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Practice Update - November 2018

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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 - June 2018

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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.

Practice Update - November 2017

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P r a c t i c e  U p d a t e

November 2017

Reporting of transfer balance account information

Editor: The recent superannuation reforms introduced the concept of a 'transfer balance account', to basically record the value of member balances moving into or out of 'retirement phase'.

In order to monitor these amounts, the ATO is introducing new reporting requirements and forms.

The ATO has released the new Transfer Balance Account Report (‘TBAR’), which is now available on ato.gov.au, and the ATO plans to have an online TBAR form available from 1 January 2018.

The TBAR is the approved form to provide data relating to transactions associated with the payment of retirement phase income streams to the ATO.

Reporting on events that affect a member’s transfer balance account is vital to minimising the taxation consequences if the transfer balance cap is exceeded.

While SMSFs will not be required to report anything until 1 July 2018, SMSFs can use the TBAR to report events that affect an individual member’s transfer balance account from 1 October 2017.

SMSFs with relatively straightforward affairs are likely to have only a few events per member to report over the life of the fund, including the commencing values of any retirement phase income streams to which an SMSF member is entitled (e.g., account based pensions, including reversionary income streams), and the value of any commutation of a retirement phase income stream by an SMSF member.

ATO's occupation-specific guides

The ATO has developed occupation-specific guides to help taxpayers understand what they can and can’t claim as work-related expenses, including:

n          car expenses;

n          home office expenses;

n          clothing expenses; and

n          self-education or professional development expenses.

The guides are available for the following occupations:

q         construction worker;

q         retail worker;

q         office worker;

q         Australian Defence Force;

q         sales and marketing;

q         nurse, midwife or carer;

q         police officer;

q         public servant;

q         teacher; and

q         truck driver.

Binding Death Benefit Nomination ('BDBN') upheld

A recent decision by the Full Court of the South Australian Supreme Court has provided guidance about the operation of BDBNs.

Editor: Members of super funds may generally make a BDBN directing the trustee of the fund to pay out their superannuation benefits after their death in a particular way and/or to particular beneficiaries.

In this case, the member had executed a BDBN that nominated his legal personal representative (‘LPR’) as the beneficiary to receive his death benefits.

Because he frequently lived outside Australia, he had also executed an enduring power of attorney (‘EPOA’) allowing his brother to be the sole director of the corporate trustee of his SMSF in his place.

Following his death, the executor of his estate (Dr Booth) brought an action for declarations that the trustee was bound by the BDBN. 

Editor: Both the executor of a will and a person acting under an EPOA are 'LPRs' for superannuation purposes.

The Full Court held that the BDBN was effective and that Dr Booth, as executor of the will, was the LPR for these purposes.

Although the brother was the LPR of the deceased during his lifetime, the EPOA was terminated upon his death.

Reforms to stop companies avoiding employee entitlements

The Government will introduce new laws to stop corporate misuse of the Australian Government’s Fair Entitlements Guarantee (FEG) scheme.

The FEG scheme is an avenue of last resort that assists employees when their employer’s business fails and the employer has not made adequate provision for employee entitlements, but it is clear that some company directors are misusing the FEG scheme to meet liabilities that can and should be paid directly by the employer, rather than passed on to Australian taxpayers.

The proposed changes will:

u         Penalise company directors and other persons who engage in transactions which are directed at preventing, avoiding or reducing employer liability for employee entitlements;

u         Ensure recovery of FEG from other entities in a corporate group where it would be just and equitable and where those other entities have utilised the human resources of the insolvent entity on other than arm’s length terms; and

u         Strengthen the ability under the law to sanction directors and company officers with a track record of insolvencies where FEG is repeatedly relied upon.

These changes will be targeted to deter and punish only those who have inappropriately relied on FEG, and so should not affect the overwhelming majority of companies who are doing the right thing.

Editor: The Government has separately released a ‘Comprehensive Package of Reforms to Address Illegal Phoenixing’, which will assist regulators to better target action against those who repeatedly misuse corporate structures and enable them to take stronger action against those entities and individuals.

These reforms will include (for example) the introduction of a Director Identification Number (DIN) (to identify all directors with a unique number), and making directors personally liable for GST liabilities as part of extended director penalty provisions.

Can travel in an Uber be exempt from FBT?

Editor: The ATO has released a discussion paper to facilitate consultation regarding the definition of 'taxi' contained in the FBT Act, and the exemption from FBT for taxi travel undertaken to or from work or due to illness.

Although the provision of travel by an employer to an employee would generally be a benefit upon which FBT would be payable, employers are specifically exempted from having to pay FBT in respect of travel undertaken by their employees in a 'taxi' to or from work or due to illness of the employee.

The ATO has previously advised that this exemption "does not extend to ride-sourcing services provided in a vehicle that is not licensed to operate as a taxi."

However, in light of a recent Federal Court decision regarding Uber, and proposed changes to licensing regulations in a number of states and territories, the ATO is reviewing its interpretation of the definition of 'taxi' in the FBT Act and may adopt an interpretation that accepts that a taxi may include a ride-sourcing vehicle or other vehicle for hire.

