's ordinary time earnings for the fortnight are $2,000. Ian pays Trevor on 1 July 2021. The minimum super contribution for Trevor for the pay period ending 27 June 2021 is $200 (ie $2,000 x 10%). However, if Ian made a payment on 27 June 2021, the minimum super contribution would be $190 ($2,000 x 9.5%). Now imagine Trevor's fortnightly pay period spans from 21 June 2021 to 5 July 2021, and Ian makes a payroll payment on 9 July 2021. Because the payment is made after 1 July 2021, the minimum super contribution Ian has to make on behalf of Trevor is still $200 (ie $2,000 x 10%), it does not matter that some of the work was performed in a different quarter. This increase to 10% is by no means the last time super guarantee will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year), the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023-24 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

ATO continues to target individuals: novated leases

Wed, 07 Jul 2021 23:00:00 GMT

Following on from the revelation that the bulk of tax collected by the ATO comes from individual taxpayers, it comes as no surprise that the ATO is continuing to target this sector to squeeze out every last tax dollar. This time, it has announced another new data-matching program on novated leases, this is in addition to the plethora of data-matching programs already announced this year on an eclectic range of areas including rental properties, motor vehicles, residency, contractor payments, and cryptocurrency. By way of background, novated leases is an agreement where an employee enters into a lease with a finance company to obtain a vehicle and the employer enters into a deed of novation with the employee and the finance company. This essentially means that some of the lease obligations of the employee is transferred to the employer, and the employer is considered to be leasing the car, allowing the car to be treated like a company car. Where the employee salary packages a novated lease, they are able to salary sacrifice a portion of their pre-tax salary to pay for lease on the car, leading to tax savings. Usually, the finance company sets an amount to cover the car's expenses for the life of the lease including financing, fuel, servicing and repairs, registration, insurance etc, with regular deductions made to the employee's pre-tax and post-tax salary to cover the expenses and to reduce the FBT that the employer has to pay. At the end of the lease, the employee can either choose to novate a new car, refinance the existing car for another term or pay out the residual value of the vehicle. Under this data-matching program, the ATO will collect information on novated leases from McMillan Shakespeare Group, Smartgroup Corporation, SG Fleet Group, Eclipx Group, LeasePlan, Toyota Fleet Management, LeasePLUS and Orix Australia for the 2018-19 to 2022-23 financial years. Employee identification details obtained include name, address, date of birth, contact phone numbers, and email addresses. It is estimated by the ATO that records relating to approximately 260,000 individuals will be obtained each financial year under the program. Lease transaction details obtained under the program include the following: Lease start date, end date, expected end date, and termination date; number plate of vehicle; type of vehicle (ie new or used); category of vehicle (ie sedan, wagon, utility etc); lease per month including GST; items and expenses packaged with vehicle lease (ie fuel, servicing etc); bank account BSB, number, and name for the employee. According to the ATO, the information will be used to educate individuals in relation to novated lease arrangements, and also to identify relevant cases for administrative action and/or compliance activity. Remember, if you as an employee enter into a novated lease arrangement, you cannot deduct the work-related portion of any expenses incurred in running the car in your tax return, this is because your employer is considered to be leasing the car and not you.

ATO turns its attention to crypto

Wed, 30 Jun 2021 23:00:00 GMT

The meteoric rise of cryptocurrency (crypto) and NFTs (non-fungible tokens) has raised many eyebrows and has now also caught the attention of the ATO. Whether you're trading crypto or NFTs as an individual or business, capital gains tax (CGT) applies to any gains you make regardless of whether the gain is in foreign currency or Australian dollars. Most people are now familiar with cryptocurrency, which is a type of digital money created from code and usually takes the form of tokens or coins. The most well-known of which include Bitcoin, Ethereum, and Dogecoin. Non-fungible tokens are a comparatively more recent development which basically consists of a unit of data stored on a ledger to certify that a digital asset is unique. This has mostly been applied to artwork but can also include photos, videos and other types of digital files. Based on its data holdings, the ATO will be writing to around 100,000 taxpayers with crypto assets explaining their tax obligations and urging them to review their previously lodged returns. It will also prompt another 300,000 taxpayers as they lodge their 2021 tax return to report their crypto capital gains or losses. Individuals or businesses that dispose of crypto must work out if they made a capital gain or loss and report the resulting gain or loss in their tax return. Disposal of crypto can include exchange of one cryptocurrency for another cryptocurrency, trading, selling or gifting cryptocurrency, converting cryptocurrency to a government issued currency (ie Australian dollars). Transfers of cryptocurrency from one wallet to another while maintaining ownership is not considered to be a disposal, however, if your crypto holding reduces during this transfer to cover a transaction fee, this fee is a disposal and has CGT consequences. In addition, if you acquire a small amount of crypto and use it within a short time to make personal purchases, the crypto may be considered to be a personal use asset and not subject to CGT. In conjunction with contacting taxpayers, the ATO is also conducting a data-matching program which will consist of account identification and transaction data from cryptocurrency designated services providers from the 2021-2023 financial years. These details include the usual client identification information such as name, address, date or birth, phone number and email, but interestingly, now also includes social media account details. Transaction details will also be obtained which includes bank account details, wallet addresses, transaction dates/time/type, deposits, withdrawals, transaction quantities, and coin type. It is estimated that records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year under the program. According to the ATO, while crypto appears to operate in an anonymous digital world, it closely tracks where crypto interacts with the real world through data from banks, financial institutions as well as online cryptocurrency exchanges to trace the money back to taxpayers.

Get ready for tax time 2021

Wed, 23 Jun 2021 23:00:00 GMT

While the ATO annual statistics releases are usually quite dry and technical, it does give a nice insight into why the ATO does what they do. For example, just in the first half of 2021 the ATO has been targeting individual taxpayers with various data matching programs on rental properties, motor vehicles, residency and contractor payments to name just a few. With the release of the latest taxation statistics showing that individual tax collections account for more than half of all taxes collected in Australia, the intensity and frequency of these data-matching programs now make more sense. It should also come as no surprise that with tax time 2021 fast approaching, the ATO is keeping a close eye on the individuals sector with warnings to not overclaim on deductions this year. Specifically, the ATO will be focusing on work-related expenses such as car and travel expenses which it reasons will decrease due to restrictions on travel and a large proportion of the population working from home as a result of COVID-19. According to the ATO, around 8.5m individuals claimed around $19.4bn in work-related expenses in their 2020 tax returns. The value of car and travel expenses claimed in 2020 decreased by 5.5% compared to 2019, however, there was an understandable increase of 2.6% in clothing expenses due to claims for hand sanitiser and face masks. The ATO notes that it will be using data analytics to single out unusually high claims this tax time, particularly if an individual's deductions are much higher than others with a similar job and income. It will also be on the lookout for individuals claiming significant working from home expenses while at the same time maintaining or increasing their claims for car, travel or clothing deductions. Individuals with legitimate increases in car, travel or clothing expenses along with significant work from home expenses can still deduct these expenses provided that they have evidence or contemporaneous records supporting their claims. The ATO also notes that it will be "sympathetic to legitimate mistakes where good faith efforts have been made". As a reminder, the ATO notes that the temporary shortcut method of 80c per hour (all-inclusive rate) for working from home expenses has been extended to apply for the full 2020-21 financial year. Although a timesheet, roster or diary entry indicating the number of hours worked needs to be kept as evidence. In addition, those individuals predominately working from home and only undertaking occasional travel to their places of work are unable to claim the cost of travel from home to work as it is still considered to be private or domestic.

ATO compliance: economic stimulus measures

Wed, 16 Jun 2021 23:00:00 GMT

The ATO has announced that it will be conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation. While the ATO said it will continue to support most businesses doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. By way of background, the loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020-21 and 2021-22 company tax returns. In essence companies get to "carry-back" losses to earlier years in which there were income tax liabilities which may result in a cash refund or a reduced tax liability. The temporary full expensing measure allows eligible businesses to immediately deduct the business portion of the cost of eligible new depreciating assets or improvements held and ready for use between 6 October 2020 and 30 June 2022. Eligible businesses also have access to the accelerated depreciation measure for the 2019-20 and 2020-21 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate. Specifically, in relation to loss carry-back, the ATO will looking for businesses that are deliberately inflating deductions or omitting income to generate losses. It will also look for signs of businesses entering into contrived schemes to obtain a benefit of the loss carry-back tax offset such as shifting or creating losses through non-arm's length dealings or shifting franking credits to a corporate entity (either directly or indirectly). In relation to temporary full expensing and/or accelerated depreciation, the ATO notes the following behaviours which will attract its attention: entering into contrived schemes to obtain a benefit of a temporary full expensing deduction, including schemes involving:manipulation of aggregated turnover; non-commercial transactions involving the transfer of an asset between related entities; artificially inflating the cost of assets (including inappropriate valuations) through non-arm's length dealings; claiming deductions for assets acquired solely for a non-business purpose or failing to take into account any portion of non-business use; deliberately misclassifying or reclassifying excluded assets (eg reclassifying capital works and buildings as eligible assets under temporary full expensing or Div 43 capital works and buildings as eligible assets under accelerated depreciation); deliberately inflating the amount of accelerated depreciation deduction by applying the incorrect adjustable value or effective life; failing to take into account the car limit when calculating the deduction; and lacking evidence to substantiate the claim (including the cost of assets) such as invoices, contracts, supplier agreements or independent valuations. The ATO notes that it will review claims for loss-carry back, temporary full expensing and accelerated depreciation as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. Where cases of concerning or fraudulent behaviours are identified, it will actively pursue the claims including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

SMSFs and minimum pension requirements

Wed, 09 Jun 2021 23:00:00 GMT

As the trustee of an SMSF, if one of the beneficiaries of the fund retires and commences an account-based pension, it is the responsibility of the trustee to ensure that the pension meets the minimum pension payment requirements. Generally, once a pension or an annuity is commenced, there is a minimum amount that must be paid each year depending on the age at which the pension is commenced. For example, the minimum percentage withdrawal for those under 65 is 4% and those between 65 and 74 is 5%. Although specifically for the 2020-21 and 2021-22 income years the percentage was reduced by 50% due to COVID-19 (ie the minimum percentage withdrawal for under 65s is 2% and 65-74 was 2.5%). In instances where the trustee of an SMSF fails to meet the minimum pension payment requirements for an income year, the super income stream will be taken to have ceased at the start of the income year for income tax purposes. Any payments made during the year will be considered to be super lump sums for both income tax and super purposes and taxed accordingly. This is the case even if the member is entitled to receive a payment from the fund for the pension. However, there may be circumstances under which the ATO will allow an income stream to continue even through the minimum pension standards have not been met. This may be the case if: the trustee failed to pay the minimum pension amount in an income year due to an honest mistake by the trustee and the underpayment was small, or if there were matters outside the control of the trustee; the income stream was in the retirement phase, the entitlement to the exempt current pension income (ECPI) exemption would have continued but for the trustee failing to pay the minimum payment amount; when the trustee became aware that the minimum payment amount was not met, a catch-up payment was made as soon as practicable in the current income year, or in lieu of a catch-up payment has elected to treat a payment made in the current year as being made in the prior year; had the catch-up payment been made in the prior year, the minimum pension standards would have been met; the trustee treats the catch-up payment for all other purposes as if it were made in the prior income year. When all the above conditions are met, the trustee can consider the income stream as having continued rather than commencing a new pension. It can also continue to claim an income tax exemption for earnings on assets supporting that pension if the income stream was in retirement phase, and the payments are treated as super income stream benefit payments rather than super lump sums. The above conditions may also apply in transition to retirement income streams (TRIS) in some instances.

Discretion to retain refunds extended to income tax

Wed, 02 Jun 2021 23:00:00 GMT

As a part of a suite of measures introduced by the government to combat phoenixing activities, the ATO now has the power to retain an income tax refund where a taxpayer (including both businesses and individuals) has outstanding notifications. The discretion to retain refunds previously only applied in relation to notifications under the business activity statement (BAS) or petroleum resources rent tax (PRRT) but has now been expanded. This new extension of powers applies to all notifications that are required to be given to the Commissioner under taxation law, for example, an income tax return, but does not include any outstanding single touch payroll or in instances where the Commissioner requires verification of information contained in a notification. The ATO notes that these new powers to retain refunds will not be taken lightly and will only be exercised where the taxpayer(s) have been identified as engaged in "high-risk" behaviour and/or phoenixing activities. According to the ATO, examples of high-risk behaviours include (but are not limited to): poor past and/or current compliance with tax and super obligations (ie registration, lodgment, reporting, record keeping and on-time payments); poor behaviours and governance in managing tax and super risks; the number of, and the circumstances around, any bankruptcies or insolvencies; tax-related penalties and sanctions imposed including director penalty notices; connection with advisers who are subject to disciplinary actions or sanctions relating to tax and super laws; past information provided which reasonably indicated fraud or evasion, intentional disregard or recklessness; and the likelihood of participation in or promotion of aggressive tax planning arrangements, tax avoidance schemes, fraud or evasion or criminal activity. Indicators of phoenix behaviour by the taxpayer, and its associates or controllers, include (but are not limited to): cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements; assets being dissipated, stripped, transferred and/or other actions with the intention to defeat creditors ahead of abandonment, winding-up or deregistration; a director associated with prior liquidations and/or deregistrations or prior instances of insolvency; transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements; backdating of the resignation of a director, appointment of "straw" directors, or abandonment of a company without a resident director; the concealment of the role of a shadow or de facto director; and the concealment or destruction of company records. The totality of the circumstances will be considered by the ATO when exercising the discretion to retain a refund. It will also weigh the seriousness of the behaviour identified against any potential adverse consequences for the taxpayer. Once the ATO decides to use its discretion to retain a refund, it will be retained until either the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever event happens first. There are also circumstances where the taxpayer can apply to have the retained amount refunded and/or apply to have the decision reviewed.

ATO target rental property owners

Wed, 26 May 2021 23:00:00 GMT

Rental property owners beware, the ATO has commenced 2 data-matching programs designed to obtain a myriad of information to ensure that various income tax reporting obligations have been met. Specifically, the ATO will run a new data-matching program to collect property management data for the 2018-19 to 2022-23 financial years, and extend the existing rental bond data-matching program through to 30 June 2023. The justification used by the ATO for targeting rental property owners is that each year it conducts a review of a random sample of tax returns to calculate the difference between the tax collected and tax that should've been collected (ie the tax gap), for the 2017-18 year, it estimated a net tax gap of 5.6% or $8.3bn for individuals with rentals making up 18% of this net tax gap. As a comparison, the net tax gap for high wealth groups is 7.4%, for medium businesses it is 6.2% and for medium businesses it is 11.5%. The information obtained under the 2 programs will include property owner identification details, including unique ID, individual/non-individual names, addresses (residential and postal), email addresses, contact numbers, BSB number, bank account number, bank account name, and business contact names and ABN if applicable. Rental property details obtained under the 2 programs will include address, date property first available for rent, period of lease, commencement and expiration of lease, amount of rental bond held, number of weeks the rental bond is for, amount of rent payable for each period, period of rental payments (ie weekly, fortnightly, or monthly), type of dwelling, number of bedrooms, rental income category, rental income amount, rental expense category, rental expense amount, and net rent amount. In addition to the above, the programs will also obtain details of the property managers involved, including business name, managing agent full name, business addresses (including internet addresses), email, contact numbers, ABN and licence number. As can be seen, the amount of information to be collected by the ATO is voluminous and detailed which will enable it to perform detailed analytics for its compliance programs. The rental bond data will be acquired from State and Territory rental bond regulators on a bi-annual basis, and the property management data will be acquired from property management software providers. It is expected that records relating to around 1.6m individuals will be obtained each financial year in relation to the property management program and records of an estimated 350,000 individuals will be obtained under the rental bond program. Although, due to the nature of the data collected, there will be some overlap in the number of individuals captured. The ATO will be using the vast amount of data collected to ensure that taxpayers that own income producing property are meeting their obligations to report the correct amount of income in their tax returns. It will also be used to identify taxpayers disposing of income producing properties which will trigger a CGT event, the ATO notes that it will use historical rental bond data to support CGT cost base calculations if necessary.

Budget 2021: what’s in it for me?

Wed, 19 May 2021 23:00:00 GMT

As is tradition, the second Tuesday in May saw the Treasurer, Josh Frydenberg handed down the 2021-22 Federal Budget, his third. Overall, he noted that while the Australian economy has recovered from COVID-19 impacts in record time, the Budget deficit will still reach $161bn in 2020-21, and is projected to slowly decrease to $106.6bn in 2021-22 and $57bn in 2024-25. So, with the government continuing its spending spree in order to keep the economic engine going, individuals are set to benefit with the following, albeit delayed changes. LMITO and low income tax offsets The government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year. It was previously legislated to only apply to the end of the 2020-21 income year which would've seen low-to-middle income earners lose between $255 to $1,080 in tax refunds. The amount of the LMITO remains the same as the 2020-21 income year, that is $255 for taxpayers with a taxable income of $37,000 or less. Those earning between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar. The low income tax offset (LITO) will also continue to apply in conjunction with the LMITO. The LITO was originally intended to replace the LMITO from 2022-23 but was subsequently brought forward in the 2020 Budget. The maximum amount of LITO is $700 for those earning up to $37,500. Those earning between $37,501 and $45,000 will have LITO withdrawn at a rate of 5 cents per dollar. Taxpayers earning between $45,001 and $66,667 will have LITO withdrawn at a rate of 1.5 cents per dollar. Those earning above $66.668 are not eligible for the LITO. $250 threshold to be removed for self-education expenses It was announced that the government will remove the exclusion of the first $250 of deductions for prescribed courses of education. Currently, if a taxpayer incurs self-education expenses in relation to a course provided by a university, college etc, for the purpose of gaining qualifications for use in carrying on of a profession, business or trade or in the course of any employment, the first $250 of the cost is not deductible. This measure is not expected to start until the first income year after the date of Assent of enabling legislation, meaning that unless legislation is introduced, passed and receives Assent before 30 June 2021, the measure will not start until 2023. Tax residency changes The government will replace the existing tests for tax residency with a primary test under which if a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Those that do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. As with the self-education expenses, the government has committed to any firm dates for the legislation to come into effect. Other measures: childcare; personal tax rates As previously announced by the government, the Budget confirmed that it will make an additional $1.7bn investment in childcare, although changes will not commence until 1 July 2022 (the next financial year!). The Budget also confirmed that there will not be any changes to personal tax rates for the 2021-22 income year, which means the rates remain the same as the 2020-21 income year.

Budget 2021: what’s in it for my business?

Wed, 12 May 2021 23:00:00 GMT

The 2021 Federal Budget has been handed down with many sweeteners for businesses to help drive unemployment rates down and power the economic engine of Australia. It has been forecast that the unemployment rate will fall below 5%, reaching 4.75% by June 2023 quarter. While real GDP is predicted to grow by 1.25% in 2020-21, rising to 4.25% in 2021-22 and 2.5% in 2022-23. The suite of business measures include the following. Temporary full expensing extended until 30 June 2023 The current temporary full expensing to allow eligible businesses to deduct the full cost of eligible depreciating assets will be extended until 30 June 2023. The measure was due to end on 30 June 2022 before the announcement of the extension. Other than the extended date, all other elements of the temporary full expensing remain unchanged. This means that a business will qualify if it is a small business (annual aggregated turnover under $10m) or has an annual aggregated turnover under $5bn. Loss carry-back also extended by one year The government will also seek to extend the loss-carry back provisions by one year. Under the original measure, eligible companies (with aggregated annual turnover of up to $5bn) could carry back a tax loss for the 2019-20, 2020-21 or 2021-22 income years to offset tax paid in the 2018-19 or later income years. Eligible tax loss years will now include the 2022-23 income year. Tax refunds resulting from loss carry back will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns. The government notes that this measure will help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position as a result of the COVID-19 pandemic. Small businesses will be able to pause disputed ATO debt recovery Legislation will be introduced to allow small businesses to pause or modify ATO debt recovery action where the debt is being disputed in the AAT. Specifically, the changes will allow the Small Business Taxation Division of the AAT to pause or modify any ATO debt recovery actions, such as garnishee notices and the recovery of GIC or related penalties until the underlying dispute is resolved. Small business entities (including individuals that carry on a business) with an aggregated turnover of less than $10m per year will be eligible to use the option. Other measures: disaster recovery grants tax exemption; self-assess effective life The government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia ((including certain recovery grants). The Budget also confirmed that taxpayers will be able to self-assess the effective life of certain intangible assets (eg intellectual property and in-house software) rather than being required to use the effective life currently prescribed. Self-assessment of effective lives will apply to eligible assets acquired following the completion of the temporary full expensing measure.

Financial help for relocating job seekers

Wed, 05 May 2021 23:00:00 GMT

Job seekers can now take advantage of the government's relocation assistance of up to $9,000 when they relocate to take up an on-going work, including an apprenticeship, provided the position (both work and apprenticeship) is for more than 20 hours a week with a duration of more than 6 months. The scheme commenced 1 May 2021 and is designed to help job seekers with the cost of relocating to take up vacant job positions. Job seekers who are participating in employment service programs such as jobactive, Disability Employment Services, ParentsNext, Transition to Work, or Community Development Programs may be immediately eligible for help with their moving costs. Where you relocate to take up ongoing work, the new location must be within Australia, be at least 90 minutes away from where you currently live (based on your normal mode of transport), and not be within the same capital city. Those individuals that relocate to a regional area may be eligible for up to $6,000 with an extra $3,000 available if a dependent is also relocating. For those relocating to another capital city, $3,000 of relocation assistance may be available with an extra $3,000 if relocating with a dependent. However, relocation assistance for capital cities are only available if the destination city has a lower unemployment rate than the capital city you're relocating from. For example, according to the latest unemployment rate published by Australian Bureau of Statistics, the NSW unemployment rate is 5.4% and Victoria is 6.1%. So, it is likely that an individual moving from Melbourne to Sydney would get the relocation assistance although they would not receive the assistance if they were moving from Sydney to Melbourne. The relocation assistance received can be used for a variety of costs including rent, travel costs, and some employment-related expenses. The assistance can be received either as a reimbursement or the employment services provider can make payments directly to the supplier. Individuals experiencing hardship may also be able to obtain $2,000 up front to help with the cost of relocating. In addition, only one member of a couple may apply for relocation assistance. To apply for the relocation assistance, individuals are encouraged to contact either their local employment services provider or the employment services information line. Evidence that you've received an accepted an offer for an eligible job in an eligible location will be required. Furthermore, you must also sign a relocation assistance agreement with an employment services provider and make available any quotes, invoices, and receipts of relocation costs. If after accepting relocation assistance, you leave your job without valid reason, or you don't commence employment or relocate, penalties may apply. However, in instances where you lose the job through no fault of your own, for example, a redundancy or a business closure, penalties would not apply.

