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Practice Update - December 2018

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P r a c t i c e  U p d a t e

December 2018

Company loans to shareholders under review

The Government has released a consultation paper outlining proposed reforms to ‘simplify’ the loan agreements that are generally required when a shareholder (or their associate) borrows funds (or receives a payment) from a related company.

Editor: Broadly, where a private company makes a payment or loans funds to a shareholder and/or their associate, the amount will be treated as a taxable unfranked dividend paid to the recipient. 

To avoid this, many shareholders enter into complying 'Division 7A loan agreements' (basically agreeing to repay the relevant amount within 7 years, or 25 years if the loan is secured).

With this in mind,Treasury is currently looking at (amongst other things):

q   simplifying the Division 7A loan rules by converting to a new 10-year model; and

q    clarifying that distributions from a trust to a ‘bucket’ company that remain 'unpaid present entitlements' come within the scope of Division 7A.

Editor: The proposed amendments are intended to apply from 1 July 2019 and will arguably be the most significant tax reforms impacting business and investment clients over the next two years.

At this stage of the consultation process, the Government is currently considering submissions made with respect to these proposals and it is expected that draft legislation, and further clarity, will be available early in the 2019 calendar year.   

ATO to send text messages if bank account details incorrect

The ATO has advised that it will send SMS text messages directly to taxpayers where incorrect bank account details were included in their tax returns and they were entitled to a refund.

The SMS will advise impacted taxpayers that:

q   their refund cannot be processed due to incorrect bank account details; and

q   they should phone the ATO on 13 28 61 to correct their details.

If impacted taxpayers contact the ATO with their correct details within seven days, any refund due will be issued electronically.

Editor: In the wake of an increase in recent tax fraud attempts, it is clear that taxpayers need to exercise additional caution when dealing with electronic messaging from (or purportedly from) the ATO.

The authenticity of ATO correspondence can be verified by calling the ATO on 1800 008 540; however, if you are ever unsure about any correspondence received, please contact our office.

ATO contact regarding business cars and Fringe Benefits Tax ('FBT')

The ATO has recently advised that it will be contacting taxpayers (and tax agents on behalf of their clients) that have been identified as having cars registered in their business name who have not lodged an FBT return.

The ATO has reminded businesses that:

q    a car fringe benefit will occur when a business owns or leases a car and makes it available for an employee's private travel or use (including garaging the car at or near an employee's home and making it available for private use); and that

q   business directors are also 'employees' for FBT purposes.

External collection agencies to enforce ATO lodgment obligations

The ATO has finalised a trial relating to sending overdue taxpayer lodgment obligations to external collection agencies.

As a result, it may now refer taxpayers to an external collection agency to secure tax return lodgment.

The ATO has stated that it will only refer a taxpayer to an external collection agency where the taxpayer takes no action in response to its initial correspondence letters.

ATO data matching and share transactions

The ATO has extended its data matching program, this time focusing on share data.

The ATO will continue to receive share data from ASIC, including details of the price, quantity and time of individual trades dating back to 2014, with more than 500 million records obtained.

The ATO will use the information to identify taxpayers who have not properly reported the sale or transfer of shares as income or capital gains in their income tax returns.

It seems share transactions are high on the ATO's priority list, given more than 5 million Australian adults (almost one-third) now own shares.

Improvements to employee share schemes announced

The Government has announced it intends to introduce legislation to improve the ability of small businesses to offer employee share schemes by simplifying the current regulatory framework, and reducing the time and cost burden for businesses by (amongst other things):

q   increasing the value limit of eligible financial products that can be offered in a 12-month period from $5,000 per employee to $10,000 per employee;

q   creating an exemption for disclosure, licensing, advertising and on-sale obligations in the Corporations Act; and

q   allowing small businesses to offer (in most instances) employee share schemes without publicly disclosing commercially sensitive financial information.

ATO guidance regarding 'downsizer contributions'

The ability to make 'downsizer contributions' effectively commenced on 1 July 2018, prompting the ATO to release further guidance with respect to this new superannuation contribution classification.

Editor: This new measure will be of most assistance for individuals approaching retirement, where they dispose of their family home in an effort to ‘downsize’ and they want to contribute part or all of the proceeds to superannuation.