Editor: Until this matter is resolved, private travel (including between home and work) undertaken using ride-sourcing vehicles and other vehicles for hire may possibly be exempt from FBT under the minor benefits exemption.

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 2017

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October 2017

No small business tax rate for passive investment companies

The Government has released draft tax legislation to clarify that passive investment companies cannot access the lower company tax rate for small businesses of 27.5%, but will still pay tax at 30%.

The amendment to the tax law will ensure that a company will not qualify for the lower company tax rate if 80% or more of its income is of a passive nature (such as dividends and interest).

The Minister for Revenue and Financial Services said the policy decision made by the Government to cut the tax rate for small companies was meant to lower taxes on business, and was not meant to apply to passive investment companies.

ATO to be provided with more super guarantee information

The Government has announced a package of reforms to give the ATO near real-time visibility over superannuation guarantee (SG) compliance by employers. 

The Government will also provide the ATO with additional funding for a SG Taskforce to crackdown on employer non-compliance.

The package includes measures to:

u      require superannuation funds to report contributions received more frequently (at least monthly) to the ATO, enabling the ATO to identify non-compliance and take prompt action;

u      require employers with 19 or fewer employees to transition to single touch payroll (‘STP’) reporting from 1 July 2019;

u      improve the effectiveness of the ATO’s recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees’ super accounts; and

u      give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay SG liabilities.

Editor: Following extensive consultation when STP was originally announced, it was decided that employers with 19 or fewer employees would not be required to comply. 

Given the backflip here, the business community will be hoping the Government does not introduce compulsory real-time payments of SG and PAYG withholding, as well as real-time reporting.


ATO: Combatting the cash economy

The ATO has reminded taxpayers that it uses a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations.  Through 'data matching', it can identify businesses that do not have electronic payment facilities. 

These businesses often advertise as 'cash only' or mainly deal in cash transactions.  When businesses do this, they are more likely to make mistakes or do not keep thorough records. 

The ATO’s ability to match and use data is very sophisticated.  It collects information from a number of sources (including banks, other government agencies and industry suppliers), and also obtains information about purchases of major items, such as cars and real property, and then compares this information against income and expenditure reported by businesses and individuals to the ATO.

Example: Unrealistic personal income leads to unreported millions

The income reported on their personal income tax returns indicated that a couple operating a property development company didn’t seem to have sufficient income to cover their living expenses.

The ATO found their company had failed to report millions of dollars from the sale of properties over a number of years.

They had to pay the correct amount of tax (of more than $4.5 million) based on their income and all their related companies, and also incurred a variety of penalties.

Example: Failing to report online sales

A Nowra court convicted the owner of a computer sales and repair business on eight charges of understating the business’s GST and income tax liabilities.

The ATO investigated discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts, and found that the business had failed to report income from online sales.

The business owner was ordered to pay over $36,000 in unreported tax and more than $18,400 in penalties, and also fined $4,000 (and now has a criminal conviction).

Get it in writing and get a receipt

The ATO also notes that requesting a written contract or tax invoice and getting a receipt for payment may protect a consumer's rights and obligations relating to insurance, warranties, consumer rights and government regulations.

Consumers who support the cash economy, by paying cash and not getting a receipt, risk having no evidence to claim a refund if the goods or services purchased are faulty, or prove who was responsible in case of poor work quality


Higher risk trust arrangements targeted

The ATO’s 'Tax Avoidance Taskforce – Trusts' continues the work of the Trusts Taskforce, by targeting higher risk trust arrangements in privately owned and wealthy groups.

The Taskforce will focus on the lodgment of trust tax returns, accurate completion of return labels, present entitlement of exempt entities, distributions to superannuation funds, and inappropriate claiming of CGT concessions by trusts.

Arrangements that attract the attention of the Taskforce include those where:

q      trusts or their beneficiaries who have received substantial income are not registered, or have not lodged tax returns or activity statements;

q      there are offshore dealings involving secrecy or low tax jurisdictions;

q      there are agreements with no apparent commercial basis that direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others;

q      changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, with such changes not credibly explicable for other reasons;

q      there are artificial adjustments to trust income, so that tax outcomes do not reflect the economic substance (e.g., where someone receives substantial benefits from a trust but the tax liability on those benefits is attributed elsewhere, or where the full tax liability is passed to entities with no capacity/intention to pay);

q      transactions have excessively complex features or sham characteristics (e.g., round robin circulation of income among trusts);

q      revenue activities are mischaracterised to achieve concessional CGT treatment (e.g., by using special purpose trusts in an attempt to re-characterise mining or property development income as discountable capital gains); and

q      new trust arrangements have materialised that involve taxpayers or promoters linked to previous non-compliance (e.g., people connected to liquidated entities that had unpaid tax debts).

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 - September 2017

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P r a c t i c e  U p d a t e

September 2017

ALP announces massive (potential) changes to trust taxation

Editor: Although we don't normally report on Opposition tax policies, this policy change is so fundamental, and the existing state of the Federal Parliament is so chaotic, that we believe it's worth bringing this to your attention.