Independent resolution process now permanent

Wed, 28 Apr 2021 23:00:00 GMT

Small businesses now have another pathway to resolve tax disputes with the ATO making its independent review service a permanent option for eligible small businesses (ie those with a turnover of less than $10m). The service was initially conceived as an avenue for small businesses to obtain early and fair resolution in relation to audit positions. The original pilot commenced in 2018 and centred around income tax audits in Victoria and South Australia which was later expanded in 2020 to include all other States and Territories along with other areas of tax including GST, excise, luxury car tax, wine equalisation tax, and fuel tax credits. After what the ATO considered to be a successful multi-year pilot, the service has now become a permanent feature. An independent review can be requested by an eligible small business if they disagree with some or all of an audit position and an offer for an independent review has been made by the ATO. However, the review will not be the first opportunity small businesses have in responding to audit findings. Initial findings will be disclosed in an interim positions paper and small businesses are able to raise areas of disagreement before the final audit letter is sent out. If your small business is eligible for a review, your ATO audit case officer will contact you and a written offer of independent review will also be included int the audit finalisation letter. If you wish to proceed with the review, you will need to contact the ATO through the relevant email address within 14 days of the date of the audit finalisation letter. The ATO notes that the email must clearly specify and outline each area of disagreement with the audit position. As a part of the review process, you will also be asked to complete and return a consent form to extend the amendment period which will allow the ATO to complete the review before the period of review for the relevant assessment ends. According to the ATO, the review cannot be commenced unless the consent form is provided. Where your small business obtains approval to use the independent review service, an independent reviewer will be allocated to your case and contact you to discuss the process. Although this process involves an in-house ATO officer, this officer will be from a different part of the ATO and will not have been involved in the original audit. It is important to note that the areas of superannuation, FBT, fraud and evasion finding, and interest are not covered under the independent review service. Therefore, if your dispute relates to those areas or if you do not want to pursue the independent review process, other options including lodging an objection or the use of in-house facilitation service may be utilised. You can also raise your matter with the Inspector-General of Taxation and Tax Ombudsman or the Australian Small Business and Family Enterprise Ombudsman.

Benefits of family trusts

Wed, 21 Apr 2021 23:00:00 GMT

Many of you have heard of family trusts, but perhaps don't know too much about their benefits and how they differ from the usual non-fixed trusts. Essentially, a family trust is a trust where the trustee has made a valid family trust election (FTE) for tax purposes. By becoming a family trust, the trust is able to access certain tax concessions which may be beneficial. In order to make an FTE, the trust must pass the family control test at the end of the income year to which the election relates to. The family control test can generally be passed if the person that controls the trust is limited to the individual specified in the relevant family trust election, members of that person's family, legal or financial advisers of either, or a combination of these persons. Once a valid FTE is made and the trust becomes a family trust, it will have concessional treatment in relation to trust losses. For example, if a non-fixed trust has carried forward losses, it will need to satisfy all the trust loss recoupment tests related to ownership or control of the trust. However, a family trust is only subject to a concessional income injection test. The second concession relates to company loss tracing. To utilise a loss, a company must satisfy ownership and control tests which require tracing the ownership or control of the company to specific individuals through trusts. In cases where the shareholder of a company with losses is a family trust, there is a tracing concession that applies so that a single person will be taken to own the interest in the company, thus absolving the need to trace past the family trust. The third concession for family trusts relate to the small business restructure rollover which allows small business entities to restructure their businesses by moving active assets into, or out of, a trust, a company, partnership, or a combination without adverse CGT consequences provided certain conditions are met. Non-fixed trusts that are family trusts may use an alternative economic ownership to access this concession. There is also a concession for family trusts in relation to administrative matters of the trust, specifically, the trustee beneficiary reporting rules. Generally, the rules require the trustee of a closely held trust to advise ATO of certain details including beneficial entitlements. However, family trusts do not have to satisfy these reporting rules. In addition to this, trustees and beneficiaries of a family trust that receive franked dividends may benefit from a franking credit concession. Now that you've heard about the benefits of making an FTE, it should be noted that there are also downsides to making a non-fixed trust a family trust. Generally, once a valid FTE is made in writing and in approved form, it cannot be varied or revoked except in some limited circumstances. Furthermore, if distributions are made outside the family group, a special family trust distribution tax will be payable at the top individual marginal rate plus Medicare levy.

Steps to get a deduction for bad debts

Wed, 14 Apr 2021 23:00:00 GMT

As many of the government's COVID-19 economic supports coming away, economists predict there'll be many business failures to follow. If your business is unable to obtain payment from a debtor, depending on the accounting method used by your business, you may be able to claim a tax deduction for the unpaid amount. If you account for your income on an accruals basis, you may be able to claim a tax deduction for a bad debt. In order to claim a deduction for a bad debt, you must have included the amount in your assessable income. You will also need to determine that the debt is genuinely bad, rather than merely doubtful, at the time you write it off. The next step in claiming a bad debt deduction is to write-off the debt as bad. This usually means that you have to record the decision in writing to write-off the debt before the end of the income year in which you intend to claim a deduction. In instances where you have dealt with the bad debt in other ways, for example, waived or forgiven the debt, extinguished the liability in another way, or sold the debt, the debt is no longer in existence and you cannot write it off as a bad debt . Companies that want to deduct bad debts will have the additional hurdle of satisfying the continuity of ownership test (COT). There may also be GST consequences for businesses when writing-off bad debts. For example, where the business accounts for GST on a non-cash basis, a decreasing adjustment can be claimed where you've made the taxable sale and have paid the GST to the ATO and have subsequently not received the payment. However, the debt will need to have been written off as bad and has been overdue for 12 months or more. Businesses that account for income on cash basis will not be able to claim a deduction for bad debts. This is because these businesses only include an amount in their assessable income when it is received, therefore, bad debts will have no income tax consequences. If non-payment from customers or debtors is getting your business down, we can help you sort out the bad debts from the others and help you get a tax deduction or a GST adjustment when the time comes. Call us today for expert advice.

JobKeeper: compliance and repayment

Wed, 07 Apr 2021 23:00:00 GMT

As the JobKeeper program comes to a close, businesses should be aware that the ATO will continue to maintain the integrity of the scheme through compliance activities. While a majority of the businesses have legitimately used the JobKeeper to keep their businesses afloat, the ATO does have concerns with some businesses taking advantage inappropriately. In particular, it is looking at several areas of eligibility to the program including: the decline in turnover test; wage conditions for employees; employees that are not eligible employees or those that have not completed a nomination notice; claiming for more than one business participant by disguising them as employees; and claiming for individuals that are not eligible business participants. In addition to the above, the ATO noted it will also be reviewing businesses that appear to have contrived eligibility for the JobKeeper extension by manipulating their GST turnover to meet the actual decline in turnover tests and those that have claimed the incorrect higher tier rate for the employees/eligible business participants when they were only eligible for the lower tier payment. Businesses that have made inadvertent errors or honest mistakes are not usually required to repay any overpayments of the JobKeeper provided they contact the ATO regarding the mistake and the business has not retained any benefit (ie the JobKeeper payment was passed onto the employee). Of course, whether or not the business made an honest mistake depends on the circumstances of each case, but a mistake made earlier in the JobKeeper program would be more likely to be considered an honest mistake as there were less public guidance available. In circumstances where a business has not made an honest mistake, the ATO notes that it will be firm in requiring the repayment of JobKeeper overpayments, and in some instances it will also apply administrative penalties and/or pursue offences for false or misleading statements. Some businesses may also choose to voluntarily repay a JobKeeper amount, however, it should be noted that voluntary repayments may only be deductible in limited circumstances. According to the ATO, a deduction may be available if the repayment was made to prevent a reduction in business from negative publicity or to promote the business in the short term. It further notes that provided the business treated the original JobKeeper payments correctly as assessable income, and act in good faith to determine whether they are entitled to the deduction, compliance resources will not generally be applied to confirm if the payment was deductible. If a deduction is claimed for a voluntary payment, it must be done within the same income year in which the repayment was made.

Personal services income: a refresher

Wed, 24 Mar 2021 22:00:00 GMT

The ATO has recently updated its ruling on Personal Services Income (PSI) to incorporate a myriad of significant court and AAT decisions that have occurred since the original rulings were issued almost 20 years ago. So now is the perfect time for a refresher on the basics of PSI and associated personal services entities (PSEs). Firstly, PSI only applies to individuals and is income that is mainly reward for personal effort or skills. That is, more than 50% of the ordinary or statutory income received needs to be reward for personal efforts and skills of the individual. Income that is principally generated from supply or sale of goods, supply and use of income-producing assets, or by a specific business structure are not considered to be PSI. If you're determined to have earned PSI, the deductions that can be claimed will be limited to the deductions that you could've claimed if you were an employee and the income earned was salary and wages. This means that, for example, you'll be unable to deduct rent, mortgage, interest, rates or land tax in relation to a residence or part of a residence that you use to gain or produce PSI. To avoid that outcome, an individual/PSE can self-assess whether or not they conduct a Personal Services Business (PSB) in an income year, against one of the 4 tests set out below. If any one of the 4 tests is met during an income year, the PSI rules will not apply to limit deductions: results test – can be satisfied if at least 75% of a test individual's PSI in an income year is for producing a result as well as being responsible for the cost of rectifying all defects. The individual is also required to supply the plant, equipment and tools of trade needed to do the work. unrelated clients test – can be met if an individual or PSE gains or produces income during the year from 2 or more entities that are not associates or associates of the individual or PSE. The services must be provided as a direct result of making offers/invitations (eg advertising) to the public at large or a section of the public. employment test – is met where the individual/PSE engages one or more entities to perform at least 20% (by market value) of the individual/PSE's principal work. Note, however, test individuals of the PSE do not count towards the employment test. business premises test – can be satisfied if the individual or PSE maintains and uses business premises at all times during the income year that meet certain conditions such as being physically separate from premises used for private purposes. However, if more than 80% of the PSI or PSE's income is from one source (ie the same entity and/or its associates), then only the results test can be used to self-assess whether they conduct a PSB. Individuals and PSEs can also apply to the Commissioner for a Personal Services Business Determination to get certainty on their unique situation.

Travelling for work: what’s deductible?

Wed, 17 Mar 2021 22:00:00 GMT

As we move to a post-COVID world where borders, both domestic and international, start to open back up, the issue of deductibility of certain business travel expenses are again back on the agenda. The ATO has gotten on the front foot by recently issuing a draft ruling and associated draft compliance guidelines which explains the circumstances under which these expenses would be deductible. Generally, if you as an employee travels for work and stays away from your usual place of residence overnight in order to perform the work duties which gain you income, the accommodation, food and drink expenses you incur will normally be deductible. However, the expenses must have a sufficiently close connection to the performance of employment duties and activities. Example Scenario 1: Ian lives in Sydney with his family and accepts a job in Cairns. He flies to Cairns at the start of each week and returns to Sydney on Friday afternoon. While in Cairns, Ian lives in a self-serviced apartment and incurs expenses relating to groceries and eating out. The accommodation, food and drink expenses incurred by Ian is not deductible as it is private and domestic. He is not required to travel by his employer, rather he has incurred the expenses based on personal circumstances (ie he has chosen not to relocate to Cairns from Sydney). Scenario 2: Now imagine Ian accepted a Job with a company that has offices all around Australia, the role is based in Cairns but he has come to an agreement with his employer to attend the Cairns office 3-days per week and work in the Sydney office for 2 days. In this scenario, Ian's expenses of travelling to Cairns, associated accommodation, food and drink expenses would still not be deductible as again the travel is explained by his personal circumstances and not his employment duties (ie instead of relocating his usual place of residence to Cairns, he chooses to stay in Sydney). Scenario 3: Ian again lives in Sydney with his family, however, this time, he is employed by a company based in Sydney that has offices all around Australia, under the terms of his employment agreement, his regular place of work is the Sydney office but as a part of his management role he is required to travel to Cairns for regular meetings. When required to travel to Cairns, Ian stays overnight at a motel, attends the meeting and returns that afternoon. The expenses Ian incurs for accommodation, food and drink while attending these meetings in Cairns will be deductible as it is explained by his income-producing activities. These 3 simple scenarios illustrate the complexity in determining whether travel expenses are deductible, it all comes down to the individual circumstances of each case. There may also be further complicating factors in terms of deductibility depending on whether you're living-away-from-home or whether you have permanently relocated. In any case, to be able to deduct an expense, substantiation requirements will need to be met, so care should be taken.

ATO reminder: lodge your TPAR

Wed, 03 Mar 2021 22:00:00 GMT

The ATO has reminded businesses that provide various services to lodge their Taxable Payments Annual Report (TPAR) for the 2019-20 income year. It estimates that around 280,000 businesses were required to lodge a TPAR for the 2019-20 financial year, and around 60,000 businesses still have not complied with the lodgment requirements under the Taxable Payments Reporting System (TPRS). The reports were originally due on 28 August 2020, to avoid penalties businesses are encouraged to lodge as soon as possible. The TPAR was introduced to combat black economy which is estimated to cost the Australian community around $50bn or 3% of GDP. It is designed to help the ATO identify contractors or subcontractors who either don't report their income or under-report their income. While it originally only encompassed the building and construction industry, it is now required for any businesses that make payments to contractors/subcontractors and provides any of the following services: building and construction including plumbing, architectural, electrical, plastering carpentry, engineering and a wide range of other activities; cleaning services including interior and exterior cleaning of structures, vehicles, machinery and cleaning for events/COVID-related matters; courier services including delivery of items or goods (ie letters, packages, food etc) by motor vehicle, bicycle or by foot; road freight services including transportation of freight by road, truck hire with driver, and road vehicle towing services; IT services including writing, modifying, testing or supporting software either on site or remotely; and Security, investigation or surveillance services including patrolling and guarding people, premises or property, watching or observing an area or security systems etc. Remember, your business does not need to provide the above services exclusively to be captured under the TPAR system, if you only provide the service for a part of the year, or even if it is only a small part of your business, you may be required to lodge a TPAR. According to the ATO, if the total payments received from the provision of any of the above services equal or exceed 10% of your total annual business income, you'll be required to lodge a TPAR. For example, during COVID, many eateries, grocery stores, pharmacies and other general retailers pivoted to providing home delivery for their customers. As such, they may have needed to engage contractors or subcontractors to provide courier services, if the total payments received for these deliveries or courier services amount to 10% or more of their total business income, they will be required to lodge a TPAR even though they may not have needed to do so previously. If your business is required to lodge a TPAR, the details you'll need to report about each contractor should be easy to find and are generally contained on the invoice you receive from them. This includes details such as their ABN, name and address, and the gross amount paid for the financial year (including GST).

STP changes coming for small employers

Wed, 24 Feb 2021 22:00:00 GMT

While most businesses are already familiar with the Single Touch Payroll (STP) regime, small employers (19 or fewer employees) with closely held payees were exempt from reporting payroll information of those closely held payees through the STP for the 2019-20 and 2020-21 financial years. However, from 1 July 2021, those small employers must start reporting payments made to closely held payees through STP. In essence, closely held payees consists of individuals that are directly related to the entity from which they receive payments including family members in a family business, directors or shareholders of a company, and beneficiaries of a trust. If you're an employer with only closely held payees, you will just need to start reporting through STP from 1 July 2021, there is no need to notify the ATO of the fact that you only have closely held payees. Although, if you have both closely held payees and other employees that are at arm's length, you will need to report information for the arm's length employees through STP before each pay day. To help those small businesses with only closely held payees transition to STP, the ATO has outlined a few options available from 1 July 2021 below: report payments on or before the date of payment; report payments quarterly; or report a reasonable estimate quarterly. Generally, the STP quarterly report for your payees will include year-to-date amounts, ordinary time earnings (OTE), super liability for each payee, total gross wages for payments being reported, and total PAYG withholding payments being reported. If you choose to report quarterly, the report will be due on or before the due date for quarterly activity statements, and the quarterly option will not change the due dates for notifying and paying your PAYG withholding on your activity statement or making super guarantee contributions for your closely held payees. To use the reasonable estimates method, you as an employer must report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter. The ATO notes that it will remit any failure to withhold penalty you may incur if you report year-to-date withholding amounts and tax withheld that is equal to or greater than 25% of the payee's total gross payments and tax withheld from the previous finalised payment summary annual report across each quarter of the current financial year (in quarterly reports), and report and pay the tax withheld on time. In instances where you under-estimate amounts reported for closely held employees equalling more than 25% of their total gross payments for the last financial year and did not report this through STP, the ATO notes you may be liable for penalties and interest, as well as being unable to deduct the payment for income tax purposes.

Beware of ATO data-matching: motor vehicles

Wed, 27 Jan 2021 22:00:00 GMT

While the motor vehicle registries data-matching program has been running for around 16 years in various iterations, particular care should be taken for the current motor registries program as many businesses including sole traders would have taken advantage of the increase in the instant asset write-off threshold to purchase motor vehicles. Information will be acquired from motor vehicle registry authorities from all States and Territories for the 2019-20 through to 2021-22 income years including: identification details – names; addresses; phone numbers; date of birth for individuals; ABN; Australian company numbers for the purchasers, sellers, licenced dealers, fleet managers, leasing companies (or representatives); and the registering person for an unincorporated body. transaction details – date of transaction; type of transaction; sale price of the vehicle; market value of the vehicle; vehicle garage address; type of intended vehicle use; vehicle make; vehicle model; vehicle body type; year of manufacture; engine capacity or number of cylinders; tare weight; gross weight; VIN; registration number; transaction receipt number; state stamp duty exemption; reason for stamp duty exemption; and dealer licence number. The ATO estimates that records relating to approximately 1.5m individuals will be obtained each financial year and will be matched with internal data holdings to identify relevant cases for administrative action as well as determine the risk profile of taxpayers buying, selling or acquiring cars. The data matching program will encompass both new and used cars, any vehicles transferred or newly registered between 2019-20 to 2021-22 financial years with a purchase price or market value equal or greater than $10,000 will be captured. The data obtained will be used by the ATO in multi-pronged compliance programs to identify taxpayers buying or selling motor vehicles who may not be meeting their obligations to register and lodge returns (including activity statements) and ensure the correct reporting of income and entitlement to both deductions and input tax credits. This will involve luxury car tax, fringe benefits tax, fuel schemes, and income tax obligations. The ATO will also be using the data to support modelling/case identification and to provide a holistic view of a taxpayer's financial position in order to identify higher risk taxpayers with outstanding lodgments or undeclared income whose asset holdings may not be proportionate to their declared financial position. Following on from this, the data will also be used to support various taskforce programs including those delving into the black economy. Each financial year's data from the program will be retained by the ATO for 5 years from the receipt of the final instalment of verified data files. Therefore, taxpayers need to beware that the data obtained is likely to be used in different matching processes over multiple financial years. According to the ATO, the 5-year period supports its ability to conduct longer term analysis of the risks associated with asset accumulation.

ATO warning: watch out for tax avoidance schemes

Wed, 20 Jan 2021 22:00:00 GMT

Tax planning or tax avoidance? Do you know the difference? While tax planning is a legitimate and legal way to arrange your financial affairs to keep your tax to a minimum provided you make the arrangements within the intent of the law. Any tax minimisation schemes that are outside the spirit of the law is referred to as tax avoidance and attracts the ATO's attention. The ATO warns individuals to steer clear of tax avoidance schemes involving deliberate exploitation of the tax and super systems which may put them at risk of paying back tax, with interest and penalties. According to the ATO, most people get suckered into these schemes by promoters by promises of tax benefits that aren't legally available. These tax avoidance schemes range from mass-marketed arrangements advertised to the public, to individualised arrangements offered directly to experienced investors, other schemes may also exploit the social/environmental conscience of people or their generosity. As different as these schemes are, the common thread often involves reducing taxable income, increasing deductions, increasing rebates, or entire avoidance of tax or other obligations. The ATO notes that tax avoidance schemes may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. Schemes may also incorrectly classify revenue as capital, exploit concessional tax rates, or inappropriately move funds through several entities including trusts to avoid or minimise tax that would otherwise be payable. Currently, the ATO has its eyes on retirement planning schemes, private company profit extraction, and certain financial products. In relation to retirement planning, it has outlined non-concessional cap manipulation, life interests over commercial property, dividend stripping, some types of limited recourse borrowing arrangements, and personal services income as areas of concern. For private companies, the ATO is concerned with privately owned and wealthy groups with tax or economic performance not comparable to similar business and those with low transparency tax affairs, or unusual/large transactions with could be an indicator for shifting of wealth. Whilst a majority of financial products offered to retail investors do not raise concerns with the ATO, it has flagged a small number of products that promise to provide investors with tax benefits where those benefits may not be available to some or all investors who invest in the product. Additionally, there may be issues concerning whether interest and borrowing costs can be claimed as a tax deduction, transactions involving deferred purchase agreements, and various CGT issues. In some instances, there may be a very fine line between what ATO considers to be tax planning and tax avoidance. To ensure that you're not penalised for entering into potentially illegal schemes unknowingly, if you're unsure, or if something seems too good to be true, it is always prudent to consult a registered professional.

Budget super reforms on the horizon

Wed, 16 Dec 2020 22:00:00 GMT

More super changes are on the way with the release of draft legislation to implement super reforms announced in the 2020-21 Budget including single default account, best financial interests duty, and tackling fund under-performance. The reforms are designed to ensure that the super system deliver better outcomes for members. Under the proposed rules: employers will be required to make contributions on behalf of employees to the employee's existing "stapled" fund in certain circumstances, including where the employee has not chosen a fund. It will apply to employees who started their employment on or after 1 July 2021; trustees of registrable super entities, directors of the corporate trustee of a registrable super entity, and trustees of SMSFs must perform their duties and exercise their powers in the best financial interests of the beneficiaries, which reverses the evidential burden of proof. It may also prohibit certain payments, or prohibit certain payments unless certain conditions are met, regardless of whether the payment is considered to be in the best financial interests of beneficiaries; APRA will conduct an annual performance test for MySuper products, and other products specified in regulations. Trustees of the super entities will be required to give notice to members when a product fails the test. In addition, where a product has failed the performance test in 2 consecutive years, the trustee will be prohibited from accepting new beneficiaries into that product. It is envisaged that APRA may be able to lift the prohibition if circumstances specified in the regulations are satisfied. To allow taxpayers to make more informed decisions and increase transparency, APRA will also be able to rank various super products according to specified metrics including fee levels and investment returns. The results of which will be published on an interactive website by the ATO. These reforms will ensure underperforming super products are held to account. Contact us today if you would like to find out more about how these upcoming super changes will affect you. Remember, these and many other tax and super changes are coming in 2021 and beyond, we can help you stay one step ahead.

Data-matching program: online selling

Wed, 09 Dec 2020 22:00:00 GMT

Online sellers beware, the ATO has extended its current data-matching program for another 4 years to ensure that businesses and individuals are correctly meeting their registration, lodgment and tax obligations. The current program will affect most sellers on eBay Australia and New Zealand as well as Amazon. It is expected that around 20,000 to 30,000 account records will be obtained each financial year and matched with ATO data holdings to identify compliance issues. Compliance outcomes including taxpayer audits and voluntary disclosures are expected. Previously, the online selling data-matching program obtained its data from eBay Australia and New Zealand Pty Ltd and Amazon Commercial Services Pty Ltd and it is expected that the current program will obtain data from the same providers. The ATO estimates that details of around 20,000 to 30,000 account records will be obtained each financial year and that around half of that number will relate to individual sellers. Records obtained each year will be electronically matched with ATO data holdings to identify and address a number of taxation risks including: According to the ATO, insights obtained from the program will be used to inform treatment strategies to improve voluntary compliance through education on taxation obligations. It will also be used to increase understanding of the behaviours and compliance profile of individuals and businesses that sell goods or services via online selling platforms. While the data will not be used to directly initiate automated compliance activity, where high risk activity or compliance issues are identified, the ATO will commence compliance action. In previous years, the ATO used the online selling data-matching program to identify discrepancies between online sales and information declared in the sellers' tax returns. It was then used to deliver compliance outcomes for income tax and GST using taxpayer audits, voluntary disclosures and lodgments. It is envisaged that the current program will work in a similar way. If you are an online seller and are not sure whether you've crossed the threshold from a hobby to a business, we can help. We can also ensure that you have proper records to support your tax positions should the ATO come knocking. Contact us today for expert help.