Basically, these measures allow older Australians to make a downsizer contribution where:

q   they are aged at least 65;

q   there was consideration received for the disposal of an eligible Australian dwelling;

q   the contract of sale for the property was entered into on or after 1 July 2018;

q   a superannuation contribution is generally made within 90 days of settlement;

q   the contribution does not exceed the lesser of $300,000 and the proceeds received from the sale of the dwelling;

q   an ownership interest in the dwelling had been held for at least 10 years (usually by the individual making the contribution or their spouse);

q   either a full or partial CGT main residence exemption applies to the disposal of the dwelling;

q   a choice to treat the contribution as a downsizer contribution is made in the approved form; and

q   broadly speaking, it is the first downsizer contribution the taxpayer has made.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Practice Update - November 2018

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P r a c t i c e  U p d a t e

November 2018

Fast-tracking tax cuts for small and medium businesses

The Government has fast-tracked the already legislated tax cuts to small and medium businesses by bringing them forward five years.

Companies with an aggregated turnover of less than $50 million will have a tax rate of 25% in the 2022 income year (instead of the 2027 income year based on the previously legislated timeline).

Similarly, the increase in the tax discount to 16% for unincorporated entities will apply from the 2022 income year, rather than the 2027 income year.

Editor: Small and medium businesses will appreciate the earlier access to the already legislated tax cuts.

Proposed expansion of STP to smaller employers

Single Touch Payroll (‘STP’) commenced on 1 July 2018 for approximately 73,000 employers who have 20 or more employees.

There is currently legislation before Parliament to expand STP to all employers from 1 July 2019 and it is estimated that there will be more than 700,000 employers who will enter STP as a result.

Even though the proposed expansion is not yet law, the ATO recommends that smaller employers consider voluntarily opting-in to STP early.

The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently use a payroll product and has indicated that they are not looking to force them to take up a product to do STP.

Efforts are being made to work with industry to look at some alternate reporting mechanisms.

It is being reported that software developers, and even some of the larger banks, have shown an interest in developing some kind of product that would enable micro-employers to provide the necessary data to comply with STP at a low cost.

Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.

The ATO is currently consulting with focus groups to look at flexible options to transition micro-employers to STP over the next couple of years.

Assuming the relevant legislation passes, the ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake.

Editor: This is a very positive message from the ATO, particularly for micro-employers.  Hopefully, together with the relevant software developers, they are able to come up with a low-cost and simple alternative for those who do not currently use payroll software to comply with their STP obligations.

Expansion of the TPRS

The Taxable Payments Reporting System (‘TPRS’) has been expanded to the cleaning and courier services industries from 1 July 2018.

Businesses that have an ABN and make any payments to contractors for cleaning or courier services provided on behalf of the business must lodge a Taxable Payments Annual Report (‘TPAR’) each income year.

The first TPAR for payments made to contractors from 1 July 2018 to 30 June 2019 will be due by 28 August 2019.

Where cleaning or courier services are only part of the services provided by the business, they will need to work out what percentage of the payments they receive are for these services each income year to determine if a TPAR is required to be lodged.

Specifically, if the total payments the business receives for the relevant services are:

q   10% or more of their GST turnover – a TPAR must be lodged.

q   Less than 10% of their GST turnover – a TPAR is not required to be lodged, but the business can choose to lodge one.

Ban on electronic sales suppression tools

From 4 October 2018, the Government has banned activities involving electronic sales suppression tools (‘ESSTs’) that relate to people or businesses that have Australian tax obligations. 

The production, supply, possession or use of an ESST (or knowingly assisting others to do so) may attract criminal and administrative penalties.

ESSTs can come in different forms and are constantly evolving, some examples include:

q   An external device connected to a point of sale (‘POS’) system.

q   Additional software installed into otherwise-compliant software.

q   A feature or modification that is a part of a POS system or software.

An ESST may allow income to be misrepresented and under-reported by:

q   deleting transactions from electronic record-keeping systems;

q   changing transactions to reduce the amount of a sale;

q   misrepresenting sales records (e.g., by allowing GST taxable sales to be re-categorised as GST non-taxable sales); or

q   falsifying POS records.

Transitional arrangements are in place for six months starting from 4 October 2018 to 3 April 2019 for possessing an ESST.

Taxpayers may avoid committing an offence for possessing an ESST if they:

q   acquired it before 7:30pm 9 May 2017; and

q   advise the ATO that they possess the tool.

Importantly, the transitional provisions do not apply to the manufacture, development, publication, supply or use of an ESST.

Depending on the offence and severity of the crime, taxpayers can face financial penalties of up to 5,000 penalty units, which currently equates to over $1 million.