The Leader of the Opposition, Bill Shorten, has announced that a Labor Government (should they be elected) will introduce a standard minimum 30% tax rate for discretionary trust distributions to "mature beneficiaries" (i.e., people aged 18 and over).

Although the ALP acknowledges that individuals and businesses use trusts for a range of legitimate reasons, such as asset protection and business succession, "in some cases, trusts are used solely for tax minimisation."

Labor’s policy will only apply to discretionary trusts, so other trusts – such as special disability trusts, deceased estates and fixed trusts – will not be affected by this change.

Labor’s policy will also not apply to farm trusts and charitable trusts, and other exemptions will apply, such as for people with disability (the Commissioner of Taxation will be given discretionary powers to manage this). 

Their announcement also reiterated their other policies regarding tax reform, including further changes to superannuation, changes to negative gearing and CGT, and limiting deductions for managing tax affairs.

Single Touch Payroll update

A limited release of 'Single Touch Payroll' began for a small number of digital service providers and their clients on 1 July 2017, with Single Touch Payroll operating with limited functionality for a select number of employers.

Editor: Single Touch Payroll will effectively require some employers to report information regarding payments to employees (or to their super funds)in 'real time', via their payroll software.

The following timeline sets out what is happening in the lead-up to the mandatory commencement of Single Tough Payroll next year.

September 2017 – the ATO will write to all employers with 20 or more employees to inform them of their reporting obligations under Single Touch Payroll.

1 April 2018 – employers will need to do a headcount of the number of employees they have, to determine if they need to report through Single Touch Payroll.

From 1 July 2018 – Single Touch Payroll reporting will be mandatory for employers with 20 or more employees.

 

Keeping ABN details up to date

The ATO finds that businesses tend to forget to update their Australian business number (ABN) details in the Australian Business Register (ABR) when their circumstances or details change, so they have asked that we contact our clients to help keep your ABN details up to date and reduce unnecessary contact from the ATO.

In particular, the ATO says that many partnership and trust ABNs are not in operation, or their business structures have changed, so please let us know if:

n    your business is no longer in operation (so we can cancel the ABN); or

n   if your business structure has changed (so we can cancel the ABN for the old
 structure before applying for a new one).

The ATO also recommends that we add alternative contacts to clients' ABN records (so please provide us with alternative contact information, if possible), and to update the ABN records where any contact details have changed.

Register trading names with ASIC

By 31 October 2018, businesses will need to register any existing or old trading names as a business name with the Australian Securities & Investments Commission (ASIC) in order to continue operating with it.

The ABN Lookup website will reflect these changes and will only display business names registered with ASIC from this date.

 

Limited opportunity to avoid 'transfer balance cap' problems

If the total value of a superannuation fund member's pensions exceeded $1.6 million on 1 July 2017, they may face adverse tax consequences.

However, there is a transitional provision that permits a minor excess over $1.6 million to be ignored, subject to certain conditions being met.

Basically, this will be satisfied if the value of their pension interests on 1 July 2017 exceeded $1.6 million by no more than $100,000 (i.e., their total value did not exceed $1.7 million), but the member is able to commute the pension(s) by an amount that is at least equal to that excess no later than 31 December 2017. 

This will mean that no 'transfer balance cap' consequences arise (e.g., no 'excess transfer balance earnings' will accrue on the excess and no 'excess transfer balance tax' will become payable).

Therefore, it is important that this issue is identified and, if applicable, dealt with promptly.

Editor: Please contact us if you believe this may affect you and you need more information.

New Approved Occupational Clothing Guidelines 2017

The government has issued new guidelines to set out criteria for tax deductible non-compulsory uniforms.

Editor: The taxation law only allows a deduction to employees for expenditure on uniforms or wardrobes where either:

u    the clothing is in the nature of occupation specific, or protective clothing; or

u    the wearing of the clothing is a compulsory condition of employment for employees
       and the clothing is not conventional in nature; or

u   where the wearing of the clothing is not compulsory, the design of the clothing is
       entered on the Register of Approved Occupational Clothing.

The new guidelines outline (among other things):

q    the steps that need to be undertaken by employers to have designs of occupational       
  clothing registered; and

q    the factors that will be considered in determining whether designs of occupational
  clothing may be registered.

The guidelines commence on 1 October 2017, and the previous Guidelines are revoked with effect from the same day.

 

Ability to lodge nil activity statements in advance

The ATO generally issues activity statements by the end of the relevant month under their normal processes, allowing the statement to be lodged by 21 days after the end of the month, or 28 days after the end of the relevant quarter (as appropriate).

However, the ATO recognises that there may be a specific reason for a taxpayer to access their activity statements early, so activity statements can be generated early in some cases, such as where the taxpayer is going to be absent from their place of business before the end of the reporting period (and the business will not be trading during that period), or if the taxpayer's entity is under some form of administration, or the business has ceased.

Editor: There are certain eligibility requirements to take advantage of this service, so please contact us if this is of interest to you.