Illegal phoenixing: ATO retaining refunds

Wed, 02 Dec 2020 22:00:00 GMT

A new administrative approach has been released by the ATO in relation to the exercise of the Commissioner's discretion to retain tax refunds where a taxpayer has an outstanding notification. Previously, the ATO was able to retain refunds where a taxpayer has an outstanding notification in relation to BASs or PRRT (petroleum resource rent tax), but this power has been extended to encompass all outstanding notifications in an effort by the government to combat illegal phoenixing. According to the ATO, in deciding whether a refund should be retained, consideration of seriousness of the taxpayer's behaviour ought to be weighed against potentially adverse consequences for the taxpayer. It notes some of the indicators of high-risk behaviour by taxpayers include poor past and current compliance with tax and super obligations, bankruptcies or insolvencies, tax-related penalties and sanctions, and participation in or promotion of aggressive tax planning arrangements, schemes, fraud or evasion and criminal activity. Other circumstances where the Commissioner may consider retaining a refund include instances where phoenix behaviour has been displayed by the taxpayer, its associates or controllers. The ATO outlines features of phoenixing as involving cyclically establishing, abandoning or deregistering companies to avoid legal and financial obligations, insolvencies, stripping assets from a company and transfer of assets at an undervaluation. If the ATO suspects phoenixing or where a taxpayer has been identified as high risk, the Commissioner has the power to retain the refund until the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever happens first. The ATO notes that while it is not required by law, it will send written communication explaining that the refund has been retained, the amount retained, and the outstanding notifications required to be lodged. The ATO notes the communication will also explain to the taxpayer why retaining the refund was considered necessary and the reasons why the decision has been made. Additionally, the actions that the taxpayer can take to prevent their refunds from being retained in the future will be outlined. If you're affected by the Commissioner retaining your refund, remember the decision is externally reviewable, and where the Commissioner makes an assessment of the underlying amount, you are able to object to the assessment. Individuals that can demonstrate that the retention of the refund will cause serious financial hardship (ie being unable to afford the basic necessities of life), may be refunded the retained amount. Non-individuals may also apply for the retained amount to be refunded if they can show that the inability to give the outstanding notification by the original due date was directly caused by circumstances beyond their control.

Visibility of super in family law proceedings delayed

Wed, 25 Nov 2020 22:00:00 GMT

In an effort to increase economic security for women in the event of divorce, the government had previously proposed to introduce a measure to improve the visibility of superannuation assets in family law proceedings. Currently, getting full visibility of superannuation assets in family law matters when one party does not cooperate can become complex, time-consuming and costly. It usually requires parties to go on "fishing expeditions" using subpoenas and other formal court processes with no guarantee of success. The logic for the government introducing this measure is that superannuation is often the most significant asset in the property pool of separated couples, however, the super balances of women nearing retirement are 42% lower than those of men. In addition, it is estimated around 60% of women suffer some form of financial hardship within 12 months of separation. This hardship can also be perpetuated by a lack of financial disclosure by a former partner, which can result in women receiving a smaller share of property than they would be entitled to. Practically, to implement the measure, the government has proposed to provide $3.3m to the ATO to develop an electronic information sharing mechanism between the ATO and the Family Law Court in each State to allow super assets held by relevant parties during family law proceedings to be identified swiftly and more accurately. To enable that to happen, current secrecy provisions will be changed to allow ATO to provide this information. For example, consider the situation where a couple (A and B) has decided to end their partnership and are now seeking orders in the Family Law Courts to decide their property. If A has multiple superannuation accounts and only discloses the details of one of the accounts and refuses to provide further information despite repeated requests. B will be forced to apply to various superannuation funds and subpoenaing A's employment records to obtain the necessary information which will be costly and time-consuming. After the measure becomes law, the Court will be able to seek this information directly from the ATO through the electronic information sharing system without the need for all the extra work from B. While the measure was originally scheduled to be operative by July 2020, it has since been delayed by the government's focus on COVID economic stimulus and the complexity involved in the mishmash of different family law jurisdictions in each state. However, according to the Minister for Superannuation and Financial Services, Senator Jane Hume, the government remains committed to the measure and the legislative amendments required to implement this measure would be introduced by mid-2021. This means that the proposal is not likely to be operative until July 2021 as the earliest.

ATO post-COVID expectations for businesses

Wed, 18 Nov 2020 22:00:00 GMT

In a recent speech, ATO's Second Commissioner of Client Engagement, Jeremy Hirschhorn, outlined the expectations of businesses during the COVID era and warns against using loopholes to obtain benefits from government stimulus packages. He noted that while companies are largely compliant with 92.5% voluntary compliance at lodgment and 96.3% after compliance activity, the ATO is seeking to increase the percentages to 96% and 98% respectively. According to the ATO, those businesses accessing government stimulus packages should not only follow tax law, but also the spirit of the law. It notes for example although there was nothing explicit in the stimulus measure rules that prevented companies from paying executive bonuses or paying shareholders while accessing these benefits, it urged companies to "consider the optics" of such a move. In addition, the ATO notes that the other measures encouraging businesses to invest, including the immediate deduction for assets and carry back losses should only be used by businesses for the purposes which they were introduced. Businesses are discouraged from entering into artificial mechanisms to take advantage of the measures. For example, structured transactions where the plant and equipment are not actually used in the business, intellectual property migration with no change in real activity, asset swaps with related parties etc. Similarly, loss carry back should not be used to artificially shift profits (and losses) around company groups. Further, companies with complicated tax situations that find themselves under audit, are encouraged by the ATO to "[O]pen communication, engagement and transparency [which] creates space for the parties to work better together to resolve differences and even in circumstances where resolution is not achieved, refine and narrow the issue in dispute". The ATO encourages corporate taxpayers to use information published by the ATO to compare their performance against those of their peers in relation to income tax. It also urges those taxpayers to use its GST analytic tool which allows businesses to reconcile financial statements to BASs thus identifying and testing appropriateness of variations or differences, as well as its GST best practice governance guide. For businesses unsure of the certainty of their material tax positions, the ATO encourages obtaining assurance commensurate with importance. For example, if the tax position the business has taken is a key piece of the corporate infrastructure, then a private binding ruling should be sought. Mr Hirschhorn notes that it is "an unambiguously bad idea to rely on non-detection by the ATO". Businesses have been entrusted by the government with leading economic recovery with a range of stimulus measures, according to the ATO, and with it comes increased expectations around corporate behaviour including tax. Ultimately, it says a tax system is about underpinning a country's social contract, by collecting the revenue that funds its program and services.

SMSF asset valuations: COVID-19 concessions

Wed, 11 Nov 2020 22:00:00 GMT

One of the many responsibilities of being a trustee for an SMSF is preparing financial statements and accounts for the SMSF every year. As a part of this reporting process, the trustee is also required to ensure that the fund's assets contained in the report is at market value as per the various superannuation regulations. According to the ATO, when valuing real property that represents a significant portion of the fund's value, it is prudent for the trustee to use a qualified independent external valuer. Although an external valuation is not required each year, if the trustee believes that the current valuation has become materially inaccurate, or the property has become affected by external events (ie natural disaster, COVID etc), a new valuation should be obtained. Real estate agent appraisals stating what the property is likely to sell for based on sales in the areas, without listing details of those sales is not considered to be sufficient and appropriate on its own. Documentation that the ATO considers to be acceptable evidence for substantiating the market value of real property other than an independent external valuation include: independent appraisals from a real estate agent (kerb side); contract of sale if the purchase is recent and no events have occurred to the property that could materially impact its value since the purchase; recent comparable sales results; rates notice (if consistent with other evidence on valuation); and net income yield of commercial properties (not sufficient evidence on their own and only appropriate where the tenants are unrelated). SMSF trustees are then required to provide these objective and supportable evidence to their auditor. Where an auditor deems there not to be sufficient or appropriate evidence to enable them to form an opinion of whether the asset was valued at market value, they must modify their audit report and consider whether an Auditor/actuary contravention report (ACR) should be lodged. Due to the COVID-19 impacts on the 2020 and 2021 financial years, the ATO has provided a concession for trustees of SMSFs in relation to valuation evidence. It notes that where a trustee has difficulty obtaining valuation evidence, auditors should still consider modifying Part B of the audit report and lodge an ACR if necessary. In addition, auditors should provide reasons on the ACR as to why the trustee was unable to obtain the appropriate evidence. Once the auditor lodges their report, the ATO will then determine whether the difficulty in obtaining evidence was due to the impacts of COVID-19. If it is satisfied that COVID-19 was the cause, then the contravention will not result in penalties, and the trustee will receive a letter to ensure that they comply with the valuation guidelines for the next audit. Otherwise, penalties may apply.

JobMaker: how your business can take advantage

Wed, 04 Nov 2020 22:00:00 GMT

The Government has released details of what it calls its "JobMaker" hiring scheme. It will take the form of a payment to employers for each new job they create over the next 12 months. It is estimated that the scheme will cost $4 billion and support about 450,000 employees. So it could help a lot of businesses and there is quite a bit of money up for grabs – up to $200 for each "new" employee each week! It is available for eligible individuals who commence work between 7 October 2020 and 6 October 2021. Note the use of the term "eligible" – there are certain conditions that must be met before an employer can receive the payment. First up, the employee must be aged between 16 and 35 years at the time they start work. One crucial thing to note is that the payment rate is higher for those aged 16 to 29 years than it is for those aged 30 to 35 years. Further, each employee must work an average of 20 hours a week for the JobMaker period (a rolling 3-month period). There are other important conditions to be met. For example, the new employee must, for 4 out of the 12 weeks preceding the employment start date, have received either the parenting payment, the youth allowance or the JobSeeker payment. In other words, individuals must have come from having had recent government support to employment. Hence, people who are changing employers, eg switching from one full time job to another, will not be eligible. The type of employer who can benefit from the scheme is pretty broad. It is open to those who are carrying on a business at the time they elect to participate in the scheme. The employer must already have an ABN and be registered to withhold PAYG. The ATO has flagged that the requisite information will be provided through the Single Touch Payroll system, so if you are not using STP, then you cannot participate in the scheme. To participate in the scheme, employers must be up to date with their tax return and BAS lodgments. Employers must also have an overall headcount increase as a result of taking on more employees. This is measured by comparing the employee count in the JobMaker period to the number of employees on the books at 30 September 2020 (this reference point will change over time). In addition, employers must have what is termed a "payroll increase" in the JobMaker period. This is worked out by comparing the total payroll in a JobMaker period to the payroll for the period that ended immediately before 6 October 2020 (and, again, this will change over time). This test is designed to stop employers cutting the wages of existing staff so as to access JobMaker.

Ongoing data-matching apprentices and trainees

Wed, 28 Oct 2020 22:00:00 GMT

The Department of Education, Skills and Employment (DESE) has commenced a new data matching program with the ATO in relation to the Supporting Apprentices and Trainees (SAT) measure. The objective of the program is to confirm that an employer is eligible to receive the SAT subsidy and validate information provided by the employer. It also seeks to confirm that employers are not claiming both the SAT and JobKeeper at the same time for the same employee. To be eligible under SAT, an apprentice must have been in an Australian Apprenticeship with a small business as at 1 March 2020. The program has since been expanded to include medium-sized businesses who had an apprentice in place on 1 July 2020. Employers of any size who re-engage an eligible out of trade apprentice are also eligible to claim the SAT wage subsidy. Eligible employers under SAT can apply for a wage subsidy of 50% of the apprentices' or trainees' wage paid until 31 March 2021. It is estimated that data relating to around 117,000 apprentices and trainees and more than 70,000 employers will be transferred between DESE and the ATO. While the first data-matching activity is intended to be conducted as soon as possible, it is expected the program will be ongoing with data transfer to occur at regular intervals as required over the life of the measure. DESE will first provide the ATO with information relating to employers and apprentices that have been extracted from their systems. The ATO will then match that information against their own data holdings and provide information on employers that claimed eligibility for SAT as a small business or claimed the SAT wage subsidy and the JobKeeper at the same time for the same individual. To avoid mistakes, the ATO will be using sophisticated identity matching techniques which uses multiple details to obtain an identity match (eg name, address, date of birth). Additional manual processes may also be undertaken where a high confidence identity match does not occur. This involves an ATO officer reviewing and comparing third party data identity elements against ATO information on a one-on-one basis, seeking sufficient common indicators to allow confirmation (or not) of an individual's or business' identity. DESE will then use the information sourced from the ATO to verify its own data holding, and a manual process will be undertaken by a DESE officer to compare the information. All discrepancies and anomalies will be dealt with on a case-by-case basis. In instances where the DESE detects a discrepancy or an anomaly that requires verification, it will contact the business and provide them with an opportunity to verify the accuracy of the information on which the eligibility was based. According to the DESE, businesses will be given at least 28 days to respond and individual circumstances, if any, will be taken into consideration.

How to claim your work at home expenses

Wed, 21 Oct 2020 22:00:00 GMT

There are a lot more of us working from than ever before. So, can you claim all or some of the additional costs off your tax? There are 3 options for claiming working from home expenses. The question of whether it's all or some depends on the method chosen. First, employees working from home can calculate the deduction by using a fixed rate. This is set at 80 cents for each hour worked at home – the ATO calls this the "shortcut method". It was introduced as a result of the large number of people working from home due to COVID-19. Second, prior to the shortcut method being announced, the fixed rate was 52 cents for each hour worked at home. This can still be used. The third option is where all the actual costs are recorded and apportioned on the basis of the work-related proportion. It for largely used by people who have a home office, eg a doctor's consulting rooms within a private residence – so we won't focus on it now. However, please contact us if you think it may apply to you. The 80-cent rate is simple and easy. To qualify, a taxpayer must be working from home and must incur additional running expenses. For example, if a home computer had only ever been used for private purposes and is now being used to fulfil employment duties or in running a business, it would be an additional running expense. The ATO states that minimal tasks such as occasionally checking email or taking calls while at home will not qualify as working from home. The work must be "substantive ". The 80-cent rate covers all additional running expenses, including electricity and gas, cleaning, phone and internet. If this method is used, no other work from home expenses can be claimed. Taxpayers do not need to have a dedicated area to use the 80-cent rate. So, you can put the computer on the kitchen table, work away and claim the deduction. However, taxpayers will need to keep a record of the hours they have worked at home, which can be in the form of a diary (or timesheets, rosters etc). The 52-cent rate method also applies to what the ATO terms "running costs". It is 52 cents for each hour worked at home and is intended to cover the expenses such as electricity and gas, and the cost of repairs to home office equipment, furniture and furnishings. However, it is more important to know what the 52-cent rate does not cover. It excludes things like phone and internet, computer consumables and stationery and depreciation for items like phones, computers and laptops. If you want to claim for these expenses (like a new laptop), then you need to calculate their work-related use separately. This requires diaries, receipts, detailed phone accounts etc, but can give you a bigger deduction. To use the 52-cent rate, taxpayers must have a "dedicated work area", such as a home office.

Budget 2020 – what’s in it for me?

Wed, 14 Oct 2020 22:00:00 GMT

Budget 2020 – what’s in it for my business?

Wed, 07 Oct 2020 22:00:00 GMT

The Treasurer has handed down his second Budget amid challenging economic conditions, it is perhaps no surprise that in a Budget "all about jobs" that there would be plenty of sweeteners for businesses. Some of the more salient measures announced include the extension of small business tax concessions, outright deductions of capital assets until 30 June 2022, loss carry-back, and clarification of the corporate residency test. Extension of small business tax concessions A range of tax concessions currently available to small businesses will be extended to medium sized businesses which includes businesses with an aggregated annual turnover between $10m and $50m. This extension will happen in 3 phases, with eligible businesses being able to immediately deduct certain start-up expenses and prepaid expenditure in phase 1 starting on 1 July 2020. Phase 2 will start on 1 April 2021 and include FBT exemptions on car parking and multiple work-related portable electronic devices. Phase 3 of the extension will occur from 1 July 2021 and will allow eligible businesses to use simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, reduce the time limit for the ATO to amend income tax assessments to 2 years, and expand the simplified accounting method determination for GST purposes. All other small business tax concessions will retain the current eligibility turnover thresholds. Outright deductions of capital assets The government will be allowing all businesses with an aggregate turnover of less than $5bn to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022. For small to medium sized businesses, a full deduction will apply to new and second-hand assets as well as cost of improvements to existing eligible assets. There is a limit for larger businesses on the deduction of second-hand assets. Loss carry-back Companies with aggregated turnover of less than $5bn will be able to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously tax profits in the 2018-19 or later income years. The tax losses applied against tax profits in a previous year will generate a refundable tax offset in the year in which the loss is made, however, the refund will be limited to the amount of earlier tax profits. The tax refund will be available by election for eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies do not have to use the loss carry-back and can choose to carry losses forward as normal. Clarification of corporate residency test The government has flagged that it will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has significant economic connection with Australia. This test will likely be satisfied where both the company's core commercial activities are undertaken in Australia and its central management and control is in Australia.

New Centrelink and ATO data matching program

Mon, 05 Oct 2020 22:00:00 GMT

Centrelink and the ATO have commenced a new data matching program in relation to the use of Single Touch Payroll (STP) data. Broadly, the program will involve the exchange of STP data from the ATO to Centrelink (or Services Australia) in relation to individuals that have a client relationship with the agency. The data will then be matched against Centrelink held records and information. For the purposes of this data matching program, clients of Centrelink include: an individual who is in receipt of or claiming a payment or service such as an income support payment, family assistance payments, low income card, and a child support paying parent. a related individual of the above, whose income may have an effect on the payability or ongoing entitlement to a payment of the individual above. This includes a partner/ex-partner, or a debtor (eg a non-current client who has an outstanding debt to Centrelink and where it is their responsibility to repay a debt). The data matching program will apply for the 2019-20 and 2020-21 financial years and it is estimated that around 460m pay events related to STP will be exchanged in relation to approximately 10-12 million individuals. This figure may fluctuate depending on the economic impacts of COVID-19 and associated supports (ie JobSeeker). Data exchanged in the program will consist of basic identifying information including name, date of birth, postal address, gender, and assigned CRN (or TFN for Child Support). Once an individual has been matched using the basic identifying information, a more detailed exchange of STP information will follow including employers' ABN and contact information, year to date salary and wages (ie income, allowances, deductions, and employment termination payments), and pay period details (ie start and end dates, and payment dates). Note the employment commencement and cessation dates will be used to identify when the sharing of STP data is no longer necessary. Centrelink notes that data quality mechanisms will be implemented in this data matching program meaning that ATO will only provide data for mutual clients where it has "high confidence" that they have identified the correct individual. If an individual cannot be confirmed as a mutual client of interest of both the ATO and Centrelink, no STP data will be exchanged. Safeguards will be present where key data elements fail validation or there is unexpected or out of order payroll processing of STP data. This consists of quarantining the data from use or flagging the data to minimise misinterpretation. According to Centrelink, matching data is one of the key controls it uses to manage the risk of fraud and non-compliance. Specifically, in this case, this data matching program will: deter behaviours so individuals adhere to their obligations; support existing enforcement and recovery activities; and enable Centrelink to provide early intervention to educate customers about what information needs to be provided to meet their income reporting obligations.

Helping hand from the ATO for struggling businesses

Wed, 30 Sep 2020 23:00:00 GMT

With the country officially in recession, the ATO is getting ready to help businesses that are struggling due to the economic downturn caused by COVID-19. It expects that for the 2019-20 and 2020-21 years, many businesses that ordinarily turn a profit may be making a loss, and for some businesses it may be the first time that they are making a loss. Businesses that find themselves in a loss-making position are urged to keep proper records to ensure that they can claim the deduction they are entitled to. For sole traders or individual partners in a partnership, you may be able to offset your business losses against other assessable income (eg salary and wages or investment income) in the same income year if you meet at least one of the non-commercial loss requirements. If you do not meet any of the non-commercial loss requirements you can defer the loss or carry it forward and offset it when you next make a profit from your business. Businesses set up under a company structure that make a tax loss can generally carry forward that loss as long as they want and claim a deduction for when the business makes a profit in a future year. Generally, records will need to be kept for 5 years for most transactions, however, if a tax loss is fully deducted in a single income year, records will only need to be kept for 4 years from that income year. When calculating a business loss for the year, the ATO wants all taxpayers to double check their calculations to ensure that the expenses claimed are related to the business activity, apportionment (if any) has occurred, no private expenses have been claimed, and the amount is correct. Further, it notes that some deductions can't be used to create or increase a tax loss such as donations, gifts, and personal super contributions, so business owners should be careful. Business owners with businesses still temporarily closed due to COVID-19 restrictions nevertheless need to keep up with tax and super obligations according to the ATO. It says those businesses can ask for additional time or support if needed either from their tax professionals or from the ATO. For business owners intending to permanently close their businesses, any outstanding tax obligations will still need to be dealt with. For example, outstanding activity statements and instalment notices will need to be lodged, a final activity statement and final tax return will also need to be lodged in order for the ATO to finalise the account and issue any refunds your business is entitled to. The ATO says it is ready to assist businesses navigate the economic conditions caused by COVID-19, including not applying penalties and interest in certain circumstances.

Flexibility for SMSF membership coming soon

Wed, 23 Sep 2020 23:00:00 GMT

The government has recently reintroduced a Bill to Parliament that proposes to increase the maximum number of allowable members from 4 to 6. The contents of the Bill were previously contained in the 2018-19 Budget and introduced into Parliament before being unceremoniously dropped due to lack to support from the Opposition at that time. The reintroduced Bill proposes to amend the relevant sections of the superannuation legislation to require an SMSF to have fewer than 7 members (currently it is fewer than 5) to satisfy the definition of an SMSF. This change, according to the government will provide flexibility to many SMSFs with aging members and those with larger families. By allowing more members, it is envisaged that families with up to four children can be a part of a single-family super fund to implement intergenerational solutions for managing long-term investments. It would also allow better planning around contribution caps and transfer balance account limits. For example, allowing 6 members in an SMSF could provide opportunities to improve cash flow by using the contributions of younger members to make pension payments to members in retirement phase, without needing to sell a long-term investment, whether that be a property or a stake in a business. Currently, the only option for families with more than 4 members is to create 2 SMSFs which increases compliance costs and complexity. Even though the proposal to allow more members in an SMSF is seen to be largely advantageous, anyone contemplating utilising this once it becomes law should be careful. One obvious drawback is that each member of an SMSF must also be a trustee of the fund, hence adding extra members will have implications for the fund's trustee arrangements. As an example, if a current 2 member SMSF (a couple of retirement age) add 3 of their adult children to the fund, it can add complexity to the fund's management and investment strategy as well as impact on who controls the fund in the event of a dispute. This is especially relevant in the event of the death of a member, as the surviving trustees have considerable discretion as to the payment of the deceased's super benefits (subject to any binding death benefit nomination). There have been many cases in recent years involving trustees of SMSFs after the death of the member mostly involving whether the deceased's super benefits ought to be paid to certain parties. Some of these cases have proceeded all the way to the Supreme Courts of their respective states, costing considerable time and money. Therefore, any decision to add extra members if this proposal becomes law should be carefully considered and not taken lightly.

