2016 Practical Updates
Personal income tax cuts are law!
The government has finally legislated the tax cuts originally announced in the May 2016 Budget, so that the marginal tax rate of 37% now starts at $87,000.
The following are the rates for adult residents for the 2016/17 income year (i.e., from 1 July 2016).
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $87,000||$3,572 plus 32.5c for each $1 over $37,000|
|$87,001 – $180,000||$19,822 plus 37c for each $1 over $87,000|
|$180,001 and over||$54,232 plus 45c for each $1 over $180,000|
The above rates do not include the temporary budget repair levy (due to expire on 30 June 2017), nor the Medicare levy of 2%.
The ATO has updated the tax tables and PAYG withholding tax schedules (and their online tax withheld calculator) to reflect these changes.
Superannuation changes passed by Parliament
The government’s extensive changes to the taxation laws regarding superannuation were passed by Parliament on 23 November 2016.
Per the Treasurer, Mr Scott Morrison:
“The superannuation reform package better targets tax concessions to make our superannuation system fair and sustainable, as the population ages and fiscal pressures increase.
“The reforms include the introduction of a $1.6 million transfer balance cap, which places a limit on the amount an individual can transfer into the tax-free earnings retirement phase and the introduction of the Low-Income Superannuation Tax Offset”.
The amendments also include the following two new measures to provide more flexibility to help Australians save for their retirement:
- the removal of the ‘10% rule’, allowing anyone (including employees) to claim a deduction for personal contributions into superannuation from 1 July 2017 (which will particularly help contractors who also draw income from salary and wages); and
- the ability for individuals with superannuation balances below $500,000 to make ‘catch up’ concessional contributions from 1 July 2018 (allowing them to ‘tap into’ unused amounts of their contributions cap from prior years, which will help those with broken work patterns – the overwhelming number of whom are women – better save for their retirement).
ATO Data matching programs
The ATO has announced it is embarking on the following three (major) data matching programs.
Share transactions data matching program
The share transactions data matching program has been conducted since 2006 to ensure compliance with taxation obligations on the disposal of shares and similar securities. The collection of transaction history data dating back to 20 September 1985 (the introduction of the CGT regime) is used to enable cost base and capital proceeds calculations.
The ATO will continue to acquire details of around 61 million share transactions (in relation to 3.3 million individuals)
for the period 20 September 1985 to 30 June 2018 from various sources, including share registries (such as Link Market Services, Computershare, Advanced Share Registry Services, and Automic Registry Services), and the Australian Securities Exchange Limited.
Credit and debit card data matching program
The ATO will continue to annually acquire data
relating to credit and debit card payments to merchants, in this case acquiring data for the 2015/16 and 2016/17 financial years from the big four banks, as well as other banks (such as the Bank of Queensland and the Bendigo and Adelaide Bank) and others involved with credit and debit card payments (including American Express, First Data Merchant Solutions, Diners Club Australia and Tyro Payments Limited).
It is estimated that around 950,000 records will be obtained, including 90,000 matched to individuals.
Online selling data matching program
The ATO will continue to acquire online selling data, with an estimated 20,000 to 30,000 records obtained relating to registrants who sold goods and services to an annual value of $12,000 or more during the 2016, 2017 and 2018 financial years, from eBay Australia and New Zealand Pty Ltd (which owns and operates www.ebay.com.au). It is estimated that around half of the matched accounts will relate to individuals.
Last chance for non-arm’s length related party LRBAs
The ATO has released a taxation determination regarding how it will apply the non-arm’s length income (‘NALI’) rules to income generated from assets purchased by an SMSF using a related party ‘limited recourse borrowing arrangement’ (or ‘LRBA’).
Although the ATO states that: “in some very limited circumstances, the NALI provisions may not apply to an arrangement, even though it’s not on arm’s length terms”, in their opinion, for the clear majority of cases, if there is an LRBA that is not at an arm’s length terms, NALI will arise and the income may be taxed at the highest marginal tax rate of 47%.