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 - August 2017

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P r a c t i c e  U p d a t e

August 2017

ATO warning regarding work-related expense claims for 2017

The ATO is increasing attention, scrutiny and education on work-related expenses (WREs) this tax time.

Assistant Commissioner Kath Anderson said: “We have seen claims for clothing and laundry expenses increase around 20% over the last five years.  While this increase isn’t a sign that all of these taxpayers are doing the wrong thing, it is giving us a reason to pay extra attention.”

Ms Anderson said common mistakes the ATO has seen 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.

“I heard a story recently about a taxpayer purchasing everyday clothes who was told by the sales assistant that they could claim a deduction for the clothing if they also wore them to work,” Ms Anderson said.

“This is not the case.  You can’t claim a deduction for everyday clothing you bought to wear to work, even if your employer tells you to wear a certain colour or you have a dress code.”

Ms Anderson said it is a myth that taxpayers can claim a standard deduction of $150 without spending money on appropriate clothing or laundry.  While record keeping requirements for laundry expenses are "relaxed" for claims up to this threshold, taxpayers do need to be able to show how they calculated their deduction.

The main message from the ATO was for taxpayers to remember to:

n          Declare all income;

n          Do not claim a deduction unless the money has actually been spent;

n          Do not claim a deduction for private expenses; and

n          Make sure that the appropriate records are kept to prove any claims.

GST applies to services or digital products bought from overseas

From 1 July 2017, GST applies to imported services and digital products from overseas, including:

u         digital products such as streaming or downloading of movies, music, apps, games and e-books; and

u         services such as architectural, educational and legal.

Australian GST registered businesses will not be charged GST on their purchases from a non-resident supplier if they:

q         provide their ABN to the non-resident supplier; and

q         state they are registered for GST.

However, if Australians purchase imported services and digital products only for personal use, they should not provide their ABN.

Imposition of GST on 'low-value' foreign supplies

Parliament has passed legislation which applies GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018.

Using a 'vendor collection model', the law will require overseas suppliers and online marketplaces (such as Amazon and eBay) with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia.

The deferred start date gives industry participants additional time to make system changes to implement the measure.

Editor: It should be noted that this is a separate measure to that which applies GST to digital goods and services purchased from offshore websites, as outlined above.

New threshold for capital gains withholding

From 1 July 2017, where a foreign resident disposes of Australian real property with a market value of $750,000 or above, the purchaser will be required to withhold 12.5% of the purchase price and pay it to the ATO unless the seller provides a variation (this is referred to as 'foreign resident capital gains withholding').

However, Australian resident vendors who dispose of Australian real property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from their sale proceeds.

Therefore, all transactions involving real property with a market value of $750,000 or above will need the vendor and purchaser to consider if a clearance certificate is required.

Action to address super guarantee non-compliance

The Government will seek to legislate to close a loophole that could be used by unscrupulous employers to shortchange employees who choose to make salary sacrificed contributions into their superannuation accounts.

The Government will introduce a Bill into Parliament this year that will ensure an individual’s salary sacrificed contributions do not reduce their employer’s superannuation guarantee obligation.

Change to travel expenses for truck drivers

Editor: The ATO has released its latest taxation determination on reasonable travel expenses, and it includes a big change for employee truck drivers.

For the 2017/18 income year, the reasonable amount for travel expenses (excluding accommodation expenses, which must be substantiated with written evidence) of employee truck drivers who have received a travel allowance and who are required to sleep away from home is $55.30 per day (formerly a total of $97.40 per day for the 2016/17 year).

If an employee truck driver wants to claim more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the amount in excess of the reasonable amount.

Editor: The determination includes an example of a truck driver who receives a travel allowance of $40 per day in 2017/18 ($8,000 over the full year for 100 2-day trips), but who spent $14,000 on meals on these trips.

In terms of claiming deductions for these expenses, he can either claim $14,000 as a travel expense (if he kept all of his receipts for the food and drink he purchased and consumed when travelling), or just rely on the reasonable amount and claim $11,060 ($55.30 x 200 days) as a travel expense (in which case he will need to be able to show (amongst other things) that he typically spent $55 or more a day on food and drink when making a trip (for example, by reference to diary entries, bank records and receipts that he kept for some of the trips)).

Car depreciation limit for 2017/18

The car limit for the 2017/18 income year is $57,581 (the same as the previous year).  This amount limits depreciation deductions and GST input tax credits.

Example

In July 2017, Laura buys a car to which the car limit applies for $60,000 to use in carrying on her business.    As Laura started to hold the car in the 2017/18 financial year, in working out the car’s depreciation for the 2017/18 income year, the cost of the car is reduced to $57,581.

 

Div.7A benchmark interest rate

The benchmark interest rate for 2017/18, for the purposes of the deemed dividend provisions of Div.7A, is 5.30% (down from 5.40% for 2016/17).

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 2017

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P r a c t i c e  U p d a t e

July 2017

Removal of the Temporary Budget Repair Levy from the 2017/18 income year

The 2% Temporary Budget Repair Levy (or ‘TBRL’), which has applied to individuals with a taxable income exceeding $180,000 since 1 July 2014, is repealed with effect from 1 July 2017. 

