2017 Practical Updates

December 2017 Update

Season’s greetings from all the team at SPR Accounting, wishing you and your family a safe and very happy holiday season and a joyous new year.

 

Parliamentary update

The ongoing citizenship saga in Parliament has resulted in the Government losing its one-seat majority in the House of Representatives, thanks to the resignations of Barnaby Joyce and John Alexander.

By-elections have been scheduled in the relevant electorates and, in the meantime, some of the cross-benchers have guaranteed the Government’s (current) survival by committing to vote with it on motions of no-confidence and supply.

Tax legislation passed

In other news, the Government has passed changes to the tax legislation that will limit, or deny, deductions for travel expenses and depreciation claims for certain residential premises.

Legislation to impose vacancy fees on foreign acquisitions of residential land has also been passed.

 

ATO relief for SMSFs reporting ‘transfer balance account’ events

The ATO has announced that, from 1 July 2018, SMSF event-based reporting regarding events impacting a member’s transfer balance account (i.e., via a Transfer Balance Account Report) will be limited to SMSFs with members with total superannuation balances of $1 million or more.

This new reporting is only required if an event that impacts a member’s transfer balance account actually occurs (e.g., such as starting an account based pension, or commuting such a pension).

This effectively means that up to 85% of the SMSF population will not be required to undertake any additional reporting with respect to a member’s transfer balance cap, outside of current time frames (as SMSFs with members with account balances below $1 million can choose to simply report events which impact their members’ transfer balances when the fund lodges its SMSF annual return).

However, from 1 July 2018, SMSFs that have members with total superannuation account balances of $1 million or more will be required to report any events impacting members’ transfer balance accounts within 28 days after the end of the quarter in which the event occurs.

Whilst SMSFs are not required to report anything to the ATO until 1 July 2018, SMSF trustees should be mindful that, where the $1.6 million transfer balance cap has been breached in respect of a member from 1 July 2017, any resulting tax liability will continue to accrue until the excess amount is commuted (i.e., irrespective of when reporting that breach is required).

 

ATO’s annual closure

This year, the ATO’s annual office closure is between noon Friday 22 December and 8.00am Tuesday 2 January 2018.

Also, the ATO may have systems maintenance on some weekends, so they recommend that lodgements be made as early as possible, as even returns or activity statements lodged in early December may not be finalised until after 2 January 2018.

 

Truck drivers’ reasonable amounts for travel updated

Following detailed consultation with the transport industry, the ATO has amended their determination for travel expenses for truck drivers to provide separate reasonable travel allowance expense amounts for breakfast, lunch and dinner for employee truck drivers for the 2017/18 income year.

The reasonable amount for travel expenses (excluding accommodation) of employee truck drivers who have received a travel allowance and who are required to sleep away from home was originally reduced for 2017/18 to a total of $55.30 per day, but this daily rate has now been replaced with the following amounts for all domestic travel destinations for the 2017/18 income year:

  • Breakfast $24.25
  • Lunch $27.65
  • Dinner $47.70

The amounts for each of these meal breaks are separate and cannot be aggregated into a single daily amount, and amounts cannot be moved from one meal to another (e.g., if the full amount for breakfast is not expended, it cannot be carried over to lunch or dinner).

A driver’s work diary (as maintained for fatigue management purposes) can be used to demonstrate when meal breaks were taken.

 

Tool for applying the margin scheme to a property sale

The ATO is recommending that taxpayers use their recently updated GST property decision tool to work out if GST applies to their property sales.

The tool can be used to determine GST on the sale, lease or purchase of real property, and was recently updated for easier use on mobile devices.

After providing the relevant information, the tool will generate a GST decision that:

  • advises whether GST is payable on a sale;
  • estimates the amount of GST payable when applying the margin scheme; and
  • advises whether the taxpayer is eligible to claim input tax credits.

Note that the ATO does not record any personal information and users will remain anonymous.