Importantly, the ATO has given SMSFs until 31 January 2017 to ‘get their house in order’. This means that all SMSFs with related party borrowings should review the terms of those borrowings by 31 January 2017 to consider whether they are ‘arm’s length’. Please contact this office if you would like any assistance in this regard.
Leased properties were still ‘new residential premises’
The AAT has held that GST applied to the disposal of four properties that had been built, leased and then sold.
GST does not ordinarily apply to sale of residential premises unless they are ‘new residential premises’. However, there is a special rule in the GST law that states that a newly constructed property will not be ‘new residential premises’ if it has been applied only to receive residential rent (i.e., leased out) for at least a five-year period.
In this case, the taxpayer had acquired four properties between November 2003 and August 2007, then built residential dwellings on them and, once completed, the dwellings were leased, and then sold between January 2011 and August 2012.
The AAT agreed with the ATO that the sales of the four properties in question should be treated as sales of new residential premises.
Some of the dwellings had been simultaneously marketed for sale whilst being leased. Also, there were periods of time where the dwellings were without a tenant.
Due to the combination of these factors, none of the dwellings were used only for making input taxed supplies (of residential rent) for a five-year period. Therefore, when disposed of, they should have been treated as taxable supplies and subject to GST.
The AAT also held that the ‘margin scheme’ could not be applied to reduce the GST payable, as the taxpayer was not able to provide any written evidence of an agreement between her and the purchasers to apply the margin scheme, as required by the GST Act.
Survey for SMSFs using LRBAs
The ATO has announced that it will be contacting some SMSF trustees in November 2016 to participate in a survey about the use of ‘limited recourse borrowing arrangements’ (‘LRBAs’) to acquire assets for their SMSF.
The ATO will email a sample of SMSFs that reported LRBA assets on their 2015 SMSF annual return to invite them to participate in the survey.
Participation is voluntary, and they assure trustees that responses will remain anonymous and the information gathered from the survey will not be used for compliance purposes.
The ATO encourages any trustees contacted to participate (the survey should only take five to seven minutes), as their feedback will help it to gain a better understanding about the SMSF community’s use of LRBAs.
The ATO has also issued a new Practical Compliance Guideline and a new Taxation Determination regarding SMSFs that enter into non-commercial LRBAs with related parties (e.g., where a member lends money to their SMSF but does not charge interest).
If you would like to discuss any of these SMSF issues, please contact our office.
ATO warning for the building and construction industry
The ATO has reported that the building and construction industry represents a disproportionate amount of its debt book, and has identified worrying trends that affect the industry.
Clients in the industry are encouraged to contact their tax agents regarding outstanding debts, as the ATO may be able to offer a range of payment options to help them get back on track sooner and reduce any interest they may be liable for.
Clients that fail to pay, or make arrangements to pay, may have their outstanding tax debts recovered through a garnishee notice.
Renting out a room is rental income
The ATO has issued an information sheet to let taxpayers know that money earned from renting out a room in a house is rental income.
This applies to rooms rented by traditional means or through a sharing economy website or app.
Also, taxpayers can only claim expenses related to the part of the house they rent out (so expenses will need to be apportioned accordingly).
The following example illustrates how the ATO would expect rental deductions to be calculated.
Example: renting out part of a unit or house
Jane has a two-bedroom unit with two bathrooms. She lives alone and only uses her spare room as an occasional home office, for storage and when she has guests.
Jane mainly uses the ensuite bathroom. The second bathroom is accessible from the main areas and mainly used by visitors.
Jane decides to rent out the spare room on a sharing economy website to earn extra income.
When paying guests come to stay, Jane removes all excess items from the room and does not access the area.
She also gives paying guests access to common areas including the second bathroom, kitchen, living area and balcony, and to her wi-fi. For the period guests are staying and have access to these, Jane can claim 50% of associated costs.
Jane had the room available and occupied 150 days in the year. When she is not renting out the room she uses it as storage and a home office.