Up until 30 June 2017, including the TBRL and the Medicare Levy, individuals earning more than $180,000 faced a marginal tax rate of 49%.

With the benefit of the removal of the 2% TBRL, from 1 July 2017, individuals with a taxable income exceeding $180,000 face a marginal tax rate of 47% (including the Medicare Levy). 

Editor: Don’t forget to add another 1.5% for the Medicare Levy Surcharge for certain individuals that don’t have Private Health Insurance.

 

Extension of the $20,000 SBE Immediate Deduction Threshold

In the 2017/18 Federal Budget handed down on 9 May 2017, the Federal Government announced that it intended to extend the ability of Small Business Entity (or ‘SBE’) taxpayers to claim an outright deduction for depreciating assets costing less than $20,000 until 30 June 2018.  This Budget Night announcement has now been passed into law.

Prior to the relevant legislation being passed into law, the outright deduction threshold for SBEs in relation to depreciating assets was scheduled to revert back to $1,000 as of 1 July 2017.  Now that this change has become law, the threshold is scheduled to revert back to $1,000 as of 1 July 2018.

To qualify for an immediate deduction for depreciating assets purchased by an SBE taxpayer costing less than $20,000, the asset needs to be first used or installed ready for use on or before 30 June 2018.

Editor:  The ‘aggregated turnover’ threshold to satisfy the requirements to be an SBE taxpayer has increased from $2 million to $10 million, as of 1 July 2016.  As a result, more business taxpayers than ever before will be eligible for the $20,000 immediate deduction for depreciating assets. 

Please contact our office if you need any assistance in determining if your business is an SBE, whether an asset purchase you are considering will qualify as a “depreciating asset” and/or what constitutes being “used or installed ready for use”.

  

Simpler BAS is coming soon

The ATO is reducing the amount of information needed to be included in the business activity statement (or ‘BAS’) to simplify GST reporting.

From 1 July 2017, Simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.

In relation to GST, small businesses will only need to report:

G1 - Total sales

1A - GST on sales

1B - GST on purchases.

This will not change a business’ reporting cycle, record keeping requirements, or the way a business reports other taxes on its BAS.

Simpler BAS is intended to make it easier for businesses to lodge their BAS.  It should also reduce the time spent on form-filling and making changes that don't impact the final GST amount.

The ATO will automatically transition eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.

Small businesses can choose whether to change their GST accounting software settings to reduce the number of GST tax classification codes.

Editor:  Call our office if you need help with the transition to Simpler BAS or to decide whether your business will use reduced or detailed GST tax code settings in its GST accounting software.

 

Changes to the foreign resident withholding regime for sales of Australian real estate

Since 1 July 2016, where a foreign resident has disposed of real estate located in Australia, the purchaser has had to withhold 10% of the purchase price upon settlement and remit this amount to the ATO, where the market value of the property was $2,000,000 or greater. 

As a result of another 2017/18 Budget Night announcement becoming law, in relation to acquisitions of real estate that occur on or after 1 July 2017, the withholding rate has increased to 12.5% and the market value of the real estate, below which there is no need to withhold, has been reduced to $750,000. 

Editor:  Unfortunately, even if a sale of real estate with a market value of $750,000 was to take place between two siblings on or after 1 July 2017 (both of whom have been Australian residents for 50 plus years), withholding must occur unless the vendor obtains a ‘clearance certificate’ from the ATO – despite the two siblings clearly knowing the residency status of each other!

These changes highlight the need to obtain clearance certificates where the vendor is an Australian resident and the real estate is worth $750,000 or more - not a high exemption threshold given the sky-rocketing values of Australian real estate!  If you are buying or selling real estate worth $750,000 or more (including a residential property, i.e., home) please call our office to see if a clearance certificate is needed.

Change to deductions for personal super contributions

Up until 30 June 2017, an individual (mainly those who are self-employed) could claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages.  This was known as the “10% test”.

From 1 July 2017, the 10% test has been removed.  This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

Editor: Call our office if you need assistance in relation to the application of the work test for a client that is aged 65 to 74.

Eligibility rules

An individual can claim a deduction for personal super contributions made on or after 1 July 2017 if:

r         A contribution is made to a complying super fund or a retirement savings account that is not a Commonwealth public sector superannuation scheme in which an individual has a defined benefit interest or a Constitutionally Protected Fund;

r         The age restrictions are met;

r         The fund member notifies their fund in writing of the amount they intend to claim as a deduction; and

r         The fund acknowledges the notice of intent to claim a deduction in writing.

Concessional contributions cap

Broadly speaking, contributions to super that are deductible to an employer or an individual, count towards an individual’s 'concessional contributions cap'. 

The contributions claimed by an individual as a deduction will count towards their concessional contributions cap, which for the year commencing 1 July 2017 is $25,000, regardless of age.  If an individual’s cap is exceeded, they will have to pay extra tax.

Editor:  Call our office to discuss the eligibility criteria and tax consequences of claiming a tax deduction for a personal contribution to super for the year commencing 1 July 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.