 

Other GST News

The Government has released draft legislation on “improving the integrity of GST on property transactions”, as announced in the 2017/18 Federal Budget.

They intend to amend the GST law so that, from 1 July 2018, purchasers will withhold the GST on the purchase price of new residential premises and new residential subdivisions, and remit the GST directly to the ATO as part of settlement.

This is to address tax evasion through “phoenixing arrangements”, where developers collect GST from their customers but dissolve their company to avoid paying it to the ATO.

To provide certainty for contracts that have already been entered into, the draft legislation provides a two-year transitional arrangement – contracts entered into before 1 July 2018 will not be affected as long as the transaction settles before 1 July 2020.

In addition, the GST Act has been amended to ensure that supplies of digital currency receive equivalent GST treatment to supplies of money (particularly foreign currency).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 more than the reasonable amount.

 

Numerous work-related expense claims disallowed

The AAT has denied a taxpayer’s deductions for work-related travel, clothing, self-education and rental property expenses (totalling $116,068 and $140,581 for the 2013 and 2014 income year respectively), and upheld the ATO’s 50% administrative penalty on the tax shortfall for recklessness.

Apart from being unable to prove (or ‘substantiate’) some claims due to lack of receipts, and documents being in the wrong name, the AAT also criticised the taxpayer for:

  • claiming work-related travel expenses on the basis of the ‘gap’ between travel expenses reimbursed by her employer and the ATO’s reasonable rates (which “was clearly not permissible under any taxation law”); and
  • claiming clothing expenses for “formal clothes of high class”, despite her clothing not being distinctive or unique to her employment at the Department of Finance, and was instead rather conventional in nature (and so was not deductible).
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November 2017 Update

Reporting of transfer balance account information

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’.

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:

  • car expenses;
  • home office expenses;
  • clothing expenses; and
  • self-education or professional development expenses.

The guides are available for the following   occupations:

  • construction worker;
  • retail worker;
  • office worker;
  • Australian Defence Force;
  • sales and marketing;
  • nurse, midwife, or carer;
  • police officer;
  • public servant;
  • teacher; and
  • 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.

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.

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:

  • Penalise company directors and other persons who engage in transactions which are directed at preventing, avoiding or reducing employer liability for employee entitlements;
  • 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
  • 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 most of companies who are doing the right thing.

 

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?

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, considering 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.

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.

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October 2017 Update

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:

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

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 lodgement 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:

  • trusts or their beneficiaries who have received substantial income are not registered, or have not lodged tax returns or activity statements;
  • there are offshore dealings involving secrecy or low tax jurisdictions;
  • there are agreements with no apparent commercial basis that direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others;
  • 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;
  • 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);
  • transactions have excessively complex features or sham characteristics (e.g., round robin circulation of income among trusts);
  • 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
  • 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).
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September 2017 Update

ALP announces massive (potential) changes to trust taxation

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.

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:

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

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.

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

  • the clothing is in the nature of occupation specific, or protective clothing; or
  • the wearing of the clothing is a compulsory condition of employment for employees and the clothing is not conventional in nature; or
  • where the wearing of the clothing is not compulsory, the design of the clothing entered on the Register of Approved Occupational Clothing.

The new guidelines outline (among other things):

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

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

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August 2017 Update

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:

  • Declare all income;
  • Do not claim a deduction unless the money has actually been spent;
  • Do not claim a deduction for private expenses; and
  • Make sure that the appropriate records are kept proving 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:

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

  • provide their ABN to the non-resident supplier; and
  • 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.

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 short‑change 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

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 more than the reasonable amount.

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).

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July 2017 Update

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).

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.

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.

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.

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).

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:

  • 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;
  • The age restrictions are met;
  • The fund member notifies their fund in writing of the amount they intend to claim as a deduction; and
  • 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.

    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.

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June 2017 Update

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 incurred by investors in residential properties.