Claiming Rental Deductions
Jane calculates what she can claim based on the following additional factors:
- The room is 10 square metres
- The house is 80 square metres
- The common areas are 50 square metres
She works out she can claim 17.97% of her general expenses (such as electricity, interest on her mortgage, internet expenses, rates and body corporate fees) after adding the following two calculations together:
- room occupancy:
(10/80 x 150/365) x 100 = 5.13%
- common areas:
((50/80 x 150/365) x 50%) x 100 = 12.84%.
She can claim 100% of the expenses associated solely with renting out the room, such as the facilitator’s commission or administration fee.
Note that CGT may also apply if a property used to generate rental income is sold.
Living overseas but still taxable here
In a recent case, the AAT confirmed that a taxpayer was a resident of Australia for taxation purposes while he was living in Oman.
The taxpayer had left Australia in January 2008 to work in Oman, and he ended up working 21 months in Oman before returning to Australia permanently in September 2009.
Before leaving Australia, the taxpayer sold an investment property in Queensland, cancelled his Medicare card, cancelled his Australian private health insurance, and had his name removed from the electoral roll.
When he left Australia in January 2008, he completed an outgoing passenger card indicating that he was permanently departing Australia.
However, the ATO was of the view that the taxpayer remained a resident of Australia. In particular, his wife remained in Australia at a jointly-owned dwelling in Mt Martha, he had returned to Australia for three holidays where he stayed at the Mt Martha home with his wife, he maintained an Australian bank account, and sent money to Australia to help pay his wife’s living expenses and to assist with repaying the mortgage on the home.
The AAT concluded the taxpayer had not severed his connections with Australia and had not established enduring and lasting ties in Oman (and so was still a resident of, and his income was taxable in, Australia).
Crucial issue to consider when buying a company
Where a buyer commences to hold all of the shares in a company (including a company acting as trustee of a trust), they are highly likely to be appointed as a director of that company.
Although being a director in itself does not make the director personally liable for the debts of the company, there are two types of tax debts that are major exceptions to this rule, being PAYG withholding (‘PAYGW’) and compulsory employee superannuation guarantee (‘SG’).
That is, directors can be made personally liable for any outstanding PAYGW or SG, even if they were not a director at the time the debt was incurred.
Therefore, a key component of the due diligence process undertaken by a potential purchaser should be an assessment of whether the company is up-to-date with its PAYGW and SG obligations (as part of this, a potential buyer should also consider whether any ‘contractors’ to whom payments were made would be seen as ’employees’ in the eyes of the ATO).
The buyer will also ordinarily want the vendor to provide some kind of indemnity in relation to the buyer’s PAYGW and SG exposure.
Note also, however, that the ‘old’ directors do not cease to have exposure to unpaid PAYGW and SG. That is, both the ‘old’ and ‘new’ directors are all jointly and severally liable for these debts. This position does not alter even if a director resigns before the due date for payment of a relevant amount to the ATO.
Government ‘backflip’ on superannuation changes
Following further consultation, the government has announced the following ‘improvements’ to the superannuation changes announced in the 2016/17 Budget:
- the $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year;
- individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions from 1 July 2017; and
- the commencement date of the proposed ‘catch-up’ for concessional superannuation contributions will be deferred by 12 months to 1 July 2018.
Also, the government will now not change the contribution rules for those aged 65 to 74.
Clients who wish to discuss these superannuation changes should contact our office.
Fallout from ‘Panama Papers’ spreads
Earlier in the year, we reported that an unknown source had leaked 11.5 million documents from the Panamanian law firm of Mossack Fonseca – these are now referred to as the ‘Panama Papers’.
Basically, the documents illustrated how many wealthy individuals are hiding their money and income from tax authorities around the world.
The Commissioner of Taxation, Chris Jordan, has announced that the ATO has made significant progress in dealing with those exposed in the Panama Papers who have tried to avoid their tax obligations.