Practice Update - June 2017

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P r a c t i c e  U p d a t e

June 2017

Budget Update

The Government handed down the 2017/18 Federal Budget on Tuesday 9th May 2017.

The Budget proposes (amongst several other changes) to increase the Medicare Levy by 0.5% to 2.5% from 1 July 2019 (and tax and withholding rates that are linked to the highest marginal income tax (e.g., FBT) will also increase from 1 July 2019).

One of the other more significant Budget announcements is that, from 9 May 2017, the Government proposes to limit plant and equipment depreciation deductions (e.g., for dishwashers and ceiling fans) to outlays actually incurred by investors in residential properties

More specifically:

q      Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into by 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

q      Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset.  However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property (acquisitions of existing plant and equipment items will instead be reflected in the cost base for CGT purposes).

More taxpayers can access the benefits of being an 'SBE'

Editor: Recent changes to the law have expanded the eligibility criteria for a taxpayer to be considered a ‘Small Business Entity’ (or ‘SBE’), meaning more businesses will be able to utilise the tax concessions that are only available to SBEs.

Broadly speaking, for the year ending 30 June 2017, a business taxpayer will be an SBE if its ‘aggregated turnover’ is less than $10,000,000

That is, where the business' ‘aggregated turnover’ (taking into account the turnover of the entity carrying on the business and the turnover of its related parties) is less than $10,000,000, it will be able to access most of the concessions available to SBE taxpayers, including:

n       Access to:

       –     the lower corporate tax rate of 27.5%;

       –     the SBE simplified depreciation rules, including the ability to claim an immediate deduction for assets costing less than $20,000;  

       –     the simplified trading stock rules;

       –     the small business restructure rollover relief;

       –     deductions for certain prepaid business expenditure made in the 2017 income year;

       –     the simplified method for paying PAYG instalments calculated by the ATO; and

       –     the FBT car parking exemption;

n       Expanded access to the FBT exemption for portable electronic devices;

n       Ability to claim an immediate deduction for start-up expenses; and

n       The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Editor: Note that the reduction in the SBE company tax rate to 27.5% for the 2017 income year was accompanied by a limitation on the maximum rate that such companies can frank their dividends also to 27.5%.  Consequently, if an SBE company fully franked a distribution before the law changed on 19 May 2017, the amount of the franking credit on the distribution statement provided to shareholders may be incorrect (if the franked distribution was based on the 30% company tax rate).

The ATO has set out a practical compliance approach for such companies to recognise the change and to notify their shareholders.  Please contact this office if you would like more information about this.

Who is assessed on interest on bank accounts?

As a general proposition, for income tax purposes, interest income on a bank account is assessable to the account holders in proportion to their beneficial ownership of the money in the account.

The ATO will assume, unless there is evidence to the contrary, that joint account holders beneficially own the money in equal shares. 

However, this is a rebuttable presumption, if there is evidence to show that joint account holders hold money in the account on trust for other persons.

Example – Joint signatory (but no beneficial ownership of account)

Adrian's elderly aunt has a bank account in her name, and Adrian is a joint signatory to that account.  Adrian will only operate the account if his aunt is unable to do so due to ill health, but all the funds in the account are hers, and Adrian is not entitled to personally receive any money from the account.

Adrian does not have any beneficial ownership of the money in the account and is therefore not assessable on the interest income.

Children’s bank accounts

In relation to bank accounts operated by a parent on behalf of a child, where the child beneficially owns the money in the account, the parent can show the interest in a tax return lodged for the child, and the lodgment of a trust return will not be necessary.

Example – Child savings account – parent operates as trustee

Raymond, aged 14, has accumulated $7,000 over the years from birthdays and other special occasions.  Raymond's mother has placed the money into a bank account in his name, which she operates on his behalf, but she does not use the money in the account for herself or others. 

Raymond earns $490 in interest during an income year and, since he has beneficial ownership of the money in the account, he is therefore assessable on all of the interest income.

However, as Raymond is under 18 years of age, he will be subject to the higher rates of tax that can apply to children.  If Raymond shows the interest in his tax return for that income year, his mother will not need to lodge a trust tax return.


Using social media? Be aware of tax scams!

The ATO has advised that, in the lead up to tax time, it's important to be aware of what taxpayers share on social media.

Note that scammers may also try to impersonate a tax agent (or their practice) and try to trick recipients into providing personal information or to release funds.

The ATO recommends that all taxpayers:

u      ensure their computer security systems are up to date and they are protected against cyber attacks;

u      keep personal information secure (including user IDs, passwords, AUSkeys, TFNs); and

u      do not click on downloads, hyperlinks or open attachments in unsolicited or unfamiliar e-mails, SMS or social media.

Editor: Call our office if you think you've received a suspicious e-mail claiming to be from us or the ATO.

FBT: Car parking threshold

The car parking threshold for the FBT year commencing 1 April 2017 is $8.66.  This replaces the amount of $8.48 that applied in the previous year commencing 1 April 2016.

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 - May 2017

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P r a c t i c e  U p d a t e

May 2017

Company tax cuts pass the Senate with amendments

Editor: After a marathon few days of extended sittings (the last before the Federal Budget in May), the Government finally managed to get its company tax cuts through the Senate, but it was not without compromise.