Bankruptcy concessions extended for 3 months

Wed, 16 Sep 2020 23:00:00 GMT

The Federal Government has announced that it will extend the special rules applying to bankruptcy actions and director personal liability claims. The rules were implemented in March to prevent a wave of bankruptcies and court actions being caused by the pandemic economic downturn, before businesses had a chance to recover – the end date extended from 28 September to 31 December 2020. Normally, the bankruptcy rules apply to a debt of $5,000 or more. While the concessions in place, this is $20,000. In addition, if a creditor flags its intention to present a debtor's petition, the debtor is protected from enforcement action for 6 months (normally it is 21 days). There are also rules designed to protect directors of companies personally, termed a "safe harbour". It provides directors with relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business. Directors otherwise have an overriding duty to prevent insolvent trading. A director may rely on the safe harbour in relation to a debt incurred by the company if the debt is incurred: in the ordinary course of the company's business; during the period starting on 24 March and ending on 31 December 2020; and before any appointment of an administrator or liquidator of the company during this period. A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business. For example, a director taking out a loan to move some business operations online or to continue to pay employees during the pandemic. For companies struggling to pay their debts, the extension will be a welcome relief. The concessions are designed to provide time for businesses to get back on their feet and trade their way out of difficulty. A word of caution for those of you with customers struggling to pay debts – the extension may not be the remedy to their problems. The question is – can a customer get back on his or her feet? It might be sensible to review all debts and debtors to see if a different payment scheme is called for, eg pre-payments (with discounts), a retainer or annual fee, or a pre-agreed fixed monthly payment through direct debit. This is something that may be negotiated with long-standing customers or clients with whom you have a good understanding.

End of super guarantee amnesty: what’s next?

Wed, 09 Sep 2020 23:00:00 GMT

The government's super guarantee amnesty has now officially ended. If your business applied to the ATO and the application was received on or before the cut-off date of 7 September, your work isn't done yet. Remember, to retain the benefits of the amnesty, your business is required to either pay the amount in full or enter into and adhere to a payment plan for any unpaid amounts. So, if the ATO has advised your business that the disclosure you made was eligible for the amnesty, you must pay the super guarantee charge (SGC) amount disclosed in the amnesty application directly to the ATO. It shouldn't be paid to your employees' super funds or through a clearing house. Due to the current economic situation, it is understandable that many businesses are unable to make such payments in full. If your business finds itself in that situation, you can contact the ATO to establish a payment plan which allow you to retain the benefits of the amnesty. According to the ATO, payment plans include arrangements which have flexible payment terms and amounts and can be adjusted if your circumstances change. If you're on a payment plan, keep in mind that you can only claim a tax deduction for eligible amnesty payments made from 24 May 2018 to 7 September 2020. Any payments made after 7 September are not tax deductible. In situations where businesses are unable to maintain the agreed upon payment plan, the ATO notes that they will be disqualified from the amnesty and any amnesty benefits will be removed for unpaid quarters. Businesses will be notified in writing that their disclosure is disqualified from the amnesty and will have to pay the usual administrative and other penalties. If your business made an application for amnesty that was received by the ATO after 7 September 2020, it will be treated as a standard lodgement of a SGC statement. The ATO will notify your business in writing of the quarters that aren't eligible for the amnesty and charge you the administration component of $20 per employee per quarter. In addition, the ATO will consider your individual circumstances and decide whether the Part 7 penalty (up to 200%) should be remitted. The ATO has recently outlined a 4-step penalty remission process including consideration of a business' attempt to comply with SGC obligations, compliance history, other mitigating factors and circumstances (eg voluntary action prior to compliance action, illness of key employee etc), and any exceptional circumstances (eg natural disaster, severe illness etc).

Be careful when changing business structures

Wed, 02 Sep 2020 23:00:00 GMT

If your small business has not only survived but thrived during the pandemic, you may be considering a change of business structure, typically from sole trader to more complex arrangements such as a company or trust structures. Any changes should be well thought-out and carefully implemented to avoid costly mistakes. Most small businesses are sole traders with the individual as the owner and controller of the business. While it is the simplest and cheapest business structure, sole traders are legally responsible for all aspects of the business. This means that debts and losses cannot be shared with other individuals, and while you can employ workers in your business, you cannot employ yourself. Hence, as a sole trader you cannot claim deductions for money taken from the business as "wages" even if you think of them as wages. Usually, as a sole trader, you would use your individual tax file number when lodging your income tax return, and report all your income using the section of business items to show your business income and expenses. The tax you pay will be at the same income tax rates as individual taxpayers although you may be eligible for the small business tax offset. If your business is ready to move to a more complex structure, a company structure may be for you. A company is a legal entity within itself and pays tax at the company rate which may be lower than the personal tax rate you would pay as a sole trader. It may also be eligible for small business concessions and provides some asset protection. The downside of a company structure includes higher set-up and administration costs and additional reporting requirements. Some of the common mistakes made by sole traders moving to a company structure include reporting income for the wrong entity (ie continuing to report income as a sole trader) and personal use of business bank accounts. As the company is a separate legal entity the money that the company earns belong to the company and individuals that control the business cannot take money out of the business except as a formal distribution of the profits or wages. If you decide to convert your sole trader structure into a company structure, you should be aware that if you use company assets as a director or shareholder, it must be treated as a benefit. Div 7A or FBT provisions could apply if you do not treat these benefits correctly. Setting up a trust is perhaps the most expensive option when considering a change in business structure as a formal deed is required outlining how the trust will operate and there are formal yearly administrative tasks for the trustee. Note a trustee is legally responsible for the operation of the trust and can be an individual or a company, but you opt for a company as a trustee, there will be additional set up costs. However, the benefit of a trust is the flexibility it affords the trustee to distribute income amounts to adult beneficiaries depending on the trust deed. In addition, if all trust income is distributed, the trust is not liable to pay tax and each beneficiary reports the income in their own tax return which may be advantageous if one or more beneficiaries are on a lower tax bracket.

End of repayment holidays: what you should expect

Wed, 26 Aug 2020 23:00:00 GMT

If you're one of the many Australians that has taken up loan payment deferrals for their homes or businesses, beware as the repayment holiday for most financial institutions is due to end in September. According to APRA data, 11% of housing loans were deferred and 17% of small business loans were deferred as at 30 June 2020. While the data shows encouraging signs of an increasing number of loans exiting from repayment deferral towards to end of 30 June, there are still a significant number of loans still on deferral. These loans are more likely to be owner-occupier borrowers, making both principal and interest repayments and have a higher loan to value ratio than other housing loans. To ensure that these consumers are protected, ASIC has outlined some expectations of lenders during this period. First and foremost, ASIC expects lenders to have processes in place that will allow for orderly transition from deferral to starting repayments, and importantly, deliver consumers appropriate and fair outcomes. So, if you're one of the those that have deferred your loan, you should expect your financial institution to contact you about the expiry of the deferral. According to ASIC, lenders should make reasonable efforts to contact consumers prior to their repayment deferral expiring and the contact should be timely and allow for consumers to have reasonable time to consider their options. This could include information on how assistance arrangements may affect repayments and the cost of their loan over the longer-term. While ASIC expects lenders to contact borrowers using a range of communications channels if a consumer does not respond, remember that the efforts only have to be "reasonable". Therefore, borrowers cannot be purposely avoiding contact or expect their lenders to make extraordinary efforts to contact them. If you already know that you cannot return to full repayments on your loan due to the current economic situation, you should make it clear to your lender when you first get contacted. Your lender should then contact you directly through a phone call to discuss your financial circumstances and whether it would be appropriate to offer further assistance. ASIC notes that lenders' processes in relation to loan deferrals should be flexible and empower staff to offer tailored assistance that genuinely addresses the needs of the borrower. It expects lenders to make all reasonable efforts to work with borrowers to keep them in their home if that's in their best interests. Although ASIC says it recognises that there will likely be some circumstances where offering a borrower further temporary assistance may make their situation worse. Those instances, it says will need to be carefully identified and involve a high level of engagement. If you're unhappy with your lender's response or actions, you can make a complaint to the Australian Financial Complaints Authority (AFCA).

More employees now eligible for the JobKeeper

Wed, 19 Aug 2020 23:00:00 GMT

Due to lagging economic recovery and a second wave in Victoria, the Government has enacted rules to extend the eligibility of its JobKeeper program so that more employees may be eligible than before. Given that JobKeeper is now to run until March next year, it is important to get any newly qualified employees into the system as soon as possible. The way JobKeeper was originally set up was to determine employee eligibility as at 1 March 2020. However, this date has now been changed to 1 July 2020. The result is that any employees who were employed after 1 March (but before 1 July) can now qualify for JobKeeper. That is, it is available for new employees engaged after 1 March. It also means that employees who did not qualify as at 1 March may do so as at 1 July. For example, this may be relevant for long-term casual employees who had not clocked up the requisite 12 months as at 1 March but have done so by 1 July. The new rules cover individuals who have changed employers. For example, those employees who had nominated with one employer as at 1 March 2020 can re-nominate with another employer as at 1 July 2020. An individual who re-nominates as an eligible employee of a new employer is excluded from being an eligible employee of the old employer (ie no double dipping). A key condition is that the individual must have ceased their employment with the first employer before 1 July 2020 and commenced their employment with the new employer by 1 July 2020. The reason for the cessation of employment is not relevant, eg the employee could have had his or her employment terminated, he or she could have resigned, or the employer may have ceased to exist. The changes also cover employees who were employed as at 1 March but who had been let go by their employer due to the COVID-19 downturn, but were subsequently re-employed by the same employer. In fact, the rules cover employees who have been or will be re-engaged by the same employer after 1 July 2020, ie they can nevertheless qualify for JobKeeper. In other words, there is no time limit on when this can happen. However, the eligibility of an individual re-employed by the same employer is not preserved if the individual re-nominated for another employer. Employers currently receiving the JobKeeper must review the status of all employees to determine if any are newly qualified and make the relevant business monthly declaration (due by 14 September). In addition, businesses will need to pay at least $1,500 for each of the 2 fortnights commencing 3 August to ensure the money is received by the employee(s) by 31 August. Those newly qualified employees will need to return the nomination notice to their employer as soon as possible.

Reminder: more businesses need to lodge TPAR

Wed, 12 Aug 2020 23:00:00 GMT

Among the chaos of the pandemic, many businesses may not be aware that they will be required to lodge a Taxable Payments Annual Report (TPAR) for the first time this year. Your business may need to lodge a TPAR if payments were made to either contractors or subcontractors to provide certain services. In previous years, the TPAR applied to businesses that hired contractors to provide building and construction, cleaning and courier services. However, this year, it will be expanded to apply to businesses that pay contractors to provide road freight, information technology, and security, investigation or surveillance services. Under the expanded TPAR, road freight services include the provision of transportation of freight by road, truck hire with driver, and road vehicle towing services. Information technology services include writing, modifying, testing or supporting software to meet clients' needs, whether on site or remotely through the internet. Security, investigation or surveillance services includes the patrol and guarding of people, premises or property, watching or observing an area and monitoring security systems as well as investigation specifically related to security and surveillance, not just information gathering. While most businesses captured under the TPAR would naturally be in the industries listed (ie building and construction, courier, road freight services etc), there may be some surprising businesses captured this year. For example, any restaurants, cafés, grocery stores, pharmacies or other retailers that have hired contractors as a result of COVID-19 to deliver goods to customers may have to lodge the TPAR this year. This may also apply to hotels involved in quarantine which were required to hire their own security contractors. Remember, contactors in under TPAR can include subcontractors, consultants, and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts. The detail that needs to be reported for each contractor includes ABN, name and address, gross amount that was paid for the financial year (including any GST). The ATO uses information reported on the TPAR to make sure that contractors are complying with their tax obligations, including being registered for GST, lodging BAS and income tax returns, using valid ABNs, reporting the correct amount of income and paying the right amount of tax. It is also encouraging businesses to actively use the ABN Lookup tool to ensure contractors are quoting valid ABNs on their invoices to ensure the success of the taxable payments reporting system. According to the ATO, more than 280,000 businesses will have to complete a TPAR for the 2019-20 income year. As at late July 2020, only around 16,000 have lodged the TPAR, so there are still a large number of businesses that have yet to lodge with the deadline being only 2 weeks away (28 August 2020). Lodgement can be done online through various portals or your registered tax agent.

Director identification numbers now law

Wed, 05 Aug 2020 23:00:00 GMT

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

Tue, 28 Jul 2020 23:00:00 GMT

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

Mon, 22 Jun 2020 23:00:00 GMT

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

Thu, 18 Jun 2020 23:00:00 GMT

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.

Non-arm’s length expenditure and SMSFs: compliance

Mon, 15 Jun 2020 23:00:00 GMT

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

Wed, 10 Jun 2020 23:00:00 GMT

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

Wed, 20 May 2020 23:00:00 GMT

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”

Sun, 17 May 2020 23:00:00 GMT

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

Mon, 11 May 2020 23:00:00 GMT

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 and property development: beware of pitfalls

Tue, 05 May 2020 23:00:00 GMT

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.

Directors’ duties: coronavirus safe harbour

Wed, 29 Apr 2020 23:00:00 GMT

As a part of the government's coronavirus economic response package, a provision was inserted into the Corporations Act 2001 to provide temporary relief (safe habour) for directors of financially distressed business from potential personal liability for insolvent trading. This was designed to counter the pressure on boards and directors to make quick decisions to enter into an insolvency process to mitigate the risks of insolvent trading during this economic downturn. If you're seeking to rely on this particular safe habour measure to protect yourself, any debt must be incurred: in the ordinary course of the company's business (ie it is necessary to facilitate the continuation of the business); during the 6-month period commencing from 25 March 2020 (or a longer period as prescribed by the regulations); and before any appointment of an administrator or liquidator during the temporary safe harbour application period. For holding companies, depending on whether certain conditions have been met, temporary relief may also extend to debts incurred by a subsidiary. Importantly, this temporary safe habour measure does not replace the existing safe habour provisions in the Corporations Act, and directors can still use those if they so wish. If you do choose to use the temporary relief regarding insolvency, remember you will bear the evidential burden to prove that the safe habour requirements have been met. It should also be noted that even though relief is provided from insolvent trading, this does not extend to relief from statutory and common law directors' duties. These duties include acting in the best interests of the company as a whole (ie interests of shareholders, creditors and employees), duty to act with care, diligence and good faith, and not to use a directors' position or information obtained as a director to gain an advantage or cause detriment to the company. Even if you're not a named director/officer of a company, these statutory and common law directors' duties may still apply to you if you have the capacity to significantly affect the financial standing of the company. While ASIC has recalibrated its regulatory priorities to focus on challenges posed by COVID-19 by suspending a number of near-term activities which are not time-critical, it will maintain enforcement activities and continue to investigate and take action where public interest warrants. According to ASIC, whether or not action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of making relevant decisions or incurring debts. Therefore, if you plan on using these safe habour provisions to get your business through the next 6 months, it may be prudent to seek the advice of an appropriately qualified adviser.

Steps to claim the JobKeeper for businesses

Wed, 22 Apr 2020 23:00:00 GMT

If your business is one of the tens of thousands of businesses to register for the JobKeeper payment early, there's good news, claims for the payment is now open. There are a few steps involved in claiming, so make sure you have all the relevant documents and supporting information before you start. Firstly, you will need to check whether your business and nominated employees (ie those who you're claiming the payment on behalf of) meet the eligibility requirements. To recap, an eligible employer is broadly one that has: carried on a business in Australia on 1 March 2020; employed at least one eligible employee on 1 March 2020; eligible employees are currently employed by the business for the fortnights the claims are for (including those who are stood down or rehired); the business has faced a fall in turnover of 30% for those businesses with an aggregated turnover of $1bn or less (note that businesses with an aggregated turnover of more than $1bn will need to demonstrate a 50% fall in turnover, while ACNC registered charities will only need to demonstrate a 15% fall in turnover). Note that the turnover calculation is based on GST turnover and applies even if your business is not registered for GST. If you're running your business as a sole trader, you'll also be eligible if your business has experienced a downturn according to the eligibility criteria. Remember the JobKeeper payment also applies to business owners that are actively engaged in the business or a director that is actively engaged in the business (including in the form of a company, trust or partnership). However, the payment is limited to one entitlement for each entity even if there are multiple business owners or participants. Secondly, you'll need to notify eligible employees that you intend to participate in the JobKeeper scheme. You'll also be required to send eligible employees an "Employee Nomination Notice" to complete and return to you to confirm that they agree to you being nominated as the employer to receive JobKeeper payments from. Thirdly, it is important to note that you will need to pay the minimum $1,500 to each JobKeeper eligible employee per fortnight starting from 30 March 2020 (ending 12 April 2020). Alternatively, you can make one combined payment of $3,000 for the first two fortnights paid by the end of April 2020. This means that you'll need to pay your employees first before the ATO pay your business in the first week of May 2020. Finally, when you've done all of the above, you will need to enrol for the JobKeeper using the Business portal and authenticate with myGovID.

Early release of super: coronavirus condition

Wed, 15 Apr 2020 23:00:00 GMT

As a part of the second round of COVID-19 stimulus, the government allowed individuals in financial distress to access a tax-free payment of up to $20,000 from their superannuation. While it may be a lifeline for many in these harsh economic times, before you take up this early release offer, it is best to consult a qualified professional about eligibility and the potential future impacts this may have on your retirement as well as other options available. If you're thinking of consulting a qualified professional, but don't have an existing relationship with a financial adviser, you may now be able to go and see your registered tax agent to get the advice that you need. ASIC has provided a temporary AFS licensing exemption to allow registered tax agents to provide certain financial product advice to their existing clients about the early release of super under the Coronavirus condition. To qualify for the exemption, other conditions include unsolicited contact, maximum advice fee of $300, Record of Advice requirements, and disclosure of potential conflicts of interest, commissions and remuneration. The exemption only applies to registered tax agents who are neither an AFS licensee nor a representative of an AFS licensee. If your tax agent is already authorised under an AFS licence to provide this type of financial product advice, then they are required to comply with the providing entity relief requirements in the Instrument. The ATO will be accepting applications for early release of super by individuals impacted by COVID-19 from 20 April 2020. An individual can make one application to access up to $10,000 (tax-free) in the 2019-20 financial year (ie by 30 June 2020). A second application for up to $10,000 can be made in the 2020-21 year (ie from 1 July 2020) until 24 September 2020. Applications can either be made online through the myGov website or over the phone with the ATO for those unable to access online services. The application itself requires the person to certify that they are eligible and includes information about the consequences of making false applications. The ATO has recently run a social media campaign asking people to observe the spirit of the legislation and only apply to release their super to deal with the adverse economic effects of COVID-19. It notes that taxpayers should not withdraw their super early and recontribute it to gain a personal tax deduction. Other methods of taking advantage of early release that have been floating around in mass media including salary sacrifice schemes would also presumably not be acceptable.

Coronavirus cash flow boost payments explained

Fri, 10 Apr 2020 23:00:00 GMT

As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the government legislated a measure to boost cash flow for employers. To recap, the measure ensures that an eligible employer receives an amount equal to 3 times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter – both subject to minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year. The cash flow boost payments are only available to entities that qualified as small or medium entities for the income year for which they have been most recently been assessed. In other words, entities that have turnover less than $50m. Put conversely, there will be no cash flow boost payments for entities that have turnover greater than $50m. Note, there is also a withholding requirement (ie the payment will only be made to entities that first notified the Commissioner that it has a withholding obligation through the lodgement of a BAS or IAS for the period). Therefore, the key to the system is the BAS that entities lodge for March, either monthly or quarterly. Pretty much everything will be automatically generated from that. That BAS determines how much is paid, and when it is paid. A word of caution, however. The headline numbers (and dates) can be a tad misleading. It is not a minimum $10,000 payment that will be received, it is a minimum gross credit of $10,000 that taxpayers will be entitled to (in respect of the March BAS). This credit will be offset against of the liabilities that appear on the BAS and any debits in a taxpayer's RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO. Even assuming that the ATO owes the taxpayer money (ie a refund), it will not be paid on 28 April, but rather within 14 days of lodging the BAS. So, any hopes that a taxpayer holds that an amount of $10,000 is to be deposited into its bank account on 28 April will not be met. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment. Another important feature to note in the legislation is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The Tax Office has stated a "scheme" for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.

ATO Coronavirus concessions and advice for SMSFs

Wed, 08 Apr 2020 23:00:00 GMT

In line with various concessions provided to businesses to soften the blow of the COVID-19 pandemic, the ATO has now released the following details of concessions for self-managed super funds (SMSFs) as well as advice: SMSFs temporarily reducing rent - due to COVID-19, many landlords are voluntarily giving their tenants a reduction in rent or a waiver of rent to help them survive the economic downturn. As a consequence, the ATO has said it will not take compliance action for the 2019-20 and 2020-21 financial years where an SMSF gives a tenant, who is also a related party, a temporary rent reduction during this period. In-house asset restrictions - according to the ATO, if at the end of the financial year, the level of in-house assets of a SMSF exceeds 5% of a fund's total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5% or below. It notes that this plan must be prepared before the end of the next following year of income. For example, if your SMSF exceeds the 5% in-house asset threshold at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. Although due to the uncertainly in global recovery, the ATO has stated that it will not undertake compliance action if the rectification plan was unable to be executed because the market has not recovered, or it was unnecessary to implement the plan as the market had recovered. Investment strategies - the ATO notes that investment strategies should be reviewed regularly (at least annually) and any decisions arising from the review documented. It says certain significant events such as a downturn in the market should also prompt a review and update of investment strategies if required. If during this uncertain time, you make short-term variations in your SMSF investment strategy (including specified asset allocations whilst adjusting investments), the ATO will not consider that a variation from the articulated investment approach. Super balance losses - the ATO advises that while realised losses arising in an SMSF may be available to the fund to deduct against realised gains in future years, these losses are not available to individual trustee or beneficiary to deduct in their personal tax returns. Just as you don't return any profit made in your SMSF as assessable income in your personal tax return, you cannot claim a deduction for the loss in your super balance, the ATO says.

Working from home: what can I deduct? - Update

Tue, 07 Apr 2020 23:00:00 GMT

Further to yesterday's post, theAustralianTaxationOffice('ATO')has now announce date mporary simplified shortcutmethod tomake it easier for individual taxpayers to claim deductions for additional running expenses incurred (e.g., additional heating, cooling and lighting costs), as a result of working from home due to the Coronavirus pandemic.

Based on the announcement, the ATO will allow individuals to claim a deduction for all runningexpenses incurred during the period 1 March 2020 to 30 June 2020 , based on a rate of 80 cents for each hour anindividualcarriesoutgenuineworkdutiesfromhome.Thisisanalternativemethodtoclaiminghome running expenses under existing arrangements, which we had previously discussed.

The 80 cents per hour method is designed to cover all deductible running expenses associated with working from home and incurred from 1 March 2020 to 30 June 2020 , including thefollowing:

Thismeansthat, under the 80 cents per hour method ,separate claims cannot be made for any of the above running expenses (including depreciation of work-related furniture and equipment). As a result, using the 80 cents per hour method could result in a claim for running expenses being lower than a claim under existing arrangements (including the existing 52 cents per hour method for certain running expenses).