He went on to say that, having commenced the assessment of the data, the ATO believes that some overseas structures and trusts are being used to:
- evade tax;
- avoid corporate responsibility;
- disguise and hide unexplained wealth; and
- facilitate criminal activity and launder the proceeds of crime.
The ATO has obtained information on offshore service providers who have established entities for Australians in secrecy jurisdictions to conceal their interests and wealth.
“Importantly, the sheer size of the information available to us for analysis should send a clear message to those who believe that their data is secure, hidden and beyond the reach of law enforcement and tax authorities – it is not.”
In related news, the International Consortium of Investigative Journalists (ICIJ) has revealed that it has obtained a leaked Bahamian corporate registry which provides names of directors and owners of more than 175,000 Bahamian companies, trusts and foundations registered between 1990 and early 2016, which will also be made available to the public
GST on low-value imports
Goods imported into Australia – often by consumers using the internet – which cost less than $1,000 are currently GST-free.
On May 3 2016, as part of its package of Budget Night announcements, the Federal government proposed that, as of 1 July 2017, this low-value threshold (‘LVT’) of $1,000 will be abolished.
The removal of the LVT will see many purchases made by individuals and businesses over the internet from an overseas vendor being subject to GST from 1 July 2017.
It is proposed that, as of 1 July 2017, overseas businesses with an Australian annual turnover of greater than $75,000 will be required to register for GST and collect GST on sales made to Australian customers.
It has been reported that the Federal government could use powers it has under the Telecommunications Act to force internet service providers to block websites of overseas businesses that do not meet their Australian GST obligations (although it remains to be seen if they would go that far.
Record keeping is always key to taking on the ATO
In a recent case before the Administrative Appeals Tribunal (AAT), amended assessments issued to a taxpayer by the ATO, which were based on the amounts of unexplained deposits to the taxpayer’s bank accounts (in some years, in the hundreds of thousands of dollars, in others, millions), have been largely upheld.
The total further tax claimed by the ATO was almost $4 million, and, on top of that, they imposed an administrative penalty of almost $2 million (imposed at the rate of 50% for recklessness).
The taxpayer was partially successful in proving that some of the amounts deposited into bank accounts held in his name were not assessable income.
In particular, the taxpayer was able to demonstrate that some of the deposits were reimbursements of amounts he paid in relation to a group of companies of which he was an investor, and some were transfers from one of his bank accounts to another.
However, in relation to many of the deposits to his bank accounts, he had no corroborative evidence as to what they represented.
Therefore, he failed to discharge his onus to prove the amounts should not have been included in his assessable income.
Yet again the AAT has provided taxpayers with another reminder as to the importance of documentation and good record-keeping.
DHS – Data matching project
The Department of Human Services (DHS) (which operates Centrelink) has launched its ‘Non Employment Income Data Matching project’, matching income data it collects from “customers” with tax return related data reported to the ATO.
This project will assist the DHS to identify social welfare recipients who may not have disclosed income and assets to the Department, including welfare recipients who have lodged a Tax Return with the ATO during 2011 to 2014.
16 forced sales of properties illegally held by foreigners
The Treasurer has ordered the sale of a further 16 Australian residential properties that have been held by foreign nationals in breach of the foreign investment framework.
“The 16 properties were purchased in Victoria, New South Wales, Queensland and Western Australia, with prices ranging from approximately $200,000 to $2 million.
“The individuals involved come from a range of countries including the United Kingdom, Malaysia, China and Canada.
“Illegal real estate purchases by foreign citizens attract criminal penalties of up to $135,000 or three years’ imprisonment, or both for individuals; and up to $675,000 for companies. The new rules also allow capital gains made on illegal investments to be forfeited.”
Singapore and ATO to share data to reduce tax evasion
The Inland Revenue Authority of Singapore and the ATO have entered into an agreement on the automatic exchange of financial account information (based on the ‘Common Reporting Standard’).
This automatic exchange of financial information will commence by September 2018.