The following outlines the final changes to the law, as passed by the Senate, including a recap of which of the original proposals remained intact and also which ones were changed.

Increase to the SBE turnover threshold

As was previously announced, the Small Business Entity (‘SBE’) definition has changed with respect to the turnover eligibility requirement. 

The aggregated turnover threshold has increased from $2 million to $10 million with effect from 1 July 2016 (i.e., the current, 2017, income year).

Note that, whilst the increase in this threshold will expand access to most SBE concessions (e.g., simplified depreciation), this change will not apply with respect to:

q   the Small Business Income Tax Offset (a special $5 million threshold will apply when determining eligibility for this tax offset); and

q   the Small Business CGT concessions (the aggregated turnover threshold to access these concessions will remain at $2 million, although taxpayers may still seek to satisfy the $6 million maximum net assets test as an alternative method of obtaining access to these concessions). 

Reduction in the corporate tax rate

The most significant difference between the Government’s original proposals and what was finally passed by Parliament was in relation to the reduction in the corporate tax rate. 

Although the corporate tax rate will still decrease to 25% (by the 2027 income year, as originally proposed), access to the reduced corporate tax rate will be restricted to corporate entities that carry on business with an aggregated turnover of less than $50 million (from the 2019 income year).

The following table provides a summary of how the progressive reduction in the corporate tax rate will apply.

Income
Year

Aggregated turnover

Company tax rate

2016

< $2 million

28.5%

2017

< $10 million

27.5%

2018

< $25 million

2019

< $50 million

2020

2021

2022

2023

2024

2025

27%

2026

26%

2027 & later

25%

Editor: As noted above, corporate entities with at least $50 million aggregated turnover or, more importantly, companies that do not carry on business (e.g., passive investment companies and ‘bucket companies’) will continue to have a corporate tax rate of 30%.

Changes to the franking of dividends

Prior to this income year, companies that paid tax on their taxable income at 28.5% could still pass on franking credits to their shareholders at a rate of 30%, subject to there being available franking credits.

However, with effect from 1 July 2016 (i.e., this income year), the maximum franking credit that can be allocated to a frankable distribution paid by a company will be based on the tax rate that is applicable to the company. 

Editor: Please contact this office if you would like to know how these changes will affect your business specifically.

Costs of travelling in relation to the preparation of tax returns

The ATO has released a Taxation Determination confirming that the costs of travelling to have a tax return prepared by a “recognised tax adviser” are deductible. 

In particular, a taxpayer can claim a deduction for the cost of managing their tax affairs. 

However, apportionment may be required to the extent that the travel relates to another non-incidental purpose.

Example – Full travel expenses deductible

Maisie and John, who are partners in a sheep station business located near Broken Hill, travel to Adelaide for the sole purpose of meeting with their tax agent to finalise the preparation of their partnership tax return. 

They stay overnight at a hotel, meet with their tax agent the next day and fly back to Broken Hill that night. 

The full cost of the trip, including taxi fares, meals and accommodation, is deductible.

Example – Apportionment required

Julian is a sole trader who carries on an art gallery business in Oatlands.

He travels to Hobart for two days to attend a friend's birthday party and to meet his tax agent to prepare his tax return, staying one night at a hotel.

Because the travel was undertaken equally for the preparation of his tax return and a private purpose, Julian must reasonably apportion these costs.

In the circumstances, it is reasonable that half of the total costs of travelling to Hobart, accommodation, meals, and any other incidental costs are deductible.

Editor: Although the ATO's Determination directly considers the treatment of travel costs associated with the preparation of an income tax return, the analysis should also apply where a taxpayer is travelling to see their tax agent in relation to the preparation of a BAS, or another tax related matter.

FBT:  Benchmark interest rate

The benchmark interest rate for the 2017/18 FBT year is 5.25% p.a. (5.65% applied in 2016/17).

This rate is used to calculate the taxable value of:

u  a loan fringe benefit; and

u  a car fringe benefit where an employer chooses to value the benefit using the operating cost method.

Example

On 1 April 2017 an employer lends an employee $50,000 for five years at an interest rate of 5% p.a., with interest being charged and paid 6 monthly, and no principal repaid until the end of the loan.

The actual interest payable by the employee for the current year is $2,500 ($50,000 × 5%). The notional interest, with a 5.25% benchmark rate, is $2,625.  

Therefore, the taxable value of the loan fringe benefit is $125 (i.e., $2,625 – $2,500).

FBT: Cents per kilometre basis

The rates to be applied where the cents per kilometre basis is used for the 2017/18 FBT year in respect of the private use of a vehicle (other than a car) are:

Engine capacity

Rate per kilometre

0 – 2,500cc

53 cents

Over 2,500cc

63 cents

Motorcycles

16 cents


Editor: The ATO also determined that the small business record keeping exemption threshold for the 2017/18 FBT year is $8,393.