More specifically:

  • Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered 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.
  • 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’

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’ (considering 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:

  • 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;
  • Expanded access to the FBT exemption for portable electronic devices;
  • Ability to claim an immediate deduction for start-up expenses; and
  • The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

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 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:

  • ensure their computer security systems are up to date and they are protected against cyber attacks;
  • keep personal information secure (including user IDs, passwords, AUSkeys, TFNs); and
  • do not click on downloads, hyperlinks or open attachments in unsolicited or unfamiliar e-mails, SMS or social media.

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.

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May 2017 Update

Company tax cuts pass the Senate with amendments

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 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:

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

 

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.

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.

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

Joseph 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, Joseph 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.

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:

  • a loan fringe benefit; and
  • 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

 

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

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April 2017 Update

Reduction in FBT rate from 1 April 2017

In conjunction with the introduction of the temporary budget repair levy (of 2%, payable by high income earners), the FBT rate was also increased from 47% to 49% for the 2016 and 2017 FBT years.

However, the FBT rate will revert to 47% from 1 April 2017.

This means there will be a discrepancy between the FBT rate and the effective income tax rate for high income earners from 1 April 2017 until 30 June 2017.

This means that any such high-income earners that genuinely and effectively salary sacrifice relevant fringe benefits (e.g., expense payment fringe benefits, such as school fees or residential rent) during that period, so long as their employer is happy to assist, could basically reduce the tax payable on that income by 2%.

Lump sum payments received by healthcare practitioners

The ATO must be concerned about healthcare practitioners receiving lump sums and treating them as capital payments, as they have released a detailed fact sheet setting out what they expect to see in such situations.

If a healthcare practitioner (such as a doctor, dentist, physical therapist, radiologist or pharmacist) gets a lump sum payment from a healthcare centre operator, per the ATO “it’s probably not a capital gain.  It’s more likely to be ordinary income”.

Specifically, the lump sum will typically be ordinary income of the practitioner for providing services to their patients from the healthcare centre.

Importantly, the mere fact the payment is a one-off lump sum, or expressed to be principally consideration for the restraint imposed, for the goodwill or for the other terms or conditions, does not define it as having the character of a capital receipt.

If you think this may affect you, we can help you work out what you need to do.

Tax officers “hit the streets” to “help small businesses”

The ATO is visiting more than 400 businesses across Perth and Canberra this month as part of a campaign to “help small businesses stay on top of their tax affairs”.

Assistant Commissioner Tom Wheeler said: “Our officers will be visiting restaurants and cafés, hair and beauty and other small businesses in Perth and Canberra to make sure their registration details are up to date.  These industries are on our radar because they have ready access to cash, and this is a major risk indicator.”

“We then work to protect honest businesses from unfair competition by taking action against those who do the wrong thing.”

The industries they are visiting have some of the highest rates of concerns reported to the ATO from across the country.

Planned changes to GST on low value imported goods

From 1 July 2017, overseas clients with an Australian turnover of $75,000 or more will need to register for, collect and pay GST on goods up to $1,000 that they sell to consumers in Australia.

If Australian clients are registered for GST and buy low value imported goods for their business from overseas, they will need to supply their ABN at the time of purchase so they won’t be charged GST.

If the Australian business is not registered for GST, they will be treated as a consumer and unable to recover the GST charged by the overseas business.

Company disallowed $25 million of carried forward tax losses

A lack of supporting evidence has led to a company failing to prove it was entitled to claim deductions for tax losses (totalling $25 million) the company incurred for a property development, most notably during the 1990 to 1995 income years.

The company then claimed these tax losses as deductions on its income tax returns for the 1996 to 2003 income years.

The ATO disallowed the deductions because the company was unable to satisfy either of the tests that companies must satisfy to successfully claim losses incurred in prior years (being the ‘Continuity of Ownership Test’ and the ‘Same Business Test’), and the AAT agreed with the ATO.