Scammers impersonating tax agents

The ATO has received increasing reports of a new take on the ‘fake tax debt’ scam, whereby scammers are now impersonating registered tax agents to lend legitimacy to their phone call.

The fraudsters do this by coercing the victim into revealing their agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered tax agent or someone from the agent’s practice.

As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘tax agent’, victims have been falling for this new approach.

In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.

The ATO is reminding taxpayers that they will never:

q   demand immediate payments;

q   threaten them with arrest; or

q   request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency.

Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their tax agent to confirm the status of their tax affairs and verify the call.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Practice Update - October 2018

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P r a c t i c e  U p d a t e

October 2018

Increased scrutiny of home office claims

Last year, 6.7 million taxpayers claimed a record $7.9 billion in deductions for ‘other work-related expenses’, which includes home office expenses.

Reportedly, due to a high number of mistakes, errors and questionable claims for home office expenses, the ATO has recently advised that it will be increasing attention, scrutiny and education on these claims this tax time.

In particular, the ATO has flagged their concerns relating to taxpayers who are claiming:

q   expenses they never paid for;

q   expenses that their employer has reimbursed them for;

q   private expenses; and

q   expenses with no supporting records.

Whilst additional costs incurred as a direct result of working from home can be claimed, care must be taken not to claim private expenses as well.

The ATO has indicated that one of the biggest issues they face is people claiming the entire amount of expenses (e.g., their internet or mobile phone), rather than just the extra portion relating to work.

Provided the taxpayer is able to demonstrate that they have incurred additional costs of running expenses (e.g., electricity for heating, cooling and lighting), then these are generally deductible.

In contrast, employees are generally not able to claim any portion of occupancy-related expenses (e.g., rent, mortgage repayments, property insurance, land taxes and rates).

Taxpayers are warned that the ATO may contact their employers to verify expenses claimed for working from home.

In addition, the ATO expects to disallow a lot of claims where the taxpayer has not kept adequate records to prove that they have legitimately incurred the relevant expense and that the expense was related to their work.

As with the claiming of deductions in general, supporting records must be kept when claiming work-from-home expenses, which may include receipts, diary entries and itemised phone bills. 

Importantly, only the additional work-related portion of the relevant expense is deductible.

Advancement in technology has allowed the ATO to deploy sophisticated systems and analytics to spot claims that do not ‘add up’ and claims that are out of the ordinary compared to others in similar occupations, earning similar income.

Finally, the ATO has reminded taxpayers of the ‘three golden rules’ to follow when claiming work-from-home deductions, being:

q         the taxpayer must have spent the money themselves and have not been reimbursed;

q   it must be directly related to earning the taxpayer’s income, not a personal expense; and

q   the taxpayer must have a record to prove the expense.

More help for drought-affected farmers

As part of the next phase of its drought assistance policy (which includes various other measures), the Government announced that farmers will be able to immediately deduct the cost of fodder storage assets

Previously, these types of assets (such as silos and hay sheds used to store grain and other animal feed storage) were required to be depreciated over three years. 

This measure is designed to make it easier for farmers to invest in more infrastructure to stockpile fodder during the drought.

This measure is available for fodder storage assets first used, or installed ready for use, from 19 August 2018 (being the date of the announcement), and complements the $20,000 instant write-off already available to small business entities.

Editor: The relevant legislation giving effect to this announcement was fast-tracked through Parliament to provide certainty for these drought-stricken farmers, passing both Houses on 20 September 2018.

Increase in Private Health Insurance excesses

Legislation has been passed by Parliament to implement the Private Health Insurance (‘PHI’) reforms announced by the Government in October 2017.

The measures are designed to simplify PHI and make it more affordable for consumers by improving the value of PHI either in the form of lower premiums and/or improved cover for certain benefits.

Of particular interest from a tax perspective is the increase in the maximum voluntary excess levels for products providing individuals with an exemption from the Medicare levy surcharge.

The increased levels of voluntary excesses that insurers can apply are:

q   $750 (up from $500) in any 12-month period for singles; or

q   $1,500 (up from $1,000) in any 12-month period for couples/families.

These increases will apply from the 2019 income year, with private health insurers permitted to offer products with the new higher excesses from 1 April 2019.

Editor:  This is a positive change, as the excess levels have not changed since 2000.  Whilst there is no requirement for consumers to move to products with higher excesses, it is expected that more affordable PHI will encourage more people to take out cover.