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:
- are artificially contrived and complex, usually connected with a SMSF;
- involve a lot of paper shuffling;
- are designed to leave the taxpayer with minimal or zero tax, or even a tax refund; and/or
- 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.
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.
‘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. 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:
- 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
- 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.
Update on the government’s superannuation program
Now that the government has been re-elected, it seems they are committed to proceeding with their superannuation policy, including the controversial measure to impose a ‘lifetime cap’ of $500,000 on the amount of non-concessional (i.e., undeducted) contributions that can be made into superannuation (calculated from all contributions made since 1 July 2007).
The Treasurer Scott Morrison has also indicated that transitional relief provisions will be introduced in relation to the lifetime non-concessional contributions cap of $500,000.
It is proposed that transitional provisions will allow for non-concessional contributions to be made under the rules and limits that existed prior to Budget Night where a superannuation fund has entered into a contract before 3 May 2016 to acquire an asset, and the contract settles after 3 May 2016.
Furthermore, there will be transitional relief for self-managed superannuation funds (SMSFs) that had a Limited Recourse Borrowing Arrangement in place before 3 May 2016, and additional non-concessional contributions are to be made up to 31 January 2017 (so that the borrowing will comply with the ATO’s new guidelines).
There have also been reports that the government may also allow ‘carve-outs’ for extraordinary ‘life events’ (e.g., divorce).
The government is apparently going to release draft legislation for their superannuation changes sometime in August 2016
Tax time is prime time for scams
The ATO is reminding Australians to be on the lookout for tax-related scams during tax time, as scammers are particularly active because of the large number of people lodging their tax returns.
Assistant Commissioner Graham Whyte said that, while most people were able to identify scams, it is important to remain alert during tax time.
For example, although the ATO makes thousands of outbound calls to taxpayers a week, there are some key differences between a legitimate call from the ATO and a call from a potential scammer:
“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on 1800 008 540”.
ATO also warns against identity theft
The ATO is also reminding Australians to protect themselves against identify theft this tax time. Highly organised crime networks use a range of methods to steal personal information in order to commit refund fraud.
The ATO recommends following a few easy steps for taxpayers to protect themselves against identity theft:
- Put a padlock on their letterbox;
- Shred documents containing personal details (especially their tax file number (TFN)) before throwing them away;
- Use legitimate and up-to-date antivirus, firewall and anti-spyware software; and
- Make sure passwords are strong, using a combination of letters, numbers and symbols, don’t share them with anyone, and ensure they are changed regularly.
The ATO also says that taxpayers should report the loss or theft of their TFN without delay, if they can’t find their TFN, and/or think their TFN has been stolen or misused.
The ‘sharing economy’ in the ATO’s sights
The ATO is concerned that those earning money from the ‘sharing economy’ may not realise they have to declare these amounts on their tax return.
In the sharing economy, buyers and sellers are connected through a facilitator who usually operates an app or website.
Assistant Commissioner Graham Whyte said:
“If you earn money from doing odd jobs or providing a service like task sharing, transporting passengers through things like ride-sourcing, or renting out a room or house, you need to declare it because it counts as assessable income. If you are running a business through the sharing economy, you also need to declare this income.
“It’s a bit different if the goods you provide or the activity you complete through a sharing economy website or platform is done as a hobby or recreational activity. The amount you are paid may not be assessable income.”
We can help you with this distinction.
Mr Whyte said ATO technology was keeping up with the sharing economy, and, thanks to their data collection and data matching activities, the ATO would know if taxpayers have left out a significant amount of income.
In addition, some taxpayers may need to register for, and pay, GST (especially those earning an income from carrying on an enterprise of ride-sourcing services, regardless of how much money they earn).
Latest ATO benchmarks released
The ATO has released the latest benchmarks for small business based on the data from 2014 income tax returns and business activity statements, covering over 1.3 million small businesses.
Assistant Commissioner Matthew Bambrick said that, if a small business is inside the benchmark range for their industry and the ATO hasn’t received any extra information that may cause concern, they can be confident that they probably won’t hear from the ATO.