This was basically because the shares in the company could not be traced to the same shareholders that owned shares in some of the loss years.  Further, there were periods of uncertain ownership positions during the relevant timeframe, which meant the AAT could not conclude a ‘continuity of ownership’ had been established in some cases.  Also, the business has changed in the 1996 income year from property development to investing in units in a trust.

It is important to remember that the burden of proving an ATO assessment is excessive rests with the taxpayer.

Although this burden may prove difficult in cases such as this (i.e., the first claimed loss year was 1990), the AAT noted that a taxpayer has the obligation to make good its case on some “satisfactory basis other than speculation, guesswork or corner-cutting”.

Super changes may require action by 30 June 2017!

Due to the introduction of the new ‘transfer balance cap’ from 1 July 2017, super fund members with pension balances (in ‘retirement phase’) exceeding $1.6 million will need to partially commute one or more of their pensions to avoid the imposition of excess transfer balance tax.

In addition, members in receipt of a transition to retirement income stream (‘TRIS’) will lose the pension exemption from 1 July 2017.

 

This means that the future disposal of any assets currently supporting such pensions will potentially generate a higher taxable capital gain (even though the disposal of the asset prior to 1 July 2017 could be fully or partially tax-free, depending on whether the asset is a segregated or unsegregated asset).

Fortunately, to avoid funds selling off assets before 1 July 2017, transitional provisions have been introduced to allow super funds to apply CGT relief in certain situations.

Although the choice to apply the CGT relief can be made up until the day the super fund is required to lodge its 2017 tax return, in many cases, action must be taken on or before 30 June 2017 for the fund to even be eligible to make that choice. Funds calculating exempt pension income using the segregated assets method will generally need at least a partial commutation of the pension.

Please contact our office if you need any information regarding the super reforms, including what needs to be done to obtain CGT relief (if necessary), whether a TRIS should be commuted to accumulation phase or continued into the 2018 year, and how the new contribution rules will affect contributions in both the current and future years.

Working holiday makers – 2017 early lodgers

The ATO has advised that the recent change to tax for working holiday makers means there are extra steps tax agents need to take when preparing an early 2017 income tax return for these clients.

We will obviously be able to help you this.  Basically, we will need to provide the ATO with a schedule separately identifying income earned up to 31 December, and then from 1 January onwards, to ensure the correct tax rates are applied (along with any deductions associated with the income period).

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March 2017 Update

ATO data regarding Super Guarantee non-compliance

The ATO has provided some information about Superannuation Guarantee (SG) non-compliance in its recent submission to a Senate inquiry into the impact of the non-payment of the Superannuation Guarantee.

In addition to marketing and education activities to re-enforce the need for employers to meet their SG obligations, the ATO conducts audits and reviews to ascertain SG non-compliance, with 70% of cases stemming from employee notifications (the remaining 30% of cases are actioned from ATO-initiated strategies).

On average, the ATO receives reports from employees which relate to approximately 15,000 employers each year, although the ATO finds that nearly 30% of these employers have in fact paid the required SG to their employee.

However, an SG shortfall is identified in the remaining 10,000 cases (this represents approximately 1% of the estimated 880,000 employers who make SG payments).

The top four industries from which reports are received by the ATO are from:

  • Accommodation and Food Services;
  • Construction;
  • Manufacturing; and
  • Retail Trade.

These four industries represent approximately 50% of the audits and reviews undertaken.

The ATO also noted that the proposed Single Touch Payroll (‘STP’) will help overcome certain limitations in the data currently provided to the ATO (as well as simplify taxation and superannuation interactions for employers, by aligning the reporting and payment of PAYG withholding and SG with a business’s natural process of paying their employees).

Use of STP is mandated for businesses with 20 or more employees from 1 July 2018, and a pilot program will be undertaken in 2017 to identify the nature of STP benefits for small businesses.