Legislation to combat illegal phoenix activity

The Government has announced a package of reforms to tackle illegal phoenix behaviour. 

By way of background, phoenixing occurs when the controllers of a company strip the company's assets and transfer them to another company, to avoid paying the original company's debts. 

The proposed measures will deter and disrupt the core behaviours of phoenix operators by:

q   creating new criminal and civil offences, attaching the highest penalties available under the law, to target those who engage in and facilitate illegal phoenix transactions;

q   preventing directors from backdating their resignations to avoid personal liability;

q   preventing sole directors from resigning and leaving a company as an empty corporate shell with no directors;

q   restricting the voting rights of related creditors of the phoenix company at meetings regarding the appointment or removal and replacement of a liquidator;

q   making directors personally liable for GST liabilities, as part of extended director penalty provisions; and

q   extending the ATO's existing power to retain refunds where there are outstanding tax lodgments.

A new Phoenix Hotline is also being established, which will make it easier to report suspected phoenix behaviour. 

Editor: According to the Government, the proposed measures are tightly targeted at those who misuse the corporate form, while minimising any unintended impacts on legitimate business restructuring.  Whether they will be able to achieve this goal or not is yet to be seen…

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

BAS Time is Almost Here!

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BAS time is almost here.


Just a friendly reminder that the September BAS is approaching and it’s time to start preparing those books.

Your next Activity Statement is due for lodgement by 25th November.

Please note lodgement is required, even if it’s a nil return.


What to do to ensure your BAS is prepared in a timely manner:

  1. Complete all bookkeeping for the quarter, including bank reconciliations and payroll.
  2. Upload ALL bank statements for the period into Xero.
  3. Upload csv files for the period for all bank and credit card accounts that do not have an active bank feed.

To enable us to prepare the BAS in a timely manner, please upload the required information to your Xero file by the 15th of October 2018.


HOW TO UPLOAD BANK STATEMENTS INTO XERO.

Save the bank and credit card statements to a folder on your computer/USB, then open up the Xero file and follow the steps:

  1. In Xero there is an icon in the shape of a folder located in the top right hand side next to the message icon.

If you click on this icon you will see a folder named ‘2019 Bank Statements’ (If it is not there, please create one or let us know so we can do it for you).

  1. Click on ‘2019 Bank Statements’ so it shows up in bold font, then select ‘+Upload Files’.

  2. Search for the statements saved on your computer/USB and upload them to Xero.

You can upload the bank statements every month when they come in.

 

Practice Update - September 2018

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P r a c t i c e  U p d a t e

September 2018

SG Amnesty still pending

The proposed superannuation guarantee (‘SG’) amnesty is a one-off, 12-month opportunity to self-correct past non-compliance (i.e., from 24 May 2018 to 23 May 2019).

It will apply to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018.

The ‘carrot’ currently on the table is that employers who voluntarily disclose previously undeclared SG shortfalls during the amnesty (i.e., importantly, before the commencement of an ATO audit) will:

q   not be liable for the administration component and penalties that may otherwise apply to late SG payments, and

q   be able to claim a deduction for catch-up payments made during the relevant 12-month period.

This means that employers will still be required to pay all employee entitlements, including any unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge.

Employers who are not up-to-date with their SG payment obligations and who do not come forward during the proposed SG amnesty have been put on notice by the ATO that they may face higher penalties in the future.

Editor: While the SG amnesty is being actively promoted by the ATO, it is important to be aware that the proposed concessions currently on the table are not guaranteed until the relevant legislation becomes law.  

Note that the Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2018 will not be considered again at least until Parliament resumes on 10 September 2018.

The Company Tax Rate Saga

In the last week of the August Parliamentary sittings, the controversial corporate tax cut plan for the big end of town (i.e., companies with an aggregated turnover of over $50 million) was defeated.

In addition, long-awaited legislation impacting the company tax and franking rates for small to medium companies (i.e., introducing a new ‘base rate entity passive income test’ from the 2018 income year to qualify for the lower 27.5% tax rate) was passed.

This legislation was particularly relevant for company rates applicable to passive investment and ‘bucket’ companies, which may now need to reconsider earlier lodged 2018 company tax returns, as well as the amount of franking credits attached to dividends paid from 1 July 2017.

Additionally, consideration may also need to be given to the company tax rates (and in certain circumstances, the franking rates) previously applied with respect to the 2016 and 2017 income years. 