Mr Bambrick said the benchmarks were also a helpful guide for small businesses to see how they stack up against others in their industry.
“For example, one business told us how their accountant used the tailored benchmarks to work out that their expense to turnover ratio was
higher than other businesses with a similar turnover. Using this information, the business adjusted some of their inputs and how they were pricing their products. These changes resulted in an overall improvement in their performance.”
While the benchmarks are a helpful guide for small business, Mr Bambrick said it was also one of a number of tools the ATO uses to ensure a level playing field.
Cents per km deduction rate for motor vehicle expenses
The ATO has determined that the rate at which work-related motor vehicle expense deductions may be calculated using the cents per kilometre method is 66 cents per kilometre for the income year commencing 1 July 2016
Overtime Meal Allowance Amounts
The reasonable amount for overtime meal allowance expenses for 2016/17, where an allowance is paid under an award, order, determination, industrial agreement or a Commonwealth, State or Territory law, is $29.40 per meal.
Div.7A benchmark interest rate
The benchmark interest rate for 2016/17, for the purposes of the deemed dividend provisions of Div.7A, is 5.40% (down from 5.45% for 2015/16).
CGT: 2016/17 Improvement threshold
The CGT improvement threshold is $145,401 for the 2016/17 income year, up from $143,392 for 2015/16.
ATO focuses on rental property owners
With Tax Time 2016 just around the corner, the ATO has stated it will be paying close attention to excessive interest expense claims, and incorrect apportionment of rental income and expenses between owners.
The ATO is also looking at holiday homes that are not genuinely available for rent, and incorrect claims for newly purchased rental properties.
An ATO spokesperson said that their ability to identify incorrect rental property claims is becoming more sophisticated due to enhancements in technology and the extensive use of data.
Holiday home not genuinely available for rent
John has a newly purchased rental property that had not returned any rental income.
He told the ATO that the property was occasionally advertised on community noticeboards and websites.
John was unable to prove there was a genuine arrangement in which he actively sought tenants, or had taken sufficient steps to genuinely advertise the property for rent.
A rental loss of almost $60,000 was disallowed and penalties were applied.
Rental property owner Sarah reported high rental interest claims and was required to provide bank statements as evidence to the ATO.
The statements showed borrowings well in excess of the purchase price of the rental property.
The interest charges relating to the private part of the loan were disallowed.
Sarah was required to pay more than $15,000 back to the ATO.
Incorrect claims for a newly purchased rental property and false claims
Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses.
Nancy had inappropriately claimed a deduction for repairs to defects present in the newly purchased property, and the capital works and borrowing expenses should have been spread over several years.
She also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.
Apportioning expenses between joint owners of a property
A rental property claim was investigated by the ATO where the rental expenses had not been apportioned correctly. The property was jointly owned by a couple but the higher income earner claimed the larger proportion of the expenses.
The expenses were adjusted to reflect the ownership interest and the higher earner had to pay back more than $8,000 in tax.
GIC and SIC rates for the 2016 September quarter
The ATO has published the 2016 September quarter rates for the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC):
|GIC annual rate||9.01%|
|GIC daily rate||0.02461749%|
|SIC annual rate||5.01%|
|SIC daily rate||0.01368852%|
Car depreciation limit for 2016/17
The car limit is $57,581 for the 2016/17 (up from $57,466 for the previous year). This amount provides a limit on depreciation and GST input tax credit claims.
Goods taken from stock for private use: 2015/16
The ATO has provided an update of the amounts it will accept for 2015/16 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries.
The amounts (which exclude GST) are:
|Type of Business||Adult/Child over 16 years||Child 4–16 years|
|Takeaway food shop||3,410||1,705|
|Mixed business (includes milk bar, general store, and convenience store)||4,230||2,115|
The ATO recognises that greater or lesser values may be appropriate in particular cases. It says it will adjust the values annually.