Furthermore, according to the ATO's announcement, under the 80 cents per hour method :

(a) there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a privatestudy);

(b) multiple people living in the same house could claim under this method (e.g., a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method);and

(c) an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period. This record can include time sheets, diary entries/notes or evenrosters.

As always if you need further clarification in relation to your personal situation please contact us.

Working from home: what can I deduct?

Mon, 06 Apr 2020 23:00:00 GMT

With the majority of Australia now under lockdown to slow the COVID-19 pandemic, many employers are either encouraging their employees to work from home or have now instituted mandatory work from home policies. While working from home has its benefits, there may be extra expenses too, ranging from printing costs, the need for more internet data and perhaps even additional equipment. Depending on your circumstances, you may be able to claim a deduction for the additional running costs you incur, including expenses associated with heating, cooling and lighting in the area you are working from, work-related phone and internet, decline in value of a computer (work-related portion only), and decline in value of office equipment. To work out your expenses for heating, cooling, lighting, cleaning and the decline in value of furniture, you can either the fixed rate method or the actual value method. Under the fixed rate method, you keep records of your actual hours spent working at home for the year or keep a diary for a representative 4-week period to show your usual pattern of working from home. You can then claim a deduction at a rate of 52c for each hour that your work from home. The actual value method not only requires the keeping of a diary, you'll also need receipts to show the actual amount spent and will be required to work out the cost based on floor area as well as other factors. For phone and internet expenses, you can claim up to $50 without having to analyse your bills in detail. The rates you can use to work out the cost of your work calls are 25c for calls made from your landline, 75c for calls made from your mobile or 10c for text messages sent from your mobile. If you would like to claim more than $50, you will need to work out the percentage of work use over a 4-week period using a reasonable basis (ie the number of work calls made as a percentage of total calls). If you have a work issued computer or laptop, you cannot claim any decline in value for the computer, this also applies to any work issued office equipment such as additional screens, a keyboard or a mouse. However, if you have purchased your own equipment such as a telephone, a printer or a computer chair, you can claim the full cost of items up to $300 or decline in value (depreciation) for items over $300. This is provided the purchased equipment is used purely for work purposes. The depreciation that can be claimed depends on the effective life of the asset purchased and for any equipment that's used both for work and personal purposes, an apportionment may have to be undertaken. Work-related portion of other running expenses including computer consumables such a printer paper, ink and various stationery can generally be deducted outright.

Coronavirus stimulus: JobKeeper Payment

Wed, 01 Apr 2020 22:00:00 GMT

In this latest round of Coronavirus stimulus, the government has bought out the big guns in an effort to help people keep their jobs amidst the economic downturn. The "JobKeeper Payment" is a part of a $130bn wage subsidy scheme that is designed to provide a fortnightly payment of $1,500 per employee. This new payment will be paid to employers, for up to 6 months for each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by the employer. Eligible employers include business structured through companies, partnerships, trusts, sole traders, and not-for-profits (including charities). Businesses with a turnover of less than $1bn must show that their turnover will be reduced by more than 30% relative to a comparable period a year ago (of at least a month) to be eligible for the payment. Businesses with a turnover of $1bn or more need to demonstrate that their turnover will be reduced by more than 50% relative to a comparable period a year ago (of at least a month). Employees that will be eligible for the payment are full-time and part-time employees, including stood down employees, self-employed individuals, and casual employees that have been with their employer for at least the previous 12 months. The eligible employee will also need to be either Australia residents, NZ citizens in Australia who hold a subclass 444 special category visa, migrants who are eligible for JobSeeker payment or Youth Allowance (Other). The program is now open for applications through the ATO, eligible employers need to include supporting information demonstrating the relevant downturn in the business. In addition, employers will also be required to report the number of eligible employees employed by the business to the ATO on a monthly basis. The first payments are expected to flow to eligible businesses in the first week of May as monthly arrears. According to the government, where employers participate in the scheme, they must pay eligible employees a minimum of $1,500 per fortnight before tax, even if the eligible employee ordinarily receives less than that amount. If an employee ordinarily receives more than $1,500, they should continue to receive their regular income according to their prevailing workplace arrangements. Individuals eligible for both the JobKeeper Payment and the JobSeeker Payment will only be eligible for one type of payment. In addition, where an employee has multiple employers, only one employer will be eligible to receive the payment. The employee will need to notify their primary employer to claim the JobSeeker Payment on their behalf. The claiming of the tax-free threshold will in most cases be sufficient notification that an employer is the employee's primary employer.

Coronavirus concessions: State governments

Sun, 22 Mar 2020 22:00:00 GMT

Following on from the Federal government's $17.6bn stimulus package unveiled last week for the coronavirus (COVID-19), some State governments have announced various concessions to support businesses and keep the local economy moving during this difficult and uncertain time.

ATO coronavirus administrative support

Wed, 18 Mar 2020 22:00:00 GMT

ATO has recently announced that it will implement a series of administrative measures to assist taxpayers experiencing financial difficulty as a result of the coronavirus (COVID-19) pandemic. The measures that will apply is similar to those for taxpayers affected by the bushfires. However, one important point of difference is that while the bushfire measures applied automatically to particular geographical areas, assistance for those impacted by COVID-19 will not be automatically implemented. As such, taxpayers that have been affected will need to contact the ATO to discuss their situation in order to come up with a tailored support plan. Businesses on a quarterly reporting cycle for GST will be able to change their reporting and payment to monthly in order to get quicker access to GST refunds. However, the ATO notes that businesses can only make the change from the start of a quarter, so any changes now will take effect from 1 April 2020, and once a change is made you must keep reporting monthly for 12 months before you can elect to revert back to quarterly reporting. Additionally, businesses registered for fuel tax credits that change to a monthly GST reporting cycle will also need to claim fuel tax credits monthly. Another thing to note is that changing your GST reporting cycle to monthly doesn't mean you have to change your PAYG withholding reporting cycle, each is managed separately. Businesses that are quarterly PAYG instalment payers can vary their PAYG instalments on activity statement for the March 2020 quarter. To do this, they must lodge a revised activity statement before the instalment due date and before their tax return is lodged. Any business that vary their PAYG instalment rate or amount may also be eligible to claim a refund for any instalments made for the September and December 2019 quarters. In addition to the above, the ATO will defer by up to 4 months the payment date of amounts due through the BAS (including PAYG instalments), income tax assessments, FBT assessments and excise. It will also consider remitting any interest and penalties applied to tax liabilities incurred after 23 January 2020 for any businesses affected by COVID-19. Taxpayers that need help with paying existing and ongoing tax liabilities are encouraged to contact the ATO to arrange a low-interest payment plan. The ATO has also clarified that emergency accommodation, food, transport, medical or other assistance provided by employers to employees affected by COVID-19 may be exempt from FBT depending on the circumstances. However, despite the concessions offered, it notes that employers will still need to meet their ongoing super guarantee obligations for their employees. The ATO says by law, it cannot vary the contribution due date or waive the super guarantee charge where super guarantee payments are late or unpaid.

Is the ATO blocking you?

Sun, 15 Mar 2020 22:00:00 GMT

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

Sun, 08 Mar 2020 22:00:00 GMT

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

Sun, 01 Mar 2020 22:00:00 GMT

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?

Mon, 24 Feb 2020 22:00:00 GMT

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

Mon, 17 Feb 2020 22:00:00 GMT

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:

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

Changes to student loans

Wed, 12 Feb 2020 22:00:00 GMT

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

Wed, 05 Feb 2020 22:00:00 GMT

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.

Remission of additional super guarantee charge penalty

Sun, 02 Feb 2020 22:00:00 GMT

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:

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

Tue, 28 Jan 2020 22:00:00 GMT

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.

ATO backs down from controversial time limit ruling

Tue, 21 Jan 2020 22:00:00 GMT

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.

No cost strategies to increase your super

Wed, 15 Jan 2020 22:00:00 GMT

Now that we have finished another year our thoughts may turn to goals and resolutions achieved during the year. Career successes, reaching fitness goals and life milestones are all causes for celebration. While most of us wouldn't even think twice about our superannuation, now is the perfect time to put some resolutions in place to increase your super for the new year. Afterall, it is what we'll be relying on in retirement, and even small improvements now could mean extra luxuries later.

Building up super doesn't always have to mean making monetary sacrifices now, there are some simple solutions to making sure you're getting the most out of super at no cost. Strategies include finding your lost super, consolidating your super accounts, and making sure you're in a quality fund in terms of performance.

Currently, there are 5.8m individuals (36% of the population) with 2 or more super accounts. Every year, the ATO launches its postcode "lost super" campaign to help raise community awareness of lost super. As a consequence of the 2018 campaign, more than 66,000 people to find and consolidate over 105,000 accounts worth over $860m. If you think you've got lost super, you can then log into myGov to claim the lost super and have it consolidated with your active account.

Finding and consolidating your lost super with your active account means you'll pay less management fees and other costs, saving you in the long term. Between 1 July 2014 and 30 June 2019, 2.6 million accounts to the value of $15bn have been consolidated by fund members using ATO online services.

Another easy way to grow your super is to make sure the super fund that you're putting your money into is performing well. Recently, the regulator of super funds, APRA, released "heatmaps" that provide like-for-like comparisons of MySuper products across 3 key areas: investment performance, fees and costs, and sustainability of member outcomes. The heatmap uses a graduating colour scheme to provide clear and simple insights that unlike a sea of numbers on a spreadsheet, will send a clear and strong message to users.

For example, MySuper products delivering outcomes below the relevant benchmarks in relation to investment performance and fees and costs will be depicted from pale yellow to dark red. The sustainability measures provide an indication of a trustee's ability to provide quality member outcomes and address areas of underperformance. While the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it, they can also be an invaluable resource in choosing the right super fund.

Better protection for consumers: new ASIC powers

Mon, 23 Dec 2019 22:00:00 GMT

While the Banking and Financial Services Royal Commission seems long ago in the minds of many, the people that have been financially affected by dubious practitioners will no doubt carry the scar of mistrust for life. This then, is precisely why the government has introduced new laws which will give ASIC new enforcement and supervision powers in relation to the financial services sector to weed out the "bad apples" and restore consumer confidence.

The new measures seek to strengthen ASIC's licencing powers by replacing the AFS licence requirement that a person be of "good fame and character" with an ongoing requirement that they be a "fit and proper person" at both the time of application and subsequently. This applies to all officers, partners, trustees and controllers of the applicant applying for the AFS licence. The "fit and proper person" requirement will also apply to existing AFS licensees to ensure that ASIC is able to monitor the controllers of existing AFS licensees, request relevant information, and carry out enforcement action as required.

In working out whether a person is a "fit and proper person" ASIC will consider matters including whether the person has been convicted of an offence in the last 10 years, whether they've had an AFS licence or Australian credit licence suspended or cancelled, and whether a banning or disqualification order has previously been made.

ASIC's banning powers will also be expanded to situations where they have reason to believe that a person is "not a fit and proper person" or is "not adequately trained or is not competent" to:

In addition, under these new powers, ASIC may also make a banning order against a person that is insolvent under administration, has, at least twice, been an officer of a corporation that was unable to pay its debts, or has, at least twice, been linked to a refusal or failure to give effect to an AFCA determination.

To support these enforcement functions, ASIC's warrant and phone tap powers have been beefed up. It is no longer required to forewarn those under investigation that it may apply for a search warrant. It is also no longer required to specify the exact books or evidential material that can be searched and seized. Interception agencies (ie police, ASIO, and anti-corruption bodies) will be able to provide ASIC with lawfully intercepted telecommunications information in some instances. If these measures become law, ASIC's ability to launch and progress investigations to protect consumers from dodgy practitioners will be greatly enhanced.

No cost strategies to increase your super

Mon, 16 Dec 2019 22:00:00 GMT

It's coming up to the end of another year, among all the chaotic festivities, our thoughts may turn to goals and resolutions achieved during the year. Career successes, reaching fitness goals and life milestones are all causes for celebration. While most of us wouldn't even think twice about our superannuation, now is the perfect time to put some resolutions in place to increase your super for the new year. Afterall, it is what we'll be relying on in retirement, and even small improvements now could mean extra luxuries later.

ATO debts to affect your credit rating

Wed, 11 Dec 2019 22:00:00 GMT

The ATO now has another "stick" in its arsenal to get businesses to engage with it and manage outstanding tax debts. Laws have recently been passed that allow the Tax Office to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The aim of the laws, according to the government, is to encourage more informed decision making within the business community by making large overdue tax debts more visible, and reduce the unfair advantage obtained by businesses that do not pay their tax on time.

The disclosure of these debts have the potential to affect the credit ratings of businesses and their ability to refinance existing debt, so only those businesses that meet certain criteria will be subject to this new disclosure rule. These criteria include having an ABN, debts of at least $100,000 overdue for more than 90 days, not effectively engaged to manage the debt, and do not have an ongoing complaint with the Inspector-General of Taxation.

When a business meets the above criteria, the ATO is required to notify the business in writing and give them 28 days to engage and take action before any debt is disclosed. In addition, tax debt information will only be provided to CRBs where they are registered with the ATO and have entered into an agreement detailing the terms of reporting.

According to the ATO, an entity's tax debts for the purposes of the disclosure rule includes income tax debts, activity statement debts (eg GST, PAYGW), superannuation debts, FBT debts and penalties and interest charges. An entity is generally considered to be effectively engaged with the ATO in respect of a tax debt if it has a payment plan in place and is meeting the terms of the plan, or has an active review, objection or compliant lodged with the relevant authorities.

The practical approach to disclosure of tax debts were outlined by the ATO previously. It consists of a phased implementation approach, with the initial phase focusing on raising community awareness of the measure through newsletters, articles, forums and speeches. After the initial phase, it will begin firstly with companies that meet the disclosure requirements before moving onto other entities such as partnerships, trusts, and sole traders with ABNs.

$10,000 cash payment limit: the facts

Wed, 04 Dec 2019 22:00:00 GMT

To combat the use of cash in black economy activities, the government has introduced a law which will implement an economy-wide cash payment limit of $10,000. If enacted, the law will make it a criminal offence for certain entities to make or accept cash payments of $10,000 or more. Understandably this limit has created some confusion about what transactions may be captured and what it applies to.

Among other categories, payments that will not be subject to the $10,000 limit include those relating to personal or private transactions (excluding transactions involving real property). The exemption only includes payments that are generally not made in the course of an enterprise.

The term "enterprise" in this context has the same broad meaning as the GST Act, meaning that an entity will be undertaking an enterprise if, for example, it carries on a business (or in the form of a business), offers real property for rent, is a charity, political party (or candidate) or other recipient of gifts that are deductible for income tax, operates a super fund, or is the Commonwealth, a State or a Territory or an entity established for public purposes under an Australian law. In essence, the only circumstance in which an entity will not be carrying on an enterprise is where the entity is acting in a wholly private or personal capacity.

Therefore, cash gifts to family members (as long as they are not donations to regulated entities such as charities) and inheritances are likely to be exempt. In other words, it is unlikely that you will be prosecuted for a criminal offence if you give your family members a lavish cash wedding gift or help your kids with a house deposit that happens to be over $10,000.

However, if you occasionally sell private assets (eg a used car) you may need to be careful and take reasonable steps to ascertain whether the other party is acting in the course of an enterprise. For example, if you sell your car to another individual and you believe the car will be acquired for private use after undertaking reasonable inquiries such as searching the Australian Business Register, then the exemption for personal/private transactions will apply.

On the other hand, if you did not undertake "reasonable inquiries", and incorrectly believe that the other party is not acting in the course of an enterprise, then it is possible you may be prosecuted for a criminal offence. In general, whether a belief is reasonable will depend on the circumstances of the transaction and the parties. However, a reasonable belief must be a belief about the facts and does not protect those ignorant of the law or the legal implications of the facts.

Vacant land: major building defects exception

Wed, 27 Nov 2019 22:00:00 GMT

As a testament to the far-reaching consequences of recent residential building defects crisis, the government has recently decided to change the legislation on vacant land deductions to exclude structures affected by natural disasters or other exceptional circumstances such as substantial building defects.

Previously, the government had sought to crack down on "land banking" by disallowing expenses, such as interest costs incurred in holding vacant land from 1 July 2019. Basically, any land that did not have a substantial permanent structure on it would be captured. The term substantial permanent structure does not include any premises that is being constructed or substantially renovated unless the premises are able to be lawfully occupied.

Therefore, under the legislation as it was originally written, investors who held defective units in buildings all around Australia would've had their expenses disallowed. These expenses could not be carried forward for use in later income years, with only some expenses allowed to be included in the cost base of the land for CGT purposes.

After the scale of the building defects debacle became known, the government decided to provide an exception to disallowing deductions for holding vacant land for those affected. For the exception to apply, there must've been a substantial and permanent structure on the land prior to the time the exceptional circumstance occurs, and the circumstance must be exceptional and beyond the reasonable control of the taxpayer.

Under the exception, investors holding structures affected by natural disasters or other exceptional circumstances (ie substantial building defects) are allowed deductions for three years from the date the event occurred. The Commissioner may also extend the three-year period if the failure to replace the structure is beyond the control of the taxpayer or due to the size of the structure, it is unable to be realistically completed on time.

The exceptional circumstances exception can apply to any unusual events or occurrences (ie major building fires, floods and discovery of asbestos) not just substantial building defects. However, the exceptional circumstance must not be caused by the investor/investors and there must've been nothing a reasonable person in that position should have reasonably done to prevent the circumstance (ie outside the reasonable control of the investor/investors).

Therefore, this exception would not apply to investors suffering financial hardship due to renovations that do not affect the structure, and those investors may not be able to deduct any costs associated with holding what is considered to be "vacant land". If you're unlucky enough to have to use this exception, you must keep written records of the exceptional circumstance (and their effect on the structure) until the fifth anniversary of the end of the income year in in which you first deducted the loss.

Super guarantee opt-out for high income earners

Wed, 20 Nov 2019 22:00:00 GMT

Under the superannuation guarantee framework, employers are required to contribute a minimum percentage (currently 9.5%) of their employee's ordinary time earnings into superannuation. Employers that fail to do so will be liable to a penalty called the superannuation guarantee charge, payable to the ATO. If you're a high-income earner with multiple employers, this requirement has the very real chance of inadvertently pushing you over the concessional contributions cap of $25,000.

To avoid this unintended consequence, laws have recently been passed so that eligible high-income earners with multiple employers can opt-out of the super guarantee regime. From 1 January 2020, employees with more than one employer and expect their combined employers' contributions to exceed the concessional contributions cap can apply for an "employer shortfall exemption certificate" with the ATO.

The certificate will release one or more of your employers from their super guarantee obligations for up to four quarters in one financial year. However, you must still receive super guarantee contributions from at least one of your employers for the year. From the employer's perspective, the certificate means that it will not be liable for the super guarantee charge or other consequences if they don't make super guarantee contributions for the time period covered.

Applications for the certificate must be lodged with the ATO at least 60 days before the first day of the first quarter the application relates to. That is, you will need to lodge a form with the ATO on or before 18 November 2019 if you want the certificate to apply the quarter starting 1 January 2020. For the certificate to apply for the quarter beginning 1 April 2020, the last day to lodge the form is 31 January 2020.

If you're a high-income earner and are considering apply for the certificate, one of the first things to do is to discuss it with your employers, as they can choose to disregard the certificate and continue making contributions. Before having discussions with your employer, it may also be prudent to consider whether applying for the certificate may affect relevant awards or workplace agreements that you have in place. Another thing to you may wish to consider is whether you'd like to receive additional cash or non-cash remuneration in place of the foregone super guarantee contributions.

Once you've come to an agreement with your employers, it is important to get the details right as the certificate cannot be varied or revoked once its issued. Whilst this provides certainly to the employer that the exemption cannot later be withdrawn to their disadvantage. This also means that if you make a mistake, the employer and/or the period that it applies to cannot be changed.

Genuine redundancy payment: age increase

Wed, 13 Nov 2019 22:00:00 GMT

With everyone retiring later in life and working longer, the government has been playing catch up to align some outdated age provisions in the tax law to today's standards. One such change brings into line the genuine redundancy payment's qualifying age with the age pension age. In real world terms, it means the qualifying age has been increased from 65 to between 66 or 67 depending on the year you were born. So, if you're dismissed on or after 1 July 2019, and are between 65 and 67, you may potentially qualify for more of your redundancy payment to be tax-free depending certain eligibility conditions.

Apart from the age requirement, to receive a part of the payment as a tax-free genuine redundancy payment the following conditions must also be met:

In the context of a genuine redundancy payment, "dismissal" usually involves a termination by an employer without an employee's consent. It also includes constructive dismissal if the employee has little option other than resigning. However, an employee can be "dismissed" even in circumstances where they have expressed an interest in accepting a redundancy package, provided that the final decision to terminate employment remains solely with the employer.

As each workplace is different, the circumstances of dismissal will also vary wildly. The determination of whether a payment qualifies as genuine redundancy will depend on the facts in each case. This area of law is quite complex and there are many factors that could sway the decision one way or the other, especially in instances of company restructures.

If a payment does qualify as a genuine redundancy payment, then the amount that will be tax-free depends largely on your years of service and the year in which the redundancy was paid. For example, if you received a genuine redundancy payment in the 2019-20 income year and you had 10 years of service with your employer, then potentially $63,838 of any payment that you receive will be tax-free. Any amounts in excess of that will be taxed as an Employment Termination Payment.

Crowdfunding: is it income?

Wed, 06 Nov 2019 22:00:00 GMT

You may have heard the ridiculous story of a man who wanted to raise US$10 for a potato salad and ended up with US$55,000 from complete strangers. Or perhaps you've heard stories of shameless couples who wanted to people to fund their lavish weddings or honeymoons? Crowdfunding has fast become the go to place for people in need of large amounts of money quickly, but is the money raised taxable?

If you're unfamiliar with crowdfunding, it is where individuals or businesses (ie the promoter) upload a description of the campaign along with the amount they want to raise to a third-party internet platform. Other netizens can then choose to support the campaign or cause through pledging money (ie contributors).

There are several types of crowdfunding and each may attract different tax consequences for the promoter of the campaign. A large number of campaigns are what can be described as donation-based. This is where a contributor to the campaign pledges an amount of money without receiving anything in return. If you're a contributor in this case, you will not able to deduct an amount contributed in a crowdfunding campaign as a "donation" in your tax return unless the cause you've donated to is a Deductible Gift Recipient (DGR). An exception is if you carry on a business, and the cost of contributing to the campaign falls under business expenses such as sponsorship or marketing.

There are other campaigns which can be referred to as rewards-based in which the promoter provides a reward including goods, services or rights to contributors in return for their payment. An example of this may be differing levels of campaign-related merchandise that can be received depending on the amount pledged by the contributor. Usually, the acquisition of goods or services by the contributor is considered to be private in nature and not deductible.

As the promoter of a campaign (either donation-based or rewards-based), whether or not the money you receive is considered to be taxable depends on the circumstances. In general, if the money received is to be used to further your business or is a profit-making plan, then it is considered to be income. Remember, the hurdle for something to be a profit-making plan is much lower than that of a business. Therefore, if you as a promoter launch a crowdfunded project with intention of making a profit, and then carry out the project in a business-like way, the money raised could very well be considered to be income.

The difference between whether or not the money is classified as income can be minor and will be determined by the facts in each case. For example, money received from crowdfunding the making of a movie may or may not be income for the promoter depending on factors such as: whether the promoter draws a personal salary from the crowdfunded income; whether the promoter will keep any of the funds raised; or whether the movie made will be widely distributed.