This is in light of the recently issued ATO compliance and administrative approaches for the 2016, 2017 and 2018 income years.

Editor: Unfortunately, the recent Government delays have created much confusion in this area, and in certain cases, a review and possible amendments may be required for previously lodged returns.

Division 7A benchmark interest rate for 2019

The benchmark interest rate for 2019, for the purposes of the deemed dividend provisions of Division 7A and the associated complying Division 7A loan agreements, has been set at 5.20% (i.e., down from 5.30% for 2018).

Black economy recommendations will impact day-to-day business

Editor: Recently issued draft legislation has focused on introducing new measures to manage the growing cash economy (i.e., the ‘black economy’) in light of the Black Economy Taskforce recommendations and recent Federal Budget announcements. 

Two of these key recommendations are outlined below.

Removing tax deductions for PAYG failure

The Government is currently considering removing tax deductions where businesses fail to comply with their PAYG withholding obligations for payments to employees and contractors from 1 July 2019.

Specifically, deductions are proposed to be denied for these types of payments where the payer has failed to either:

q   comply with their obligations in relation to withholding from these payments; or

q   notify the ATO of the withholding amount (i.e., via their BAS).

Interestingly, deductions will only be denied if no withholding took place or no notification has been made. 

That is, incorrect amounts withheld or reported to the ATO will not impact a taxpayer’s entitlement to deductions.

Further expansion of the taxable payments reporting system (‘TPRS’)

The TPRS was introduced for the first time in the 2013 income year with respect to businesses in the building and construction industry, requiring the reporting of total payments made to contractors for building and construction services each year.

The taxable payments annual report is due by 28 August each year.

Legislation is currently being considered by Parliament to extend the TPRS to the cleaning and courier industries from the 2019 income year.

Furthermore, draft legislation has now been released to further expand the TPRS to the following industries from the 2020 income year:

q   security providers and investigation services;

q   road freight transport; and

q   computer system design and related services.

Crowdfunding donations to help drought-affected farmers

Editor:  The ATO is currently offering various support measures to individuals and businesses from drought-affected communities to help with managing their tax and super obligations or who are struggling with their mental health.

It has also recently provided a summary of the potential tax impact of making donations to, or raising funds via a crowdfunding platform for drought relief (as outlined below).

For taxpayers wishing to make a contribution to a drought relief fund, it is important to be aware of the tax implications associated with making such donations.

For example, donations of $2 or more to an organisation that is a deductible gift recipient will be tax deductible.

To check to see if a particular appeal is a registered charity, the ATO has advised that taxpayers should use the ‘ABN lookup’ function on the Australian Business Register website before donating.

For those looking to raise funds through crowdfunding platforms to assist their farming business, payments received from the crowdfunding platforms may be assessable income, depending upon how the funds are used. 

For example:

q   Where the funds are used for emergency relief (i.e., such as food and clothing), then the amounts are not assessable. 

q   Where the funds are spent on deductible expenses (i.e., such as purchasing feed for livestock), the amount is assessable income, but will be offset by the relevant deductions obtained, ensuing there is no net taxable outcome. 

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

BAS Time is Almost Here!

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BAS time is almost here.


Just a friendly reminder that the JUNE BAS is approaching and it’s time to start preparing those books.

Your next Activity Statement is due for lodgement by 25th August.

Please note lodgement is required, even if it’s a nil return.


What to do to ensure your BAS is prepared in a timely manner:

  1. Complete all bookkeeping for the quarter, including bank reconciliations and payroll.
  2. Upload ALL bank statements for the period into Xero.
  3. Upload csv files for the period for all bank and credit card accounts that do not have an active bank feed.

To enable us to prepare the BAS in a timely manner, please upload the required information to your Xero file by the 8th of August 2018.


HOW TO UPLOAD BANK STATEMENTS INTO XERO.

Save the bank and credit card statements to a folder on your computer/USB, then open up the Xero file and follow the steps:

  1. In Xero there is an icon in the shape of a folder located in the top right hand side next to the message icon.

If you click on this icon you will see a folder named ‘2018 Bank Statements’ (If it is not there, please create one or let us know so we can do it for you).

  1. Click on ‘2018 Bank Statements’ so it shows up in bold font, then select ‘+Upload Files’.

  2. Search for the statements saved on your computer/USB and upload them to Xero.

You can upload the bank statements every month when they come in.

 

Introducing Receipt Bank!