ATO’s deadline for non-arm’s length LRBAs extended
The ATO is allowing SMSF trustees additional time until 31 January 2017 to ensure that any limited recourse borrowing arrangements
(LRBAs) that their fund has are on terms consistent with an arm’s length dealing, or alternatively are brought to an end.
The ATO had previously advised SMSF trustees they only had until 30 June 2016 to review the LRBAs in their fund.
As part of this extension, the ATO has advised that it will provide further information and illustrative examples, to assist SMSF trustees and advisers to make decisions about relevant arrangements, by 30 September 2016.
Tax implications for the sharing economy
The ATO is reminding taxpayers who earn income through the sharing economy that they have tax obligations they should consider.
Examples of sharing economy services include:
- ride-sourcing – providing taxi travel services to transport passengers for a fare;
- renting out a room or a whole house or unit on a short term basis;
- renting out parking spaces; or
- providing personal services, such as web or trade services, or completing odd jobs, errands, deliveries, etc.
As is usual under the GST and income tax law, the nature of the goods or services they provide and the extent of their activities will determine what they need to do for tax purposes.
SuperStream deadline extended!
With only days to go until the 30 June SuperStream deadline, the ATO noted that, while many small businesses had implemented the required changes, “some small businesses may need extra time and help to become SuperStream compliant”.
The ATO has announced that for small businesses that are not yet SuperStream ready, it will provide a further extension to 28 October 2016.
2016/17 Federal Budget
The government handed down the 2016/17 Federal Budget on Tuesday 3rd May.
It included (among many changes) proposed personal income and company tax cuts from 1 July 2016, the extension of GST to all imports (irrespective of value) from 1 July 2017, an increase in the small business entity (‘SBE’) turnover threshold from 1 July 2016, and (as you may have heard) many, many superannuation changes.
Of course, they are all dependent on the Turnbull Government winning the election on 2 July and the legislation then surviving Parliament after that.
We’ll keep you informed!
SMSFs and Collectables – last opportunity to comply!
From 1 July 2011, SMSF investments in collectables and personal-use assets have been subject to stricter rules than SMSF investments in other assets (such as shares and property).
Assets considered collectables and personal-use assets include things like artwork, jewellery, antiques, vehicles, boats and wine.
However, SMSFs that already had investments in such assets before 1 July 2011 were given five years to comply with these rules (i.e., until 30 June 2016).
Therefore, any SMSFs with such investments need to consider their situation carefully and take appropriate action (if necessary) before 1 July 2016.
Such action may include (for example):
· reviewing current leasing agreements (items can’t be leased to or used by a related party, including business premises);
· making decisions about storage (items can’t be stored or displayed in a private residence of a related party, and decisions about storage must be documented and the written record kept); and
· arranging insurance cover (items must be insured in the fund’s name).
In addition, if the trustees of the fund are considering disposing of these items, they can be transferred to a related party without a qualified independent valuation, but only if the transfer takes place before 1 July 2016 and the transaction is made on arm’s-length terms.
If these requirements are not met from 1 July 2016, penalties may apply.
ATO’s continuing focus on trust property developers
In recent years, the ATO has focused on trusts developing and selling properties as part of their normal business.
When these developed properties are sold, some trusts incorrectly claim a 50% CGT discount.
The ATO will continue to target arrangements that display the following characteristics:
· clients have experience in either developing or selling property (or experience in the industry) and establish a new trust to acquire property for development and sale;
· circumstances surrounding the arrangement are inconsistent with the stated purpose of developing the property as a long term investment;
· the development is advertised as available to purchase before completion, or is sold soon after completion; and
· the trustee claims the 50% CGT discount on the sale of the property.
The ATO is encouraging taxpayers to review their circumstances with their tax agent/adviser.
The ATO has also advised that they may contact property developers directly to “help them meet their obligations during development and disposal of the property. However, we may contact your clients at any stage of a development, not just on the sale of the property.”
If you get any such contact – let us know!