Beware of insurance changes in superannuation

Thu, 31 Oct 2019 22:00:00 GMT

Insurance within superannuation has always been a mixed blessing, good for some who enjoy having cheaper insurance, while others see as an erosion of their super balances. It doesn't matter which camp you fall into, the recent changes to the way super funds provide insurance may impact you depending on your super balance, age, and when your last contribution was.

Since July this year, super funds have been required to cancel insurance on accounts that have not received any contributions for at least 16 months unless the member elects to continue the cover. In addition, inactive super accounts with balances of under $6,000 will either be automatically consolidated by the ATO with other accounts you may hold or transferred to the ATO. If your super is transferred to the ATO, any insurance will also be cancelled.

Before cancelling your insurance, your super fund will most likely notify you, although if you're worried about your insurance being cancelled, you can contact your super fund to discuss your options. Remember, once your insurance is cancelled, you can no longer make a claim and it doesn't matter how long you had held the policy previously. Whilst this change is designed to stop people from paying unnecessary insurance premiums, it can have unintended consequences for those on longer periods of leave such as parental leave and long-term sick leave.

Another change coming to super funds in the not too distant future of 1 April 2020 is opt-in insurance for members under 25 years old and those with account balances of less than $6,000. From that date, members under 25 who start to hold a new choice or MySuper product will need to explicitly opt-in to insurance. Currently, the onus is on the member to opt-out of insurance if they do not want it.

For members with active super account balances less than $6,000, super funds will be required to notify them of the change in the opt-in insurance requirements by 1 December 2019. This will give members plenty of opportunity to opt-in to the relevant insurance policies by 1 April 2020 if they choose to do so.

However, if you work in a "dangerous occupation" such as a member of the police force, fire service or ambulance service, among other occupations, the change in the opt-in insurance requirement will not apply to you even if you're under 25 years or have balances below $6,000.

The insurance changes may be good for some and not so for others, it is difficult to strike the right balance between the two. The best thing you can do for yourself is have an awareness of your superannuation, including fees, insurance and other outgoings. After all, it is your hard-earned money and you want it to be working hard for your retirement.

Closing the tax gap: ATO focus on individual returns

Thu, 24 Oct 2019 22:00:00 GMT

As this year's tax time comes to a close, the ATO has warned that it will scrutinise every individual tax return lodged to seek out incorrect claims. In particular, it will be on the lookout for under reported income as indicated by third party data, and deductions that appear high compared to people with a similar job and income level.

As a part of its focus on closing tax gaps, every year, the ATO contacts around 2 million taxpayers regarding their returns. In a majority of cases, an audit is not the first course of action, most of the time when the ATO contacts you or your agent about your tax return, it will be looking for documentation or evidence to support your deductions or claims. It may even contact third parties such as your employer to verify certain deductions (ie clothing/uniform, possible reimbursed expenses, or whether the expense was related to earning your income). Therefore, good record keeping throughout the year is essential to defend against any audit.

You may be wondering why the ATO is targeting such small fry when multinational companies get away with paying minimal tax. According to the ATO, it understands that most taxpayers over-claim by a little, but small amounts of overclaiming by a large number of people adds up to $8.7bn less each year in revenue collected. So, by its thinking, it really is a case of a every little bit counts.

If you're subject to an audit, it's not always doom and gloom. In some cases, you may get a higher deduction if the ATO discovers that you haven't claimed something you're entitled to. For example, you may be entitled to a deduction for depreciation on a laptop or other technology used for work but had incorrectly calculated the claim or omitted it altogether.

In the event of an audit and you're found to have over-claimed, the ATO may apply penalties depending on your behaviour. If you're found to have over-claimed based on a genuine mistake, for example, if you've claimed the costs which are private and domestic in nature that are sometimes used for work or study (eg sports backpack or headphones), the ATO may choose not to apply penalties.

However, in cases of fraudulently claimed deductions, the ATO will apply penalties in addition to requiring the repayment of any refunds issued. It notes in extreme cases, prosecution through the courts may be pursued. If this all sounds scary, don't worry, we can help you get your income and deductions right the first time, so you'll have nothing to worry about.

Selling shares: how does tax apply?

Wed, 16 Oct 2019 22:00:00 GMT

Did you know that when you sell your shares, the size of your capital gains tax (CGT) bill is affected by how long you've held the shares, and how you offset your capital gains and losses? Knowing the tax rules can help you plan your trades effectively.

Each time you sell a parcel of shares, you trigger a "CGT event" and you must work out whether you've made a capital gain on that parcel (where the proceeds you receive exceed the cost base) or capital loss (where the cost base exceeds the proceeds). You also trigger a CGT event if you give the shares away and you're deemed to have disposed of them at their full market value on the date of the gift.

Here's how the CGT rules work: all of your capital gains for the income year are tallied and reduced by any capital losses. This includes your gains and losses from all of your assets that year, not just shares. If you have an overall "net capital gain", this is included in your assessable income and taxed at your marginal tax rate. If you have a "net capital loss", you can't offset this against ordinary income like salary or rental income. Instead, it can be carried forward to apply against future capital gains.

The 12-month discount rule

As an individual, you can reduce your capital gain by 50% if you've held the shares for at least 12 months. This "discount" is also available to trusts (also 50%) and super funds, including SMSFs (33.3%), but not companies.

It's applied after you subtract any capital losses for the year and any carried forward from earlier years. Importantly, you can choose which gains to offset losses against, to give you the best tax outcome.

Working out the "cost base"

Where you bought the shares at market value, your cost base includes what you paid for the shares and also incidental costs like brokerage fees. If you reinvest dividends as additional shares, the amount of reinvested dividends is included in those shares' cost base.

What if you inherited shares from a deceased estate? If the deceased acquired the shares before 20 September 1985, you must adopt the market value on the date of death. But if the deceased acquired them after that date, you inherit the deceased's own cost base for the shares as at the date of death.

Contact our office for expert advice on managing your share portfolio to achieve the most tax-effective investment returns.

Unpaid super: important amnesty update for employers

Sun, 13 Oct 2019 22:00:00 GMT

The government is getting tough on employers' unpaid compulsory super guarantee (SG) contributions that may be affecting more than 2.8 million workers. Fortunately for businesses, it has recently announced a revised "grace period" to rectify past non-compliance. All businesses should review their super compliance to consider what action they may need to take.

Compliance changes for businesses

The launch of Single Touch Payroll (STP) will dramatically improve the ATO's ability to monitor employers' compliance with compulsory super laws moving forward. This electronic reporting standard is now mandatory for all Australian businesses, and gives the ATO fast access to income and superannuation information for all employees.

What about past unpaid super you might already owe? You may have previously heard about an "amnesty" for coming forward and voluntarily disclosing historical underpayments of SG contributions without incurring penalties. After many hiccups with implementing this policy in 2018 and 2019, the returned Coalition government has finally taken steps to relaunch the policy. Under proposed legislation currently before parliament, the amnesty will work as follows:

If you don't come forward and you're later caught out, the ATO will be required to apply a minimum penalty of 100% on top of the amount of unpaid super you owe (although this can be as high as 200%).

The timing of your disclosure is important. The proposed new amnesty will cover both previous disclosures made since 24 May 2018 (under the old amnesty scheme that the government failed to officially implement) and, importantly, disclosures made up until six months after the proposed legislation passes parliament .

While there's a risk the laws may never pass, be aware that with or without an amnesty, businesses do face significant penalties if they're caught by the ATO without voluntarily coming forward.

Contact us to help you review your business' compliance and whether you may qualify to make a disclosure under the proposed amnesty.

Health insurance and your tax: uncovered

Wed, 09 Oct 2019 22:00:00 GMT

If you don't hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future. Don't get stung!

Medicare levy surcharge

The Medicare levy surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don't take out a sufficient level of private hospital cover for you and all of your dependants. It's designed to give you a financial incentive to insure privately.

If you're a very high income earner, holding private hospital cover to avoid the MLS makes tax sense. If your income is lower but still above the relevant singles or families threshold (outlined below), you may want to find a hospital cover policy (not "extras only") that suits your budget.

Income for MLS purposes

Singles Families Rate of MLS

$90,000 or less   nil

$90,001 – $105,000 $180,001 – $210,000 1%

$105,001 – $140,000 $210,001 – $280,000     1.25%

$140,001 or more $280,001 or more    1.5%

Note that the MLS is separate to the "Medicare levy", a 2% levy on your taxable income that most Australians must pay – regardless of whether they have private health cover. So, if you have an MLS liability, you'll pay this as well as the Medicare levy!

Lifetime health cover loading and the rebate

Lifetime health cover (LHC) loading encourages Australians to maintain private health cover from an early age. If you don't take out private hospital cover by the year you turn 31, then if and when you take out cover in future, you'll have to pay an extra 2% of your premium for every year that you're aged over 30. This penalty is charged annually until you've had 10 years of continuous cover.

LHC loading can affect your tax return as any LHC loading portion of your premium doesn't attract the private health insurance rebate. The rebate is available to singles with income for MLS purposes of $140,000 or less, and families with income of $280,000 or less.

So, if you're over 30 and don't have private hospital cover, it's time to consider how much each year that you remain uninsured may end up costing you in future premiums.

Come and talk to us about your health coverage. We can help you calculate how much you'll get back in rebate or how much your uninsured status may be costing you.

Downsizer super contributions: getting it right

Mon, 07 Oct 2019 22:00:00 GMT

Under the "downsizer" contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a "downsizer" superannuation contribution (which means up to $600,000 for a couple).

These contributions don't count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds $1.6 million. You're also exempt from the "work test" that usually applies to voluntary contributions by members aged 65 and over.

However, if you don't qualify for the scheme, your contribution could count as a non-concessional contribution and cause you to breach your contributions cap. Here are some areas where the ATO is seeing mistakes with the eligibility rules.

10-year ownership

You, your spouse or a former spouse must have owned the property for the 10 years prior to the sale. The ATO explains that it's not necessary for the same person to hold the property during those 10 years, just some combination of the above three. However, the property must also be owned by you or a current spouse (not a former spouse) just before you sell.

Another thing to watch is that the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. For example, if you signed a contract to purchase "off the plan", the settlement might occur much later and that's when your ownership period starts.

Main residence exemption

Another key requirement is that the capital gain from the sale must be wholly or partially exempt from capital gains tax (CGT) under the "main residence exemption". If your home is a "pre-CGT asset" (ie acquired before 20 September 1985), it must be the case that the capital gain would hypothetically qualify for the main residence exemption, in whole or in part, if it had been acquired on or after 20 September 1985.

You won't qualify for any main residence exemption where you've never used the property as your main residence. But thankfully, even a partial main residence exemption will allow you to make downsizer contributions, eg where you use your home to generate income (in addition to living there).

The main residence requirement is not related to the 10-year ownership requirement, so it's not necessary that the property was your main residence during that 10-year period.

The key to a successful downsizer strategy is to plan ahead. Contact our office to ensure you'll meet all the relevant requirements.

Financial Abuse of Older People

Wed, 02 Oct 2019 23:00:00 GMT

An incidence of financial abuse of an older person may be intentional and clearly wrong, perhaps involving illegal activity, in which case it is likely to be easier to identify. Abuse is not always easy to identify however. Sometimes arrangements, originally motivated by good intentions, gradually erode into financial abuse, as the perpetrator succumbs to the temptation of opportunity, misguided feelings of entitlement, or even perhaps revenge for perceived past injustices.

Although recognising the potential for financial abuse of an older person may not always be easy, there are a number of factors which, if present, may indicate a heightened danger of abuse and encourage the practitioner to ask more questions and to be more alert.

Consider whether they appear to be: vulnerable

isolated

WHAT IS FINANCIAL ABUSE?

There are a number of definitions of what constitutes financial abuse of older people.

The World Health Organisation defines financial abuse of an older person as, "The illegal or improper exploitation or use of funds or other resources of the older person". The definition includes acts with adverse outcomes committed not only by people known to and trusted by the victim, but also acts perpetrated by strangers and by institutions.

Abuse may be intentional or unintentional. Intentional financial abuse is defined in Monash University's Protecting Elders' Assets Study , as "the separation of a person from the benefit of their assets for the benefit of another, involving deliberate intention". Unintended abuse is "the inadvertent or uninformed financial mismanagement or neglect of financial assets which causes the deprivation of benefits to be derived from those assets".

The following are given in the study as common examples of financial abuse:

INDICATORS OF POTENTIAL FINANCIAL ABUSE

It is common for close family and friends to be well intentioned in their planning for care of an older person. Their intentions may stem from over protectiveness or a sense of obligation.

The range of acts or omissions that constitute abuse occur along a continuum: at one end, harm results from a poor understanding of an older person's needs; at the other, harm results from aggression and serious physical assault. In different circumstances, different sorts of interventions are required.

Abuse may occur as a result of an inability to cope, frustration, ignorance or negligence. Abuse can be unintentional or deliberate. Some forms of abuse are criminal acts, for example, physical and sexual abuse. Other types, such as financial misappropriation, may not reach the level of criminality, but may require redress through guardianship or civil proceedings. Other situations might be best regarded as forms of domestic violence, with interventions shaped accordingly. Economic abuse is included in the definition of family and domestic violence.

Remember, in most cases you will be looking at potential elder abuse and your objective will be to ensure that the older person is making an independent and informed decision and has considered and canvassed the full implications of any transactions and possible changes in circumstances into the future.

WARNING SIGNS AND INDICATORS

Senior Rights Victoria has listed the following signs and risk factors, which may indicate potential financial abuse.

RISK FACTORS

The following factors, if present, indicate the person may be at risk of financial abuse. The practitioner should be vigilant for signs of abuse, such as:

SIGNS OF POSSIBLE LACK OF CAPACITY

The following factors, if present, may indicate a lack of capacity on behalf of the older person:

Financial abuse of older people is usually accompanied by other forms of abuse. Where there is a history or evidence of physical, psychological or sexual abuse, or where a beneficiary appears to exercise undue influence over the older person, or where the older person appears fearful and reluctant to speak in the presence of a person with influence over their affairs, financial abuse should also be suspected.

Getting the benefit of your business tax losses

Tue, 01 Oct 2019 23:00:00 GMT

When you're starting a new business venture, it may take some time before the business becomes profitable. Or, your business may simply operate at a loss in a particular year.

What does this mean tax-wise? If you're a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary from employment and income from personal investments.

But watch out: if the loss is "non-commercial", you can't use it immediately. Instead, you must defer it (see below). To pass the non-commercial loss rules, you generally must meet two requirements. First, your adjusted taxable income must be less than $250,000. For these purposes, you ignore your business losses, but must add any reportable fringe benefits, salary sacrifice or personal super contributions, and total net investment losses. Second, you must pass one of these four tests, designed to measure whether your business activities are sufficiently "commercial":

If you don't pass any of these tests (or fail the $250,000 income requirement), you must defer the loss. You can use it against future business income when the business starts making a profit, or against other income sources when you start satisfying the non-commercial loss rules. Your losses can be deferred indefinitely until then.

There are special rules for primary production and professional arts businesses. If your income from other sources (excluding any net capital gain) is less than $40,000, you can use your business tax loss against that income and not worry about the non-commercial loss rules.

What if you satisfy the non-commercial loss rules but don't have income against which you can offset your tax loss? Sole traders and individual partners can carry forward tax losses to a later year to apply against future income. While losses can be carried forward indefinitely, you must use them to offset income at the first opportunity.

Whether you're setting up a new business or need advice about using existing losses, contact our office to discuss tax loss planning to help your business succeed.

Salary sacrificing loopholes: are you receiving your full benefits?

Wed, 25 Sep 2019 23:00:00 GMT

Have you heard about the salary sacrificing loopholes that can adversely affect your retirement savings plans? Under current laws, employees who sacrifice some of their salary in return for additional super contributions may end up receiving less than they expected because of these two legal loopholes:

The following example demonstrates how this can adversely affect a worker's savings strategy:

Kayla earns $100,000 p.a. from her employer. This means she's entitled to compulsory SG contributions of 9.5% of her $100,000 salary (ie $9,500). She therefore earns total remuneration of $109,500.

Kayla now arranges to salary sacrifice $10,000 of her salary as extra contributions, reducing her salary to $90,000. But under current laws, her employer is now only required to make compulsory SG contributions of 9.5% of $90,000 (not $100,000), ie $8,550.

Another problem is that her $10,000 salary sacrifice contributions can count towards her employer's obligation to pay SG contributions. She could receive only $10,000 in total contributions plus $90,000 salary (meaning total remuneration of $100,000) and her employer wouldn't be in breach of SG laws.

These loopholes possibly exist because salary sacrificing was not a widespread strategy when the SG laws were written.

In practice, many employers aren't taking advantage of the loopholes. However, evidence suggests some employers are applying the rules differently. They may even do this inadvertently through their payroll processes.

Proposed new laws before Parliament will close the loopholes by requiring employers to pay compulsory SG contributions at 9.5% of the pre-sacrifice amount of salary (that is, the salary actually paid to the employee plus any sacrificed salary). Also, any salary sacrifice contributions will not count towards satisfying the employer's obligation to make compulsory SG contributions.

If passed, the proposed new laws will only apply to quarters beginning on or after 1 July 2020. All salary-sacrificing workers should check their arrangements now to ensure they're receiving the full benefit. They may need to specifically check the amounts going into their fund.

Contact us for assistance in checking your current arrangement or approaching an employer who may be paying less than you expect. We can also help you review your affairs to ensure you're implementing the most tax-effective sacrificing strategy.

ATO sets its sights on undisclosed foreign income

Wed, 18 Sep 2019 23:00:00 GMT

Do you have any amounts of offshore income you haven't declared to the ATO – perhaps interest from a foreign bank account? International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don't get caught out. Failing to report foreign income can attract penalties and ATO scrutiny of your broader tax affairs.

If you're an Australian resident for tax purposes, you're taxed on your worldwide income, so you must declare all foreign income sources in your return. You should consider whether you've earned any amounts from overseas investments, pensions, employment or the sale of offshore assets.

You still need to declare overseas income to the ATO even if you've already paid foreign tax on it. You may be entitled to an offset for foreign tax already paid. Your tax adviser can help you with this, as well as applying the rules for converting amounts to Australian dollars.

You're only taxed on your foreign income if you're an Australian resident for tax purposes. If you're a non-resident, you generally only pay tax on your Australian-sourced income.

Being an Australian resident for tax purposes is different to immigration concepts of residency, and your nationality is generally not relevant. So even if you aren't an Australian citizen or permanent resident, you could be a resident for tax purposes.

The main test for tax residency is whether you "reside" in Australia. There's no single factor that determines whether you meet this test.

Instead, it requires a weighing up of all relevant circumstances, including things like your intentions, your family and living arrangements, business and employment ties, and so on.

However, even if you don't currently "reside" in Australia for tax purposes, you may still be a resident for tax purposes under several alternative tests (including where both your "domicile" and permanent place of abode are maintained in Australia). Seek professional advice if you're in any doubt about your tax residency status.

If you think you may have omitted some foreign income from a previous tax return, you can make a voluntary disclosure to the ATO and pay any tax you owe. You'll often receive a reduction in ATO penalties and interest that would otherwise apply, especially if you make the disclosure before the ATO audits you.

Contact our office if you have any questions about tax residency, foreign income or making a voluntary disclosure. We'll help you navigate the rules to ensure your offshore financial affairs are sorted.

New ATO power to disclose business tax debts

Thu, 12 Sep 2019 23:00:00 GMT

If your business has outstanding tax debts, watch out for a proposed new tool in the ATO's debt recovery arsenal. New laws before Parliament will allow the ATO to report some debts to credit reporting bureaus, who will then be permitted to use this tax debt information in preparing credit worthiness reports. This could adversely affect your credit status and spell trouble when it comes to getting approval for finance.

Under the proposed new laws, the ATO will be able to report a business' tax debts to credit reporting bureaus where the taxpayer:

Importantly, a tax debt will not count towards the minimum $100,000 threshold if your business has entered into a payment plan with the ATO to pay the debt in instalments – provided you are complying with that arrangement!

Therefore, if you default and you don't attempt to remedy this within a reasonable timeframe, your debt will start counting towards the $100,000 threshold and your business may become subject to the debt disclosure regime.

What happens if you disagree with the ATO about a particular debt? Your debt will not count towards the threshold if you have an objection pending with the ATO, if you're seeking review by the Administrative Appeals Tribunal or Federal Court, or if you have an active complaint with the IGT in relation to the debt. However, once those actions conclude – and if the debt remains outstanding as a result – the debt will start counting towards the threshold.

The ATO will need to give you 21 days' notice of its intention to make a disclosure. So, what are your options? In addition to those outlined above, the ATO has indicated it will allow you to have the opportunity to request an internal ATO review and also to request temporary relief based on "exceptional circumstances" that affect your ability to pay your tax debts.

If you have an outstanding tax bill, we'll help you explore all your options from negotiating payment arrangements to disputing tax debts, and help you find a solution to minimise the stress on you and your business.

Claiming work trips for business owners

Wed, 11 Sep 2019 23:00:00 GMT

Rental property deductions: what can I claim? Part 2

Tue, 10 Sep 2019 23:00:00 GMT

Investment property owners should heed the ATO's warning that it will target mistakes with rental property deductions this tax time – especially with over-claimed interest. In our last instalment on rental deductions, we looked at the rules for purchase costs, repairs and improvements. Now, we consider expenses associated with a loan to buy the property.

The general rule is that you can deduct interest expenses on a loan you've taken out to buy the property to the extent the property is used for generating rental income. You can generally deduct these interest expenses in the year you incur them. You can also deduct interest expenses on loans to fund repairs and renovations, or to purchase depreciating assets.

But beware: traps arise when you start using the property for even minimal private purposes or you use part of the loan for private purposes (eg to buy a car). In these cases, you'll need to keep records to show the different uses and you'll only be able to claim a portion of your interest expenses.

What about other loan costs? The good news is you can deduct costs like loan establishment fees, mortgage brokerage fees and costs of other necessary services that are directly related to taking out the loan for the rental property (eg title searches).

In some cases, you'll need to carefully distinguish between costs of taking out the loan , and costs of buying the property :

While you can't claim any premiums for insurance you take out to pay out the loan in the event of your death, disablement or unemployment, you can deduct any lender's mortgage insurance. Watch out for special timing issues. Unless your total deductible loan costs are below $100, you'll need to claim these costs over five years (or the term of the loan, whichever is the shorter period). And as with interest expenses, you can only deduct a portion of your loan costs if the loan will also be used partly for private purposes.

Whether you're planning finance for a new investment property or already paying off an existing loan, talk to us for expert assistance in planning tax-effective rental property investments and getting your annual deductions right.

SMSFs: ATO to check on investment strategy compliance

Wed, 04 Sep 2019 23:00:00 GMT

Rental property deductions: what can I claim?

Wed, 28 Aug 2019 23:00:00 GMT

Did you know that a random audit by the ATO last year revealed nine out of ten rental property owners made a mistake with their rental deductions? In this first of a two-part series, we share some tips on what you can and can't claim. This article assumes you own a 100% rental property with no private use.

Purchase expenses

Buying an investment property carries a host of upfront expenses, but not all of these are deductible straight away. Stamp duty is not deductible, and neither are conveyancing or legal fees for the purchase. Instead, these expenses will be included in the asset's "cost base" for capital gains tax (CGT) purposes when you later sell the property. On the other hand, ongoing land tax (and other charges like council and water rates) are deductible.