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At Middlewise Accounting we are always looking for ways to make our clients’ lives easier. Our latest initiative is Receipt Bank, the award­-winning Xero add-­on that automatically converts all your invoices and receipts into data, making it easy for you send your financial information straight to us.

With Receipt Bank’s easy submission methods you’ll never lose another receipt or invoice. You will save time as you no longer have to make trips to drop off your paperwork! There’s a whole of range of ways to submit and you can choose whichever methods that suit your businesses workflow:

     Receipt Bank App (iPhone & Android)

     Email

     Post

     Dropbox

...and many more

Using Receipt Bank’s easy submission methods means that:

     You save time​on sending in your paperwork, time that you can spend on your core business services.

     You save space​as there’s no need to retain your physical documents, with it all documents easily searchable and securely stored on the cloud.

     You now have real time information​flowing into your accounting package, providing you with insights to improve your business decisions.

If you’d like to get started submitting with Receipt Bank, please email us at info@middlewise.com.au and we can get you set up with your Receipt Bank account.

Practice Update - August 2018

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P r a c t i c e  U p d a t e

August 2018

Further company tax cuts deferred (for now . . .)

The Government has decided not to put the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 to a vote in the Senate ... for the present point in time (it had already passed the House of Representatives without amendment).

The Bill aims to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023/24 financial year, and further reduce the corporate tax rate in stages so that, by the 2026/27 financial year, the corporate tax rate for all entities would be 25%.

Editor: Parliament resumes on 13 August 2018, coincidentally after some by-elections have taken place on 28 July . . .

Opposition confirms it won't repeal already legislated company tax cuts

Editor: Just in case the tax cut situation wasn't confusing enough, the leader of the Opposition, Bill Shorten, announced at a doorstop interview that, if elected, Labor would repeal the existing company tax cuts for companies with turnover between $10 and $50 million.

However, a few days later, after a Shadow Cabinet meeting, Mr Shorten confirmed that a Labor government would not touch business tax cuts that have already been legislated, due to the uncertainty that would generate. 

However, he reiterated that Labor does not support the further tax cuts for larger companies that may be legislated in the future.

ATO guide to the 5 most common Tax Time mistakes

As Tax Time 2018 has 'kicked off', the ATO has profiled the five most common mistakes they see, including taxpayers who are:

u   leaving out some of their income (e.g., forgetting a temp or cash job, capital gains on cryptocurrency, or money earned from the sharing economy);

u   claiming deductions for personal expenses (e.g., home to work travel, normal clothes or personal phone calls);

u   forgetting to keep receipts or records of their expenses (around half of the adjustments the ATO makes are because the taxpayer had no records, or they were poor quality);

u   claiming for something they never paid for – often because they think everyone is entitled to a ‘standard deduction’; and

u   claiming personal expenses for rental properties – either claiming deductions for times when they are using their property themselves, or claiming interest on loans used to buy personal assets like a car or boat.

ATO Assistant Commissioner Kath Anderson reiterated the three 'golden rules' for work-related expenses: "You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it."

Single Touch Payroll Update

Editor: Single Touch Payroll (STP) officially commenced for larger employers on 1 July 2018, and the ATO has provided some further guidance for affected entities.

The ATO is writing to employers who started reporting through STP before 1 July 2018, providing them with information about how their employees' payment summary for 2017/18 may change with STP, including the following:

n    They are not required to provide their employees with payment summaries for the information they report through STP (although they may choose to provide payment summaries for the first year of STP reporting).

n    'Income statements' will replace payment summaries.

n    Employees' income statements are available through pre-filling and myGov.

n    The income statement has three categories: 'Tax ready', 'Not tax ready' and 'Year-to-date'.  Only 'tax ready' income statements are complete and will be available through pre-filling.

n    Income statements may not be tax ready until 14 August this year.  Employers have until this date to finalise their STP data.

Editor: The ATO has also recognised that some employers may not have been ready to start STP reporting from 1 July 2018, and these employers (or their tax agent) may be able to apply for a deferral.

For example, employers that live in an area where there is no internet connection, or where the connection or service is intermittent or unstable, can apply for a deferral or even (in very limited circumstances) an exemption.

Please contact our office if you would like our assistance in this regard.

Cents per Km Deduction Rate for Car Expenses from 1 July 2018

The Commissioner of Taxation has determined that the rate at which work-related car expense deductions may be calculated using the cents per kilometre method is 68 cents per kilometre for the income year commencing 1 July 2018 (up from 66 cents per kilometre).