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 - September 2016

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P r a c t i c e  U p d a t e

September 2016

Pre-retirees: Avoid 'too good to be true' tax schemes

The ATO has launched a new project called 'Super Scheme Smart', an initiative aimed at educating individuals about the potential pitfalls of 'retirement planning schemes', to keep them safe from risking their retirement nest egg.

According to the ATO, individuals most at risk are those approaching retirement, including anyone aged 50 or over, looking to put significant amounts of money into retirement, particularly SMSF trustees, self-funded retirees, small business owners, company directors, and individuals involved in property investment.

While retirement planning schemes can vary, there are some common features that people should be aware of.

Usually these schemes:

u      are artificially contrived and complex, usually connected with a SMSF;

u      involve a lot of paper shuffling;

u      are designed to leave the taxpayer with minimal or zero tax, or even a tax refund; and/or

u      aim to give a present day tax benefit by adopting the arrangement.

Individuals caught using an illegal scheme identified by the ATO may incur severe penalties under tax laws, which includes risking the loss of their retirement nest egg and also their rights as a trustee to manage and operate a SMSF:

"Retirement planning makes good sense provided it is carried out within the tax and superannuation laws.  Make sure you are receiving ethical professional advice when undertaking retirement planning, and if in doubt, seek a second opinion from an independent, trusted and reputable expert".

For more information about the specific schemes, they can visit their website at www.ato.gov.au/superschemesmart.

ATO assistance with the pending $500,000 lifetime super cap

In the 2016/2017 Federal Budget, it was announced that, from 7:30pm (AEST) on 3 May 2016, there will be a lifetime cap of $500,000 on non-concessional (i.e., non-deductible) superannuation contributions. 

This new lifetime cap is proposed to take into account all non-concessional contributions an individual has made on or after 1 July 2007.

Therefore, taxpayers currently planning to make non-concessional contributions may need to check their historical non-concessional contributions, back to 1 July 2007.  Fortunately, the ATO has stated that, where individuals and funds have met their lodgement obligations, the ATO will be able to calculate and report these amounts for the period from 1 July 2007 to 30 June 2015.

Editor: If you are considering making such contributions but are unsure of your past non-concessional contributions, let us know, as we can expedite getting the ATO to make these calculations.


Deductibility of gifts provided to clients

The ATO has confirmed that a taxpayer carrying on business is generally entitled to a deduction for expenses incurred on a gift made to a former or current client, if the gift is characterised as being made for the purpose of producing future assessable income.

However, the expense may not always be deductible (e.g., if the gift constitutes the provision of entertainment that is not deductible).

The ATO’s recent determination also highlights that a deduction will be denied where expenditure on gifts is more accurately described as being 'private' in nature (for example, where a gift is provided to a relative outside a business’ usual practice of providing client gifts).

Deductibility of airport lounge memberships

The ATO has also confirmed that the cost to a business taxpayer of a yearly airport lounge membership (e.g., Qantas Club, Virgin Lounge) that will be used by its employees is ordinarily deductible, and should not give rise to any FBT liability for the employer (even if the majority of (or indeed only) use of the airport lounge membership is for private purposes).

Phoenix Taskforce swoops on dodgy businesses

The ATO’s stance against phoenix activity has continued with multiple search warrants issued, and many business and residential sites accessed without notice across Victoria and Queensland, as part of a criminal investigation into unpaid superannuation, employee withholding, GST, and income tax.

Editor: 'Phoenix activity' refers to a business that shuts down whilst still owing creditors, employees and the ATO lots of money, and then starts up again perhaps somewhere else or under a new name.

Deputy Commissioner Michael Cranston said “By showing up unannounced we’re able to access records that we might otherwise never have seen.  This information is then used to take further compliance action, and shared among our partner agencies to better inform our strategies targeting the 50 highest-risk phoenix operators.”

What employees of these companies should be looking out for

Mr Cranston stated that there are a number of signs that a business someone is working for may be involved in phoenix behaviour:

“Employees may be pressured to take leave or have their employment status changed from permanent to casual.  They may also notice that there are frequent changes in the identity of the company that is paying their wages, or that their superannuation entitlements are not paid."

Employees who suspect that a company they are dealing with is exhibiting any of these signs should get in touch with the ATO by reporting it online or by calling 1800 060 062. Editor: Or contact us!


ATO exposes dodgy deductions

With over eight million Australians claiming work-related expenses each year, the ATO is reminding people to make sure they get their deductions right this tax time.

Assistant Commissioner Graham Whyte said that, in 2014/15, the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax.

“Every tax return is scrutinised using increasingly sophisticated tools and data analytics developed (by) the ATO.  This means we can identify and review income tax returns that may omit information or contain unreasonable deductions," Mr Whyte said.

The ATO also set out some case studies, which provide a fascinating insight into the ATO's methods, including:

q      A medical professional who made a claim for attending a conference in America, and provided an invoice for the expense, but when the ATO checked, it found that the taxpayer was still in Australia at the time of the conference (the claims were disallowed and the taxpayer received a substantial penalty); and

q      A taxpayer who claimed deductions for car expenses, but the ATO found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further inquiries identified that the taxpayer was out of the country.  Their claims were also disallowed.

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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