Another trap that can arise is initial repairs. If you need to remedy damage that already existed when you bought the property, the repair costs are not immediately deductible in the year you incur them. Instead, these can be claimed gradually over time as capital works deductions.

You also can't deduct costs associated with selling the property, like advertising and conveyancing expenses (which instead form part of the CGT cost base). You can, however, claim advertising costs for finding tenants while you own the property.

Repairs or improvements?

While initial repairs aren't immediately deductible, ongoing repairs and maintenance costs for damage and wear that arises while the property is leased (or available for lease) are deductible in the year you incur them. This includes costs not only to remedy direct damage or deterioration, but also for preventative maintenance to keep the property tenantable, such as oiling a deck. Gardening, lawn-mowing, cleaning and pest control are also deductible.

It's vital to distinguish between a repair and an improvement. This is because unlike ongoing repairs, improvement costs are not immediately deductible. The ATO says that if the work doesn't relate directly to wear and tear (or other damage) from leasing the property, it's not a repair.

Some improvement costs are claimed over time as capital works deductions (where they are structural improvements) and in other cases as capital allowances (where they involve a depreciating asset such as carpets, timber flooring and curtains).

With the ATO promising to double the number of audits of rental property claims this year, it's important to get good advice. Contact us for expert assistance to ensure you maximise your deductions while staying within the rules.

Super “opt out” choice for high earners

Wed, 21 Aug 2019 23:00:00 GMT

If you're a high income-earner with multiple employers, you may be aware of potential traps with compulsory super contributions that can lead to some hefty and unfair penalty taxes. Fortunately, proposed new laws will give those high income-earners the opportunity to take proactive steps to overcome any penalties.

A person's concessional contributions (CCs) are capped at $25,000 per annum and include compulsory superannuation guarantee (SG) contributions; any additional salary-sacrifice amounts; and any personal contributions made by the member for which they claim a deduction.

However, an individual with multiple employers, such as a doctor working for a number of surgeries, can inadvertently breach their $25,000 CC cap because they receive compulsory contributions from each of these employers. While an employer is only required to make compulsory contributions of 9.5% on the worker's earnings up to $55,270 per quarter (or $221,080 per financial year), this applies on a per employer basis.

Excess CCs incur penalty tax at the individual's marginal tax rate less a 15% offset, plus additional interest charges.

Fortunately, under proposed new laws before Parliament, affected employees who may be at risk of breaching their CC cap will be able to "opt out" of receiving compulsory contributions from a particular employer (or multiple employers) by obtaining a certificate from the Commissioner of Taxation. (However, you must always have at least one employer to make SG contributions for you.)

The certificate will name the relevant employer and a particular quarter of the financial year, and will exempt that employer from having to make SG contributions. You'll need to apply for a certificate at least 60 days before the beginning of the relevant quarter.

The Commissioner will only be able to issue you a certificate if you're likely to have excess CCs if the certificate is not issued. To make this assessment, the Commissioner can rely on evidence such as past tax return data and employer payroll data. Once issued, the certificate cannot be varied or revoked. If you choose this opt-out, you'll be able to negotiate with the exempted employer(s) to receive more pay in lieu of the contributions (and you won't be required to show proof of this to the Commissioner).

The legislation to enable the opt-out is likely to pass this year, creating some opportunities for 2020 planning. If you're receiving SG contributions from multiple sources, contact us to begin your remuneration planning and to explore whether the opt-out may benefit you.

Using prior tax losses after a change in control: ATO guidance

Wed, 14 Aug 2019 23:00:00 GMT

Until recently, a company that had experienced a significant change in ownership or control could only carry forward its earlier tax losses to a later income year if the company carried on the "same" business after the change. However, a new alternative test that applies retrospectively from 1 July 2015 means that now companies only need to carry on a "similar" business.

What exactly does "similar" mean? The legislation outlines several factors you must consider when assessing whether your business is "similar". This is a non-exhaustive list, and it requires a weighing-up of all relevant factors. The ATO unpacks the legislation as follows:

The ATO gives the example of a parcel courier company that expands its services to include food delivery. If this new activity commenced because the company undertook R&D to improve its bicycle design in order to improve efficiency, and as a result developed a new bicycle that it realised was suitable for transporting food, the service expansion results from development of the earlier business, so the similar business test is satisfied.

In contrast, if the company commenced this activity because it noticed a growing demand for food delivery services and purchased a new type of bicycle to embark on that opportunity, that would weigh against the current business being similar.

The ATO also emphasises that goodwill is an important asset to consider. For example, if a business adopts a new brand name and transforms from budget to "premium" products, it won't pass the similar business test as it hasn't used the goodwill of its former incarnation. This isn't the result of any natural development of the old business (but rather a commercial decision to present a new identity).

Planning a share sale or equity capital raising? Contact our office today for expert advice on getting the most out of your business' prior losses.

Capital gains tax and death: it’s not the end of the world

Wed, 07 Aug 2019 23:00:00 GMT

There's nothing as certain as death and taxes, but tax on death is not so clear. Generally, the law says there is no CGT liability for the deceased on the transmission of an asset, specifically a dwelling, to a beneficiary.

The beneficiary is considered to be the new owner of the inherited asset on the day the deceased person died and CGT does not apply to that asset. This applies to all assets, including a dwelling. The exception is where the beneficiary is a "tax advantaged entity" (TAE), such as a charity, foreign resident or complying superannuation entity.

If the beneficiary subsequently sells the asset, in this case a dwelling, this may create a CGT "event", depending on the status of the property, when it was purchased, when the deceased died and whether the sale qualifies for the CGT "main residence" exemption.

CGT liability on the sale will be determined by whether:

If the dwelling had been acquired by the deceased pre-CGT and the deceased died pre-CGT, then there is no CGT to pay (unless major improvements had been carried out post-CGT and the dwelling had produced assessable income).

Other situations are less straightforward. If the asset is a post-CGT asset, it's still possible there will be no CGT on the sale of the inherited dwelling but it depends on certain conditions being met. For example, if the asset has been used since the date of death as the main residence (and not to produce income) of the beneficiary, the deceased's spouse or someone with a right to occupy the dwelling, no CGT will apply on the sale.

In some limited cases where the dwelling has not been used as a main residence, CGT also won't apply if the sale occurs within two years of death – but the qualifying rules are tricky, so seek advice about any dwelling you've recently inherited.

If CGT applies to the sale of the inherited dwelling, then the relevant cost base needs to be identified, eg whether it's the cost base or the market value of the dwelling at the date of death.

If you have inherited a dwelling and are in the dark about the CGT impact of hanging onto it or selling it, we can guide you through the minefield and minimise any tax consequences.

ATO Clamping Down on Clothing Deductions

Tue, 30 Jul 2019 23:00:00 GMT

Taxpayers who claim deductions for work-related clothing and laundry expenses may find themselves under the ATO's microscope this tax time. Even if your claim is relatively small, penalties can apply for incorrect claims. Find out what categories are allowed and what records you need to keep.

If your work-related clothing falls into one of the following three categories, you can claim the purchase cost and the costs of laundering that clothing:

The ATO is particularly concerned that many taxpayers incorrectly claim for ordinary clothing, like suits or black work trousers, or formal clothes to wear to work functions.

For total clothing and laundry claims of up to $150, you aren't required to keep detailed records. However, the ATO stresses that taxpayers aren't "automatically" entitled to a $150 deduction – you must have actually incurred the expenses you claim. The ATO can still ask you to substantiate your claim, and can contact your employer to verify its clothing requirements.

If your total claim is under $150, you can calculate your laundry claim using a $1 per load rate where all the clothing is work-related, and 50 cents per load where other clothes are in the load.

If your total claim for clothing and laundry exceeds $150 (and your total claim for work-related expenses exceeds $300), you'll need to keep receipts. To prove your laundry costs, you'll need to keep a diary for a representative one-month period.

Talk to us for expert assistance with all of your work-related expense claims. We'll help you claim everything you're entitled to, while keeping the ATO happy.

Is your Farm a Hobby or a Business?

Wed, 24 Jul 2019 23:00:00 GMT

As you sip a drop from the latest vintage you've crushed with the toes of your family and friends, is it possible that turning these vines into wine has ventured into primary production, and this happy hobby has become a business?

How can you tell? Defining "primary production" and "business" is no problem. Figuring out if a business of primary production is being carried on in your particular case is not so easy.

First, let's look at the definitions. "Business" is clearly defined to include any profession, trade, employment, vocation or calling (other than an occupation as an employee), and "primary production" broadly refers to plant or animal cultivation (or both); fishing or pearling (or both); or tree farming or felling (or both).

Determining whether a business of primary production is being carried on requires both these definitions to be satisfied, but neither provides a simple test for when the nature and extent of your activities amounts to the carrying on of a business.

Fortunately, there are a number of indicators, courtesy of case law, that give some direction, but the ATO emphasises that no one indicator will nail it.

It's a matter of weighing up all the relevant indicators in each individual case. The indicators include things like the intention of the taxpayer (do they intend to engage in business and to make a profit?), the size and scale of activities, whether there is repetition and regularity, and many other factors.

But why does it matter? Defining whether you are carrying on a hobby or a primary production business matters because there are tax considerations for both activities, such as the following.

If it's a hobby you can enjoy the activity without any reporting obligations. You don't need to declare any profit from the activity, but you can't claim any losses. Also, without an ABN, to supply another business requires the completion of some paperwork, otherwise tax will be withheld at the highest rate.

If your hobby becomes a primary production business, you need to declare your income to the ATO, get an ABN and keep tax records. You can also take advantage of tax concessions (like the $30,000 instant asset write-off) and claim general business deductions for your expenses (unless you're offsetting a loss against other income, in which case you need to satisfy the ATO's "non-commercial loss" tests or defer your loss until you make a profit).

If it's all enough to turn you to drink, come and see us for some expert advice and guidance on the most tax-effective way forward for your farm!

Hiring independent contractors: do you need to pay super?

Wed, 17 Jul 2019 23:00:00 GMT

Unsure about the instant asset write-off?

Tue, 09 Jul 2019 23:00:00 GMT

You may have heard about the "instant asset write-off", but do you understand exactly how it can benefit your business? Read our case study for insight into how the write-off works, and what you need to do by 30 June 2020 to take advantage of this limited-time incentive.

The write-off allows small and medium businesses (with turnover up to $50 million) to claim a full deduction for any depreciating asset costing up to $30,000 in the year they first use it, rather than having to deduct the cost over several years under the usual depreciation rules. It's a temporary measure and unless there are further government announcements, the threshold will return to $1,000 from 1 July 2020.

Case study

David runs a distribution business with annual turnover of $1.4 million. He has been thinking about purchasing a computer upgrade (costing $8,000), an extra forklift ($24,000) and a new van ($35,000), which David would use 20% of the time for personal use.

The $30,000 threshold is a per asset threshold, so the business could claim both the $8,000 computer upgrade and $24,000 forklift under the write-off, even though these total $32,000. The $35,000 vehicle won't qualify. Even though businesses may only claim the write-off for the business use proportion of an asset (in this case 80% or $28,000), the full cost of the asset must still be below the $30,000 threshold. The vehicle would be subject to the usual depreciation rules.

To qualify, David must do two things if he wishes to utilise the $30,000 write-off. First, he must purchase the asset by 30 June 2020. For small businesses like David's (with turnover under $10 million), the purchase can go as far back as 13 May 2015 (subject to the "first use/installation" rule discussed below).

If David's business turnover was between $10 million and $50 million, the purchase would need to have been made after 2 April 2019 (when the measure became available to medium businesses).

Second, the asset must be first used, or installed ready for use , on or before 30 June 2020. This means David wouldn't qualify if he buys the asset, but it's not delivered until after 30 June 2020. If a small business purchased and also first used or installed an asset on or before 2 April 2019, a lower threshold will apply. Talk to your adviser about the tax treatment of that purchase.

If you've purchased new equipment for your business, contact us today to explore whether the write-off can work for you.

Small Business CGT Concessions

Wed, 03 Jul 2019 23:00:00 GMT

The small business capital gains tax (CGT) concessions can save businesses some serious tax – and help business owners significantly boost their superannuation – but it's essential that you keep the right records, particularly for when the time comes to sell. Find out what your business should be doing now to keep the ATO at bay in the future.

Your tax adviser can help you consider whether your business will qualify for this small business relief. If so, you could potentially access one or more of the following concessions:

However, business owners taking advantage of these generous concessions should understand they may receive a "please explain" follow-up from the ATO. It's therefore essential to record all relevant information about your business assets so that you can later substantiate your CGT claim. This includes purchase information (date of purchase, the price you paid, any stamp duty and legal fees you paid) and ongoing costs (repairs, insurance, installation costs and improvement costs).

Usually, you need to keep all records until at least five years after the CGT event (generally, when you sell), so for an asset you purchased in 2002 and sold in 2019, you'd need to keep all the purchase records until 2024! Alternatively, keeping a CGT "asset register" can make record-keeping simpler. This is a register where you keep relevant information for all your CGT assets, and a major advantage is that once an entry is certified by a tax agent, you only need to keep the original records for five years from that date.

Want to simplify your record-keeping or need help reconstructing records that aren't up-to-date? Don't jeopardise your future tax planning – talk to us today for expert assistance in ensuring your business will be ready to take advantage of the CGT concessions.

Dealing with the ATO: simple tips for taxpayers

Tue, 18 Jun 2019 23:00:00 GMT

The way we approach tax matters can sometimes end up making a big difference to our bottom line and stress levels. Here are three tips to help individual taxpayers achieve a better outcome when lodging and dealing with the ATO this tax time.

Tip one: Get help with debts early: If you're experiencing financial difficulties, there are a number of ways the ATO can assist. If you can't pay your tax bill, the ATO encourages you to contact them early to discuss your options. For tax bills under $100,000 you can set up a payment plan online through myGov, or through your tax agent. For bigger debts, contact the ATO to discuss a plan. The ATO has power to provide debt relief from an individual's tax bill (in part or in full) if payment would leave them unable to afford food, clothing, accommodation, medical treatment, education or other necessities. In 2017–2018, the ATO granted 2,174 full or partial releases. A good tip for anyone having trouble paying their tax bill is to stay on top of their lodgment obligations. This shows the ATO you're aware of your obligations and you'll avoid penalties for non-lodgment.

Tip two: Stay off the ATO's radar: No one wants to be audited, so it pays to know the following "red flags" the ATO looks for when analysing its vast data sources, and it may help you identify when to seek professional advice: unusually high work-related expense claims; rental expenses, especially those inconsistent with rental income or other ATO data; undeclared capital gains and income; and taxpayers who don't lodge returns on time!

Tip three: Manage disputes efficiently: There are many options for resolving tax disputes, ranging from lodging an objection, seeking external review, alternative dispute resolution and litigation. However, the ATO wants to resolve tax disputes quickly and fairly. The ATO's "in-house" facilitation service gives individuals (and small businesses) free access to an impartial ATO mediator who will take the taxpayer and ATO case officers through the issues in dispute and attempt to reach a resolution. It's a voluntary process and can be undertaken at any time from the early audit stage up to and including the litigation stage.

In all of your dealings with the ATO, we're here to support you. Whether it's a tax debt, a disputed assessment or a complicated deduction you're not sure about claiming, our experts will guide you every step of the way and help you achieve the best outcome

ABN registrations under scrutiny: does yours stack up?

Tue, 04 Jun 2019 23:00:00 GMT

Have you run a small business that has ceased or paused operations? Or perhaps you've been hired as an ABN contractor? The ATO is cleaning up the Australian Business Register and is on the lookout for people who may not be entitled to hold an ABN.

This year, the ATO has been focused on improving the integrity of the Australian Business Register (ABR). You may have even heard that the ATO has been "bulk cancelling" a large number of ABNs. Only entities that "carry on an enterprise" are entitled to hold an ABN. An enterprise includes running a business, as well as other activities like leasing property or being the trustee of an SMSF. It does not include working as an employee.

The ATO is focused on identifying the following types of ABN holders who are not entitled to hold their ABN: businesses that are no longer active; businesses that hold multiple ABNs; and workers who are incorrectly classified as contractors rather than employees (discussed below).

The ATO is also concerned that some businesses are incorrectly classifying their workers as "independent contractors" when in fact they are likely to be "employees". In such cases, the employer may ask the worker to obtain an ABN and call the arrangement "contracting". Unfortunately, this illegal practice is sometimes done to avoid paying entitlements like award wages and superannuation contributions.

If you hold an ABN, you must update the register within 28 days of becoming aware of a relevant change. This includes things like your contact details (including your business address) and your main business activity and business category.

You should cancel your ABN if your business has been sold or is no longer operating. Before cancelling your ABN you should make sure you've complied with all of your lodgement and reporting obligations. You may also need to cancel your ABN if you're changing your business structure (eg from a sole trader to a company) and then apply for a new ABN. Of course, you should get professional advice before changing your business structure to make sure you understand the associated tax consequences.

Don't stress over business administration – get help from the professionals. Whether you're thinking of starting a new business or need help sorting out a registration issue, we can handle all of your ABN registration needs, as well as related registrations like GST, PAYG and business names.

ATO Benchmarks Can Help You

Wed, 01 May 2019 23:00:00 GMT

STP - It's Not a Disease!

Wed, 06 Feb 2019 22:00:00 GMT

Disasters & Employee Entitlements

Wed, 30 Jan 2019 22:00:00 GMT

Labor's Tax Policies

Wed, 23 Jan 2019 22:00:00 GMT

With the possibility of Labor winning government this year, I thought I would review Labor's well-publicised policies of negative gearing restrictions, reduction of the CGT discount, and ending excess dividend imputation. These policies are wide-ranging and may affect a broad group of taxpayers including individuals, retirees and SMSFs.

If you hold any investments (not just property), you may be subject to Labor's negative gearing restrictions for investors. From a specific date after the next election (ie the changes will not apply retrospectively and all investments made before the specific date will be grandfathered), negative gearing will be limited to newly-constructed housing. However, the restrictions would apply on a global basis for every taxpayer.

For example, Ian obtains a loan to buy shares after Labor's negative gearing restrictions come into effect, shortly after he receives an unexpected windfall and uses the money to purchase 2 properties. One of his properties is positively geared and one is negatively geared, while the shares are neutral. As long as the investment income exceeds total interest and deductions related to all his investments (ie 2 properties plus shares), then Ian will be able to deduct the full amount of the interest and deductions. However, if the total interest and deductions exceed the total investment income, the excess cannot be offset against other non-investment income and needs to be carried forward to be offset against future investment income or capital gains.

As you can see from the example, the policy would benefit those with multiple investments, whether it be shares, managed funds or property. As long as some of the investments are positively geared then there is still a benefit to be had. For the new "rentvesting" generation, this change may impact on any potential investments they may want to make in the future and quarantining of excess losses may need to be factored into investment decisions.

Labor is also planning to reduce the CGT discount for assets held longer than 12 months from 50% to 25%. Again, the changes will apply from a yet-to-be-determined date after the next election and all investments made before this date will be fully grandfathered. This means that if you purchase an investment after the specified date and sell it after 12 months and the capital gains on the investment is $5,000, you could end up paying anywhere between $200 to $500 in excess tax depending on your tax bracket.

Perhaps the most well-publicised policy in Labor's election package is the elimination of excess dividend imputation. Simply, this is denying individuals and super funds the right to receive a cash refund from the ATO if their imputation credits from dividends exceed the tax they have to pay. When this proposal was first announced, it drew the ire from multiple fronts including retirees and SMSF associations. A concession was then made to exempt pensioners which means the policy is now targeted at low-income earners, self-funded retirees not on the pension, and SMSFs without a pensioner member.

What to do now?

Now that you have all the information on potential tax changes that could be coming your way, it may be a good time to start thinking about whether you will be affected by any of the changes. If you think you may be affected, we can help you put plans in place that will minimise the impact. Contact us today if you would like some expert advice.

Superannuation Contributions for Seniors

Wed, 16 Jan 2019 22:00:00 GMT

Work test exemption for low balance retirees An exemption from the work test will apply to voluntary superannuation contributions in the first income year after retirement from 1 July 2019. This means that an individual who is over 65 years of age would be able to make voluntary contributions for one more year after they stop working. However, for an individual to utilise the work test exemption, their Total superannuation balance must be less than $300,000. Originally, the work test exemption would not be allowed to start a "bring forward" three-year contribution. However, the 2018/19 MYEFO announcement stated it would be allowed for Year 1. Other new super legislation can work in collaboration with this measure, creating additional areas to obtain a tax saving. Source: Exposure Draft; MYEFO 20-18/19 p. 130; Budget paper No. 2, p 30

Summer Sales Slump?

Wed, 09 Jan 2019 22:00:00 GMT

The days may be longer and the weather warmer, but for many small business owners, the arrival of summer equals a downturn in sales as customers set their out-of-office replies and go on holiday.

Here are some tips courtesy of Yellow Pages & Jess Della-Franca, Digital content specialist.

If you're no stranger to the dreaded sales slump, here are some practical steps you can take to get back on track.

1.Change up your messaging.

'Tis the season to head to the beach, eat too much and do some serious relaxing, which gives you a good opportunity to take inspiration from these themes and change up your messaging. For example, you might send an email to your mailing list with the subject line "You're probably on holiday, but…" or create a product or service bundle centred around people's needs during the holiday season. Using humour and relatability will help build a rapport with your audience, and highlighting useful products and services helps you stay relevant even during slow periods.

2. Work toward longer-term goals.

Most small business owners have a list of long-term aims that sit on the back-burner whenever day-to-day business gets in the way. If you've been thinking about making any major long-term investments or improvements in the business, use this opportunity to research these objectives further and turn abstract ideas into concrete plans. Create a written timeline for long-term goals, including the steps to achieving each goal and the budget required to do so. This will give you a solid reference point to work from in tandem with your day-to-day responsibilities.

3. Sow the seeds for the busy season.

You probably have some more time on your hands now that business has slowed, which means it's a great time to start planning your year ahead and get your ducks in a row before sales pick up again. Use this time to plan future marketing campaigns, sales strategies, and operational processes so that when you hit a peak again, you'll be well prepared to handle demand, boost sales and provide the best possible customer experience. You could even spend some time on the Yellow Business Hub , where you'll find a wide range of how-to and informative articles on digital marketing that could inspire your marketing plan for the new year.

4. Hold a holiday sale.

Everybody loves a sale, and the holiday season offers a good opportunity to incentivise customers with discounts so you can maintain a decent cash flow even if your bottom line isn't as lucrative as other times of the year. If you're a product-based business, holding a holiday sale also allows you to sell off excess stock and cut down on storage costs, which will free you up to sell more when sales pick up.

5. Get social.

During the Christmas holiday period social media usage peaks. This is a great opportunity for you to advertise your business on social, connecting you with more customers and building your social following. And if you haven't explored social advertising before, take some time to experiment with what works, testing different messaging and different post times.

Try to keep your messaging fun and inline with the holiday vibe that floods social feeds during this time. For hints on creating a great social campaign check out our article – '7 clever social media campaigns that are super easy to set up' .

6. Take a break.

If it seems like the rest of the world is on holiday or kicking back and relaxing over summer, it could be a sign that you should do the same. You've worked hard all year to keep your business ticking along nicely, so if you can manage it, take a well-deserved break and come back refreshed and ready to kick those goals in the new year.