 

Ride-sourcing is ‘taxi travel’

In a recent case, the Federal Court has agreed with the ATO that ‘ride-sourcing’ (such as that provided using Uber) is ‘taxi travel’ within the meaning of the GST law.

The ATO has advised people who are taking up ride-sourcing to earn income should:

  • keep records;
  • have an Australian business number (ABN);
  • register for GST, regardless of how much they earn, and pay GST on the full fare received from passengers for each trip they provide;
  • lodge activity statements; and
  • include income from ride-sourcing in their income tax returns.

Drivers are also entitled to claim income tax deductions and GST credits (for GST paid) on expenses apportioned to the ride-sourcing services they have supplied.

The ATO warns that they can match people who provide ride-sourcing through data-matching, and will continue to write to them to explain their tax obligations.

 

Making ‘intangible’ capital improvements to pre-CGT assets

The ATO has confirmed that, if intangible capital improvements are made to a pre-CGT asset, they can be a ‘separate CGT asset’ from that pre-CGT asset if the relevant requirements are satisfied.

The result of this is that, while the disposal of the pre-CGT asset itself will be exempt from CGT, the improvements which are treated as a separate, post-CGT asset could still give rise to CGT.

Example

A farmer, holding pre-CGT land, obtains council approval to rezone and subdivide the land.

Those improvements may be separate CGT assets from the land, so if the land is sold with those improvements (the council approval), there may be some CGT (even though the land itself is exempt).

 

Fringe benefits change for tax offsets from 1 July 2017

The ATO has issued a reminder that the government has changed the way fringe benefits will be treated for the calculation of several tax offsets from 1 July 2017.

The meaning of ‘adjusted fringe benefits total’ (which is used to calculate a taxpayer’s entitlement for the low-income superannuation tax offset, the seniors and pensioners tax offset, the net medical expenses tax offset and the dependent tax offset) has been modified so that the gross, rather than the adjusted net value, of reportable fringe benefits is used.

Fringe benefits received by individuals working for registered public benevolent institutions, registered health promotion charities, some hospitals and public ambulance services will not be affected by this change.

This aligns the treatment for tax offsets to the treatment for the income tests for family assistance and youth payments.

 

Diverting personal services income to SMSFs

The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert their personal services income to an SMSF, so that the income is taxed concessionally (or exempt from tax) in the fund, rather than being subject to tax at the individual’s marginal tax rate.

These arrangements normally involve the individual’s income being paid to another entity (e.g., a company) which then makes distributions to the SMSF as a ‘return on investment’ (e.g., dividends, where the SMSF holds shares in the relevant company).

 

The ATO advises any people that have entered such an arrangement to contact the ATO by 30 April 2017, so they can work with them to resolve any issues in a timely manner, and minimise the impact on the individual and the fund.

Individuals and trustees who are not currently subject to ATO compliance action, and who come forward will have administrative penalties remitted in full (although interest may still be payable on any tax collected later than it should have been).

 

No overtime meal allowance, no overtime meal deduction

An employee construction project manager/supervisor was denied deductions for overtime meal expenses, as he was not paid an overtime meal allowance under an industrial agreement (award).

The taxpayer often worked at nights and on weekends during the relevant income years, and so additional amounts were negotiated and ‘rolled into’ his salary to cover the fact that he was expected to work additional hours, and to cover any out-of-pocket expenses associated with such overtime.

However, the taxpayer’s salary was not paid under an award, which was simply used as a starting point in annual remuneration negotiations (and he was paid the same amount each week, regardless of hours worked or expenses incurred).

Therefore, the AAT agreed with the ATO, finding that the taxpayer had received no overtime meal allowance under the relevant industrial award.

As no deduction is claimable under the income tax law for overtime meal expenses unless an appropriate award overtime meal allowance is paid, the Tribunal swiftly dismissed the taxpayer’s appeal, and affirmed the 25% administrative penalty.

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