Suburban scammers pushing illegal early access to super

The ATO has become aware of people in some suburban areas of major cities attempting to encourage others to illegally access their super early (generally for a fee) to help them to purchase a car, to pay debts, to take a holiday, or to provide money to family overseas in need.

The ATO advises that anyone approached by someone telling them that they can access their super early, or anyone hearing about it from family, friends or work colleagues:

q   should not sign any documents nor provide them with any personal details;

q   stop any involvement with the scheme, organisation or the person who approached them; and

q   seek advice from a professional advisor or the ATO.

Transacting with cryptocurrency

Editor: With interest in cryptocurrencies (such as Bitcoin) increasing, the ATO has issued guidance regarding various tax consequences of transactions involving cryptocurrencies.

Any capital gains made on the disposal of a cryptocurrency (including using the cryptocurrency or converting it to Australian dollars) may be taxed, although certain capital gains or losses from disposing of a cryptocurrency that is a 'personal use asset' are disregarded.

Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption (but the longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset).

Note: If the cryptocurrency is held as an investment, the taxpayer will not be entitled to the personal use asset exemption but, if they hold the cryptocurrency as an investment for 12 months or more, they may be entitled to the CGT discount.

If the disposal is part of a business the taxpayer carries on, the profits made on disposal will be assessable as ordinary income and not as a capital gain.

Editor: The ATO has also provided guidance regarding the tax consequences of the loss or theft of cryptocurrency, as well as of 'chain splits'.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Practice Update - July 2018

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P r a c t i c e  U p d a t e

July 2018

Personal Income Tax Cuts passed!

Parliament has passed the Government's Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.

According to the Prime Minister, taxes "will now be lower, fairer and simpler".

The Government's plan has three steps:

1.    The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year). 

       The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.

2.    Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:

–   From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. 

                 From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.

The low income tax offset will also be lifted to $645.

3.    The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.

Early release of super on compassionate grounds: ATO

From 1 July 2018, responsibility for the administration of the early release of superannuation benefits on compassionate grounds will be transferred from the Department of Human Services (DHS) to the ATO.

Since the ATO is responsible for most of an individual's interactions with the superannuation system, this change will enable the ATO to build on these existing relationships and provide a more streamlined service to superannuation fund members.

A key improvement under the new process is the ATO providing electronic copies of approval letters to superannuation funds at the same time as to the applicant, which will mitigate fraud risk and negate the need for superannuation funds to independently verify the letter with the Regulator. 

Individuals will also upload accompanying documentation simultaneously with their application, rather than the current 'two-step process'.

Since DHS will accept early release applications up until 30 June 2018, there will be a short transition period where DHS will continue to process those existing applications and complete any necessary reviews. 

Nonetheless, from 1 July 2018 the ATO will process all new applications.

ATO putting clothing claims through the wringer

A focus on work-related clothing and laundry expenses this Tax Time will see the ATO "more closely examine taxpayers whose clothing claims don’t suit them".

According to Assistant Commissioner Kath Anderson, around 6 million people claimed work-related clothing and laundry expenses last year, with total claims adding up to nearly $1.8 billion.

She went on to say:

"While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing.”

With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming. 

Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.

“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”

Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims.  However, far too many are claiming for normal clothing, such as a suit or black pants.  Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line.  Others think they can claim normal clothes because they bought them just to wear to work.

“Unfortunately they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.

Tax time tips for small business

The ATO claims that it is committed to supporting small businesses and making it as easy as possible for them to understand and meet their tax obligations at tax time.

Consequently, Assistant Commissioner Mathew Umina has some tips to help small business in the lead up to and during tax time, including:

u   keeping up-to-date records, which will help small businesses to complete and lodge their tax returns, manage cash flow, meet their tax obligations and understand how their business is doing;

u   consider small business tax concessions, such as:

–   simplified trading stock rules (if the estimate of the difference between opening and closing trading stock is $5,000 or less, the small business doesn't need to do a stocktake);

–   concessions that allow new small businesses to claim an immediate deduction for start-up costs like professional, legal and accounting advice;

–   simplified depreciation rules, including the $20,000 instant asset write-off for assets costing less than $20,000 bought and installed by 30 June 2018.