Blitz on Sharing Economy

Wed, 02 Jan 2019 22:00:00 GMT

ATO Continues Its Blitz On The Sharing Economy

So You Want to be an Independent Contractor

Thu, 23 Nov 2017 22:00:00 GMT

Confused about what it means to be an Independent Contractor?

Maybe you are working for a business but you want to start your own business.

Maybe your employer has suggested that you could work at home, and they will change your status to that of an Independent Contractor.

Before you make this change, you should know about some of the pros and cons of working independently.

Benefits

Drawbacks

TIP: An Independent Contractor can have a contract. Get a written contract from each person or business you work for. Having a contract spells out "what happens when." Having a contract can settle many disputes before they start, and you can take a contract to court to get paid, if necessary.

If you need further guidance on the benefits and drawbacks of being an Independent Contractor, consider a consultation with your Accountant. This is a critical decision which can affect your future wealth creation and your current living standards.

Scams Alert

Thu, 09 Nov 2017 22:00:00 GMT

Improve your Personal Cashflow

Thu, 12 Oct 2017 22:00:00 GMT

Simple Options to Improve your Personal Cashflow It is very simple: To gain wealth, you must spend less than you earn. Being fiscally astute is not rocket science. Let's review simple options to help you turn your spending habits around and achieve a positive personal cash flow. Settle bills by the due date unless there is an incentive to pay early. Your money is better placed to work for you in an interest-bearing account. Pay off high-interest rate debt to free up money. This is your priority task. Debt is not a given. Break the cycle and pay off your debts. Pay as much extra off the debt as you can. This will ultimately reduce the amount of interest you are paying and save you money. Short-term pain for long-term gain. Use credit cards as a means of delaying cash payments to manipulate your cash flow to your advantage. Be market savvy. Keep an eye on the interest rates you're paying on your debts and make sure they're competitive. If they're not, speak to your bank. Evaluate your daily spending habits. Keep track of every item of expenditure for a month. It is probable that you will be shocked. Consider carpooling to work, making your own lunch and ditching the gym membership in favour of going for a walk with friends and family. You will be surprised how much you can save! Be Mean. Develop an attitude toward cutting costs, no matter how small. Turn lights out when you leave a room, sleep on purchasing decisions, never impulse buy, etc. Making changes to your spending can feel hard. Persist. Being cost-conscious will have a far greater and positive impact on your life.

Hire for Culture

Thu, 14 Sep 2017 23:00:00 GMT

Hire For Culture, Train For Skills

Cultural fit is a concept that can be hard to define but everyone knows when it is missing.

Simply put, cultural fit is the likelihood that a person will be able to effortlessly live your business core values and behaviors.

If you assess cultural fit throughout your recruitment process, you will ensure you hire people who will become fantastic in their new roles. This will certainly help drive long-term growth and success for your business.

What this means is that when you hire on both job fit and cultural fit, you'll find that your new team members are:

When you make recruiting decisions purely on skills and don't take into account the cultural fit of the candidate, you may find:

Top Tip: Give applicants a chance to lead the conversation.

We've all been to interviews where the interviewer sticks to an approved list of 10 questions. Instead, hand the interviewee the keys. See how they communicate without prompts or guides. This can provide an opportunity for vibrant personalities to shine. If the interviewee has difficulty conversing with you of their own accord, that can be a sign that their personality doesn't fit the role.

Do You Know What Your Core Values Are?

It's important as the leader to know yourself well enough to know what your true or core values are. If you discover that you actually value timeliness over creativity, that's your prerogative. When you started your business, how did you want it to run? What did you want to motivate people? Don't worry about being "wrong" when you answer these questions. The important thing is to answer them.

Perhaps, respect, open communication and on-time delivery of service are your core values. For another business, it may be delivering your products at the lowest cost. Whatever your core values are – live them and be sure to communicate and promote them at every opportunity.

Growth through Systemisation

Thu, 03 Aug 2017 23:00:00 GMT

Grow Your Business With Efficient Systems

Many small businesses are so busy running the business and fending off daily emergencies that systems go completely ignored and chaos often prevails.

Efficient Systems Create a Better Experience for Customers and You

The business that leads in the race for customers is the business that has all its systems integrated and working smoothly together. A business that has an infallible billing system, acceptable customer service but has too much inventory is not going to win the race.

Ideally, your systems create an experience for the customer that makes him or her want to come back for more.

How to Improve Your Systems

Here are some tips to make sure your systems are up and running at a winning pace:

2017 Budget Summary

Mon, 08 May 2017 23:00:00 GMT

Federal Budget 2017-18 – What it means for you

Highlights

- Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (levied at two percent of taxable income in excess of $180,000) will cease on 30 June this year as planned.

- The $20,000 immediate write-off for small businesses is being extended for one year, to 30 June 2018.

- The Medicare levy is being increased from 2% to 2.5%, effective from the 2019-20 income year.

- A number of measures have been announced to reduce the pressure on housing affordability, including:

- an annual charge on foreign owners of underutilised residential property

- various CGT changes for foreign investors, including denial of the main residence exemption

- an option for individuals aged 65 or over to contribute the proceeds of downsizing their home to superannuation

- denial of deductions for expenses related to inspecting, maintaining or collecting rent for a residential investment property

- access to a higher CGT discount of 60% (as compared to the 50% available in other circumstances) for investments in qualifying affordable housing

- the introduction of a first home super saving scheme

If you are an individual . . .

who pays tax

. . . you may not have to pay the Medicare levy this year. From the 2016-17 income year (this year) the Government will increase the Medicare levy low-income threshold for singles to $21,655 (from $21,335), for families to $36,541 (from $36,001), for single seniors and pensioners to $34,244 (from $33,738) and for senior and pensioner families to $47,670 (from $46,966). The additional amount of threshold for each dependent child or student will also be increased to $3,356 (from $3,306). This means that you can earn more before triggering a liability to pay the Medicare levy.

. . . if you are required to pay the Medicare levy you will have to pay more from the 2019-20 tax year, as the Medicare levy is being increased from 2% to 2.5%

earning more than $180,000 per annum

. . . you will pay less tax next year. Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (an additional two percent on taxable income in excess of $180,000) will cease on 30 June 2017 as planned. It is not being extended.

who owns a home

. . . if you are aged 65 or over and have owned that home for at least 10 years, from 1 July 2018 you will be able to make a non-concessional (after tax) contribution of up to $300,000 from the proceeds of selling your home. You will be able to do this regardless of the existing age test, work test and soon to be introduced $1.6 million cap on after tax contributions.

. . . if you are a foreign or temporary resident you will not have access to the CGT main residence exemption from 7.30pm on Budget night (although existing properties held prior to this time will be grandfathered until 30 June 2019).

who wants to own a home

. . . you will be able to withdraw on or after 1 July 2018 voluntary superannuation contributions you make from 1 July 2017, along with associated deemed earnings, for a first house deposit. You will be taxed at your marginal rate, less a 30 percent offset, on concessional (before-tax) contributions you withdraw. You will be able to contribute up $15,000 per year, and up to $30,000 in total.

who is studying

. . . repayments on your Higher Education Loan Programme (HELP) debts will be subject to revised income thresholds - a new minimum threshold of $42,000 will be established with a 1% repayment rate, and a maximum threshold of $119,882 with a 10 per cent repayment rate.

who has a SMSF

. . . the use of limited recourse borrowing arrangements by your fund will be included in your $1.6 million total superannuation balance and transfer balance cap, thereby reducing your scope to make non-concessional contributions from other sources.

. . . you can expect greater focus on the use of related party transactions on non-commercial terms to increase your superannuation savings.

If you invest in residential property . . .

and are a foreign resident

. . . where the property is not occupied or genuinely available on the rental market for at least six months per year, you will be charged an annual 'penalty' of at least $5,000. The new charge applies to applications to acquire property from 7:30pm Budget night.

. . . you may find yourself barred from buying into a new development, as the Government will introduce a 50% cap on foreign ownership in such developments.

and incur travel expenses related to inspecting, maintaining or collecting rent for the property

. . . from 1 July 2017 you will no longer be able to claim deductions for those expenses. The cost of engaging a real estate agent for property management services will remain deductible.

that qualifies as 'affordable housing'

. . . on or after 1 January 2018 you will benefit from a higher CGT discount - 60% instead of 50%. To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.

. . . you will be able to access concessional tax treatment by investing in a Managed Investment Trust that itself invests in affordable housing, provided the affordable housing is available for rent for at least ten years.

that contains plant and equipment

. . . you will not be able to claim depreciation deductions for assets purchased after 9 May 2017 by a previous owner of the property.

that is newly constructed or a new subdivision

. . . on or after 1 July 2018 you will be required to remit GST on the purchase directly to the ATO as part of settlement, as opposed to the developer being required to remit the GST as is currently the case.

If you are a business . . .

planning to employ foreign workers

. . . from March 2018 you may be required to pay a levy. Businesses will be required to make an upfront payment of $1,200 (for businesses with turnover of less than $10 million) or $1,800 (for businesses with turnover of $10 million or more) per visa per year for each employee on a Temporary Skill Shortage visa, and make a one-off payment of $3,000 (for businesses with turnover of less than $10 million) or $5,000 (for businesses with turnover of $10 million or more) for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

planning to invest in a depreciating asset or two (or more)

. . . if you are a small business (which you are if your turnover less than $10 million for the year) you will be able to immediately deduct purchases of eligible assets costing less than $20,000 through to 30 June 2018 (initially planned to cease on 30 June 2017). From 1 July 2018 the immediate deductibility threshold will revert back to $1,000.

in the courier or cleaning industry

. . . the taxable payments reporting system (TPRS) that operates in the building and construction industry will apply to you from 1 July 2018. You will be required to report payments you make to contractors (individual and total for the year) to the ATO.

and you are intending to dispose of your business, or CGT assets used in your business

. . . your accountant may need to take a second look at whether the small business CGT concessions will be available to you, as the Government is planning to make changes to those rules from 1 July 2017 designed to restrict their availability.

Whoever you are . . .

if you operate in the black economy

. . . your affairs are more likely to be picked up by the ATO, as the Government will be extending the provision of additional funding for ATO audit and compliance programs to better target black economy activities, such as non lodgement, omission of income and non payment of employer obligations.

. . . the Government will act to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software, which apparently allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment so that income earned from these transactions and tax owing from this income is not reported to the ATO. .

Stress Free Business Transition - It's a choice

Thu, 23 Mar 2017 22:00:00 GMT

Blueberry Trailers was established by Jack Jones in 1970. Since its humble beginnings as a husband-and-wife-based business, the company has grown to manage 30 team members across two factories and build approximately 50 custom trailers per year.

That said, along the way it has had its struggles.

In 2012, Jack suffered a non-fatal heart attack and it suddenly became his children's responsibility to keep the business alive while their father recovered in the hospital. The transition in management wasn't easy. Dave and Peter were forced to step into their roles at a young age. They had no training or knowledge of their father's role. Jack had set up a great business but it was 'a handshake type of business'; nothing was documented properly. Processes, procedures and analysing business performance was almost non-existent.

This is a problem that commonly occurs in the family-run business space.

Accountant's Role – Trusted External Advisor

Davy and Peter agreed the best strategy was to seek help and to work with an external trusted advisor. They chose their accountant who had a good knowledge of the business and who knew their father. Bringing in an external party allowed their family to hear a well-educated objective opinion and kept everyone's egos out of the way. With the Accountant's guidance, they 'flipped the business on its head'. It took about two years of financial struggle and hard work but the business started to change and it has been for the better. The company has continued to thrive ever since.

The Result

With their Accountant's help, Dave and Peter implemented new strategies in their family business. They successfully took over from their father and now have 30 team members across two factories.

Dave says, 'Dad was really apprehensive. Although they say you can't teach an old dog new tricks, Peter and I insisted we could prove that we could get the job done and we did. And we enjoy having our weekends off.'

Imagine how much easier this process would have been if Jack had committed to succession planning. The issues would have been identified earlier and corrected. His sons, his team and his business would have been prepared for the event. Succession Planning would most certainly have made the unplanned leadership transition a stress free, organised event. Instead it was 2 years of struggle albeit with a happy ending.

Effective Low Cost Business Marketing

Thu, 23 Feb 2017 22:00:00 GMT

Traditional Effective Low-Cost Small Business Marketing

This case study demonstrates how Hair Salon owners worked with their Accountant to create an effective low-cost marketing campaign which targeted lapsed and new customers to increase sales. The campaign was traditional but effective.

About The Client

A Client runs a small funky hair salon in New York. They decided it was time to move to larger premises with more passing foot traffic, but they knew they had to grow their existing strong and loyal client base first.

Solution

To achieve this goal, a project was completed with the following objectives:

This was successful and helped get them on their way.

Accountant's Role

The Accountant reviewed the business operations and based on the outcome of a SWOT analysis, the Accountant recommend that the Client:

Benefits for Client

The emails resulted in numerous new appointments from lapsed customers and a number of new customers were acquired.

This campaign also created an opportunity to introduce these lapsed customers to a new senior hairdresser on the team.

Might similar strategies work in your business?

Marketing Avoid Changing Horses in Midstream

Thu, 16 Feb 2017 22:00:00 GMT

It's rare that Accountants are spoken of as examples of great marketing. So please indulge us as we share with you a wonderful campaign run by the Institute of Chartered Accountants in England and Wales back in 1995.

So proud were the Institute of their campaign that they bought serious billboard space in London. On the billboard was written in huge writi ng:

"It's easier to sleep with a Chartered Accountant."

Talk about impact. The number of letters this campaign generated to the national press in England was amazing. It probably even turned up in comedians' lines, news bulletins and so on.

And then, six months later they changed it.

What to? Well, we can't tell you. Because we haven't noticed any of their campaigns since - nor have there been reports of any letters appearing in the Times!

So, the question to ask is obvious. Why change it? Or more particularly, why change something that was working brilliantly?

They changed (like most other people) because they figured it was "time to change."

In doing that, they fell into the trap into which many businesses fall - change for change's sake. It's wrong!

Many companies indiscriminately change campaigns in midstream. In the process of that change, they:

The truth is that you get tired of your own campaign long before it's done its work out there in the marketplace.

Don't arbitrarily abandon it. Only replace an approach when you've verified and validated a more successful and profitable successor. Again, that requires measurement, management and testing. And, as you'd understand, as Accountants we're well-placed to help you with implementing those measurement systems. Please reach out if you'd like to discuss how we might do that.

Beware of Scams

Thu, 09 Feb 2017 22:00:00 GMT

What a Business Plan Can Do For You

Thu, 09 Jun 2016 23:00:00 GMT

What a business plan can do for you and how to use it

Running a business without a business plan is like rock climbing blindfolded. Your chances of making it successfully to the top are slim. And the process will surely be a death-defying one.

Contrary to popular practice, a business plan is not a means to securing financing. Instead it is a step-by-step guide to running your business and creating the product or service that will make it in the marketplace. And like any other map, your plan will have to be adjusted according to your vision for the company, conditions and opportunities in the marketplace and your business' current condition.

Whether it's formal or informal, every business has a plan. The local hair salon may not have formally written down the plan, but before setting up shop, a smart owner would have assessed the need for a shop in that area of town, the ability to attract clients there, the appropriate amount of chairs, whether to hire someone to do the shampooing and sweeping, the cost of utilities, the parking availability for clients. The owner who waits to figure these things out using trial and mostly error will be lucky to be left with his/her wits, much less any customers. A business plan helps to minimizes those pitfalls.

To many people, the concept of writing a business plan for their own business is a daunting one. Perhaps it would appear less daunting to view the process as simply writing the answer to three questions, namely:

THE FIRST QUESTION – 'Where are you now?' – must be your starting point. This question seeks to provide a planning base. It looks at your business to establish such things as: ?

Answering the question, "Where are you now?" is often a major stumbling block because most people don't know where to start. However, the answer is surprisingly simple if you divide your business planning into four key areas: Operational, Marketing, Employees and Finance. Such a division allows you to analyze your business (or assumed business) to create a solid planning base.

THE SECOND QUESTION – "Where do you want to be at a future date?" is simply asking you to visualize your business operation at a set date in the future. This visualization process is almost identical to the exercise of setting personal objectives. The difference, however, is that the focus here is on business objectives.

THE THIRD QUESTION – "How will you get there?" asks about the steps you need to take in order to achieve the business objectives you have set. These steps, or strategies, can be identified, written down and programmed. Additional things a business plan should consider:

While much of this may have occurred to you informally, it is very import to write it down. If you ever need to approach a bank or investors, you will need it. Writing it down will reinforce your vision, give you a reference point for checking your business' progress and will most likely bring up factors you did not consider when creating the plan in your head.

Writing your business plan down:

Business plans are not only for those just setting out their journey in the marketplace. They are useful when acquiring a new business, forecasting growth, introducing a new product or service, entering a new market, responding to changes in the market or changing a significant aspect of your business.

Creating a Promotions Strategy

Tue, 24 May 2016 23:00:00 GMT

How to create a promotions strategy that works

You may have the greatest product ever but if you don't tell the world, it will sit on the shelves collecting dust until you finally have to close your business. Remember, you know what is great about your business because you created it. The rest of the world is not thinking about you and what you have to offer. So you have to tell them and you have to tell them in a way that makes them want what you have to offer.

Many small businesses shy away from promotions thinking they can't compete with the advertising, public relations and promotions budgets of their large competitors. But good promotions do not have to be expensive. And if you stay focused and create a clear plan, they don't have to be time-consuming either.

First develop a plan. This should be included in your business plan. Here are the steps to developing a strong promotional plan:

Identify your target buyer

Consider what kind of customer you want to do business with and to whom your product or service is most likely to appeal. Take into account demographic (i.e. age, gender, location, marital status), lifestyle (i.e. athletes, club goers, outdoor enthusiasts) and psychographics (i.e. personality traits and emotions that affect buying decisions) information.

Make Them Want What You Have to Offer

Distinguish your product or service from all the rest. This has to be meaningful and accurate, otherwise you will lose credibility with your consumers. First you will need to know what features, benefits and brand attributes your target buyers consider when making a purchase. For example, if you are a local nursery, your target buyers might take into account return policies on plants that don't survive, quality of plants in store and availability of informed people who can assist them with plant choices and directions for caring for the plants.

Create a strategy and make it clear

Write down who your target buyers are, what your competitive environment is and what your meaningful differences are. This is called your positioning strategy statement. You must develop a consistent message and look and feel in all of your promotional campaigns.

Think about the personality of your business in relationship to your target buyers. Is it a young, hip, friendly, casual environment? Or is it a more reserved, traditional and slightly more conservative environment? These characteristics will inform the look, feel and tone of your business, as well as promotions.

Create a clear, concise and memorable message that impacts your target buyers

This can be a challenge but doesn't have to be. Think about your business value proposition (BVP). If you have clearly identified the unique features and benefits of your product/service that truly matter to your target buyers, you will be well on your way. Take this information and brainstorm potential slogans, keywords in all marketing messages and visual images that correspond to your BVP.

Consider your budget

When promoting your products, services and business there may never seem to be enough money. However, not all promotion costs money. Creating a mix between word-of-mouth, customer referral programs, public relations and advertising will save you a lot of money. Imagination and relationship building are the keys.

Four of the Most Common Financial Mistakes Small Businesses Make

Wed, 16 Mar 2016 22:00:00 GMT

Many small business owners are entrepreneurs who went into business seeking freedom, a better lifestyle, more money or simply because they wanted to run their own show. Financial acumen is rarely high amongst the skills possessed by such people. As such, it is only to be expected that business owners make financial mistakes which can jeopardise their dreams. Here are four of the most common mistakes and how business owners can avoid them.

Few small businesses have a working budget and cash flow forecast which is rolled over on (at least) a quarterly basis. As a result, they make decisions based on guesswork and have no idea whether their business's actual performance is better or worse than what they expected. A solid budget requires the following information, ideally seasonalised and presented on a month by month basis:

Once you have developed a budgeted profit and loss account, you should then create a cash flow forecast. This differs from the profit and loss budget because it is looking at the cash inflows and outflows. As such, it needs to take account of how long your customers take to pay you, how quickly you turn over inventory, how quickly you pay your suppliers, any loan repayments due and any forecasted capital expenditure that will not appear in the budget profit and loss account.

For a thorough budget that could be presented to a bank for the purpose of raising finance, you should also complete a budgeted balance sheet.

As a general rule, and to the extent that it is possible, it is good practice to cash flow the lifetime of a purchase. By that we mean this: if you are buying stock to sell in the short term, then finance it out of your day to day working capital. But if you are buying a large piece of machinery with a ten year life, then you should look to finance it over ten years. Similarly, don't fall into the trap of many small business owners where you have a good quarter and go out and buy yourself a flash new car – out of cash flow. Unless you are confident (and have evidence to back it up) that your strong sales will continue, you could find yourself in a cash flow bind if you empty the bank account to buy new assets every time you find you have a bit of surplus cash.

Form a strong relationship with a bank manager and keep them up to date with your plans. Often, the banks will be happy to lend when times are good for your business and you should take advantage of that to properly finance any capital expenditure required to expand your business. Similarly, the best time to secure an overdraft is when you don't need it. The banks will be more willing and able to help you out and then if you hit a rough patch, you have a safety net.

When considering how to improve profitability, many business owners resort to hacking at costs. That's all very well, but there is a finite limit to which expenses can be cut – zero. And then you have no business. On the other hand, the opportunities to grow revenue, assuming you manage your growth within the constraints of your cash flow, are limitless. It comes down to understanding the drivers of revenue, which in most businesses are:

Once you understand the drivers, you can put in place strategies to increase each of those critical measures.

Another thing to be aware of when reviewing costs, which, of course, is still a valid strategy, is knowing where to cut. For example, too often businesses cut back on marketing which can often be the last place you should be making cuts. Similarly, a knee jerk reaction to cut back on travel expenses could see an adverse reaction (a recent study conducted by Oxford Economics and commissioned by the US Travel Association found that 57% of businesses surveyed felt that cutting their travel costs during the recession in the US hurt their business.)

Quite possibly the most important to avoid of all of the mistakes listed. In this era of Cloud accounting solutions accurate management information integrated with daily bank feeds is readily available. Not to take advantage of such information is to run the business by the seat of your pants. Yet many small businesses persist in keeping their records on a spreadsheet or worse, in a shoe box!

Talk with your accountant today if you feel that your accounting records are inaccurate, unhelpful or obsolete. In fact, your accountant can help you avoid all four of the key financial outlined in this article, helping to set you up for more profitable days ahead.

Contractor Confusion

Wed, 06 Nov 2013 22:00:00 GMT

Over the last couple of years the ATO has made a concerted effort to tackle what they see as problem contractors or to put it more simply people who are working as contractors who the ATO think should be treated as employees. There has been many political arguments put forward arguing the case for the use of contractors and their use is the norm in industries such as building & construction but despite the rhetoric whether someone is an employee or a contractor comes down to the facts of the situation.

The ATO has plenty of information available on this area and the following link includes some checklists to help determine the employee vs contractor status,

In summary the characteristics of a contractor include:

You will note that having an ABN is not a factor in determining whether a worker is an employee or not.

Whether a worker is classified as an employee or a contractor will determine the types of tax deductions that they are allowed to claim as well as the obligations the business paying them has for PAYG withholding, leave entitlements and possibly superannuation and workers compensation.

If you would like further information or would like to discuss your situation with us please call and we will be happy to help.