New Simpler BAS on the way
The ATO has been working on ways to deliver a simpler business activity statement (BAS) to simplify account set-up, record keeping, BAS preparation and lodgement for agents and their clients, and make it less costly.
To achieve this, several GST labels will be removed from the BAS, with small businesses only required to report:
· GST on sales (1A);
· GST on purchases (1B); and
· Total sales (G1).
They will begin user testing from 1 July 2016 and a simpler BAS should be the standard option for all small business from 1 July 2017.
ATO reminder about 30 June SuperStream deadline
With the 30 June 2016 deadline looming, the ATO strongly encourages small businesses to get on board with SuperStream as soon as possible.
SuperStream is the standardisation of how employers make super contributions on behalf of their employees, and involves employers sending all super payments and employee information electronically in a standard format.
Using it is mandatory.
Unless the employer and the SMSF are related parties…
Options for becoming ‘SuperStream ready’ include using:
· a payroll system that meets the SuperStream standard;
· a super fund’s online system; or
· a messaging portal or a super clearing house like the ATO’s Small Business Super Clearing House (SBSCH).
The SBSCH is a free, optional service for small business with 19 or fewer employees, as well as businesses with an annual aggregated turnover of $2 million or less.
If you’re worried you won’t be able to use SuperStream as you don’t operate electronically, there is a SuperStream option to suit every business, including using third parties to pay your super using SuperStream on your behalf.
If you have any questions, let us know and we’ll help you out.
ATO warns about iTunes scammers
The ATO is reminding the public to be alert to scammers impersonating the ATO demanding iTunes gift cards as a form of tax debt payment
Of the 8692 phone scam reports the ATO received in April 2016 in relation to the fake ATO tax debt scam, 58 reports mentioned the scammer demanding payment by iTunes (and apparently 26 people unfortunately payed $174,830 to fraudsters!)
Importantly, the scammers don’t need the actual physical card; they just need the gift card number, which they get victims to read over the phone.
The ATO states: “We will never request the payment of a tax debt via gift or pre-paid cards such as iTunes and Visa cards. Nor will we ask for direct credit to be paid to a personal bank account.
“And if the person calling you is rude and aggressive, threatening police or legal action if you don’t do something immediately – it’s not the ATO”.
Clients may have recently heard something about an unknown source who has leaked 11.5 million documents from the Panamanian law firm of Mossack Fonseca.
Basically, the documents illustrate how many wealthy individuals hide their money from tax authorities.
Under a plan devised by the Commissioner of Taxation, Chris Jordan, 35 countries have agreed to mount the most ambitious international investigation in history to hunt down tax evaders identified in the Panama Papers leak.
About 800 Australians are listed in the files of Panama law firm Mossack Fonseca, from which confidential correspondence was leaked, and 80 of those are identified in the Australian Crime Commission’s (ACC’s) database for serious and organised crime.
The ATO says that it has now linked over 120 of them to an associate offshore service provider located in Hong Kong.
Deputy Commissioner, Michael Cranston, said that “The information we have includes a large number of taxpayers who haven’t previously come forward, including high wealth individuals, and we are already taking action on those cases”.
The documents from Mossack Fonseca have been exposed in a global media project led by the International Consortium of Investigative Journalists (ICIJ).
The ICIJ plans to release the names of all of the 240,000 offshore entities set up by Mossack Fonseca, along with directors and shareholders, next month.
As part of an ongoing, Australia-wide program, the ATO has advised that it will be visiting restaurants, cafés and take-aways, along with hair salons and nail bars, on the Gold Coast.
Assistant Commissioner Matthew Bambrick said “In all, we’ll be visiting around 250 businesses in the Gold Coast to talk about a range of topics, including business registration, record-keeping, superannuation and lodgement.”
“Where taxpayers are unwilling to work with us or continue to cause us concern, we will undertake further investigation. In Sydney and Melbourne, for example, we have now moved to auditing businesses that didn’t want to work with us.”
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