Please contact our office if you need any advice as to how any of the abovementioned small business tax concessions may be relevant to your business.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Practice Update - June 2018

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P r a c t i c e  U p d a t e

June 2018

2018 Budget Update

The Government handed down the 2018/19 Federal Budget on Tuesday 8th May 2018.  Some of the important proposals include:

n    The introduction of the 'Low and Middle Income Tax Offset', a temporary non-refundable tax offset of up to $530 p.a. to Australian resident low and middle income taxpayers for the 2019 to 2022 income years.  This offset will apply in addition to the Low Income Tax Offset. 

n    Providing tax relief for individual taxpayers by progressively increasing some of the tax brackets (including an increase in the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000 from 1 July 2018), and eventually removing the 37% tax bracket entirely.

n    The $20,000 immediate write-off for small business will be extended by a further 12 months to 30 June 2019 (i.e., for businesses with aggregated annual turnover less than $10 million).

n    From 1 July 2019:

      Increasing the maximum number of allowable members in an SMSF from four to six members;

      Ensuring that unpaid present entitlements (or ‘UPEs’) come within the scope of Division 7A; and

      Denying deductions for expenses associated with holding vacant residential or commercial land.

Superannuation guarantee amnesty introduced

The Government has introduced legislation to complement the superannuation guarantee ('SG') integrity package already before Parliament by introducing a one‑off, twelve month amnesty for historical underpayment of SG.

The Bill incentivises employers to come forward and "do the right thing by their employees" by paying any unpaid superannuation in full, as well as the high rate of nominal interest (but without the penalties for late payment that are normally paid to the Government by such employers).

Employers that do not take advantage of the amnesty will face higher penalties when they are subsequently caught – in general, a minimum 50% on top of the SG Charge they owe. 

In addition, throughout the amnesty period the ATO will still continue its usual enforcement activity against employers for those historical obligations they don't own up to voluntarily.

The amnesty will run for twelve months from 24 May 2018.

ATO scrutinising car claims this tax time

The ATO has announced that it will be closely examining claims for work-related car expenses this tax time as part of a broader focus on work related expenses.

Assistant Commissioner Kath Anderson said: 

“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.”

This is no doubt because over 3.75 million people made a work-related car expense claim in 2016/17 (totalling around $8.8 billion), and, each year, around 870,000 people claim the maximum amount under the cents-per-kilometre method.

Ms Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics: “Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job . . . simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.”

Ms Anderson said there are three golden rules for taxpayers to remember to get it right.

“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.”

Case studies

False logbook

A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim. 

However, upon investigation the ATO discovered that the logbook wasn’t printed until the following year – the taxpayer admitted the logbook was fraudulent and it was ruled invalid.

Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had travelled at least 5,000 kilometres for work-related purposes, so the ATO used the cents per kilometre method to calculate the taxpayer’s deduction (but his claim was reduced from over $11,000 to under $4,000).

Claiming for home to work travel

A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. 

However, he advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work.

The ATO advised the taxpayer that home to work travel is a private expense and is not an allowable deduction – his claim was reduced to nil and the ATO applied a penalty for failure to take reasonable care.

What the super housing measures mean for SMSFs

The ATO has reminded members of SMSFs that they will be able to use their voluntary super contributions to assist with buying their first home, or to make a contribution into their super from the proceeds of the sale of their main residence (under changes passed by Parliament in December 2017).

The First Home Super Saver Scheme

The First Home Super Saver (FHSS) Scheme allows SMSF members to save faster for a first home by using the concessional tax treatment available within super.

From 1 July 2018, SMSF members can apply to release certain voluntary concessional and non-concessional contributions made from 1 July 2017, along with associated earnings to help buy their first home.

Editor: There are various conditions that need to be met in order to take advantage of this measure – contact our office if you would like to know more.

The downsizing measure

SMSF members who are 65 or over and exchange a contract for sale of their main residence on or after 1 July 2018 may be eligible to make a downsizer contribution of up to $300,000 into their super.

This downsizer contribution won’t count towards their contributions caps or total super balance test in the year it’s made. 

However, it will count towards the transfer balance cap and be taken into account for determining eligibility for the age pension.

SMSFs must ensure the member's contribution has satisfied all relevant conditions and completed the downsizer contribution form before accepting a downsizing contribution.

Car limit for 2018/19

The car limit is $57,581 for the 2018/19 income year (unchanged from the previous year).  This amount limits depreciation deductions and GST input tax credits.

FBT: Car parking threshold

The car parking threshold for the FBT year commencing 1 April 2018 is $8.83.  

This replaces the amount of $8.66 that applied in the previous year commencing 1 April 2017. 

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

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