2018 Practical Updates
Fast-tracking tax cuts for small and medium businesses
The Government has fast-tracked the already legislated tax cuts to small and medium businesses by bringing them forward five years.
Companies with an aggregated turnover of less than $50 million will have a tax rate of 25%in the 2022 income year (instead of the 2027 income year based on the previously legislated timeline).
Similarly, the increase in the tax discount to 16% for unincorporated entities will apply from the 2022 income year, rather than the 2027 income year.
Small and medium businesses will appreciate the earlier access to the already legislated tax cuts.
Proposed expansion of STP to smaller employers
Single Touch Payroll (‘STP’) commenced on 1 July 2018 for approximately 73,000 employers who have 20 or more employees.
There is currently legislation before Parliament to expand STP to allemployers from 1 July 2019 and it is estimated that there will be more than 700,000 employers who will enter STP as a result.
Even though the proposed expansion is not yet law, the ATO recommends that smaller employers consider voluntarily opting-in to STP early.
The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently use a payroll product and has indicated that they are notlooking to force them to take up a product to do STP.
Efforts are being made to work with industry to look at some alternate reporting mechanisms.
It is being reported that software developers, and even some of the larger banks, have shown an interest in developing some kind of product that would enable micro-employers to provide the necessary data to comply with STP at a low cost.
Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.
The ATO is currently consulting with focus groups to look at flexible options to transition micro-employers to STP over the next couple of years.
Assuming the relevant legislation passes, the ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake.
This is a very positive message from the ATO, particularly for micro-employers. Hopefully, together with the relevant software developers, they can come up with a low-cost and simple alternative for those who do not currently use payroll software to comply with their STP obligations.
Expansion of the TPRS
The Taxable Payments Reporting System (‘TPRS’) has been expanded to the cleaning and courier services industries from 1 July 2018.
Businesses that have an ABN and make any payments to contractors for cleaning or courier services provided on behalf of the business must lodge a Taxable Payments Annual Report (‘TPAR’) each income year.
The first TPAR for payments made to contractors from 1 July 2018 to 30 June 2019 will be due by 28 August 2019.
Where cleaning or courier services are only part of the services provided by the business, they will need to work out what percentage of the payments they receive are for these services each income year to determine if a TPAR is required to be lodged.
Specifically, if the total payments the business receives for the relevant services are:
- 10% or more of their GST turnover – a TPAR must be lodged.
- Less than 10% of their GST turnover – a TPAR is not required to be lodged, but the business can choose to lodge one.
Ban on electronic sales suppression tools
From 4 October 2018, the Government has banned activities involving electronic sales suppression tools (‘ESSTs’) that relate to people or businesses that have Australian tax obligations.
The production, supply, possession or use of an ESST (or knowingly assisting others to do so) may attract criminal and administrative penalties.
ESSTs can come in different forms and are constantly evolving, some examples include:
- An external device connected to a point of sale (‘POS’) system.
- Additional software installed into otherwise-compliant software.
- A feature or modification that is a part of a POS system or software.
An ESST may allow income to be misrepresented and under-reported by:
- deleting transactions from electronic record-keeping systems;
- changing transactions to reduce the amount of a sale;
- misrepresenting sales records (e.g., by allowing GST taxable sales to be re-categorised as GST non-taxable sales); or
- falsifying POS records.
Transitional arrangements are in place for six monthsstarting from 4 October 2018 to 3 April 2019for possessing an ESST.
Taxpayers may avoid committing an offence for possessing an ESST if they:
- acquired it before 7:30pm 9 May 2017; and
- advise the ATO that they possess the tool.
Importantly, the transitional provisions donotapply to the manufacture, development, publication, supply or use of an ESST.
Depending on the offence and severity of the crime, taxpayers can face financial penalties of up to 5,000 penalty units, which currently equates to over $1 million.
Scammers impersonating tax agents
The ATO has received increasing reports of a new take on the ‘fake tax debt’ scam, whereby scammers are now impersonating registered tax agents to lend legitimacy to their phone call.
The fraudsters do this by coercing the victim into revealing their agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered tax agent or someone from the agent’s practice.
As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘tax agent’, victims have been falling for this new approach.
In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.
The ATO is reminding taxpayers that they will never:
- demand immediate payments;
- threaten them with arrest; or
- request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency.
Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their tax agent to confirm the status of their tax affairs and verify the call
SG Amnesty still pending
The proposed superannuation guarantee (‘SG’) amnesty is a one-off, 12-month opportunity to self-correct past non-compliance (i.e., from 24 May 2018 to 23 May 2019).
It will apply to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018.
The ‘carrot’ currently on the table is that employers who voluntarily disclose previously undeclared SG shortfalls during the amnesty (i.e., importantly, before the commencement of an ATO audit) will:
- not be liable for the administration component and penalties that may otherwise apply to late SG payments, and
- be able to claim a deduction for catch-up payments made during the relevant 12-month period.
This means that employers will still be required to pay all employee entitlements, including any unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge.
Employers who are not up-to-date with their SG payment obligations and who do not come forward during the proposed SG amnesty have been put on notice by the ATO that they may face higher penalties in the future.
While the SG amnesty is being actively promoted by the ATO, it is important to be aware that the proposed concessions currently on the table are not guaranteed until the relevant legislation becomes law.
Note that the Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2018 will not be considered again at least until Parliament resumes on 10 September 2018.
The Company Tax Rate Saga
In the last week of the August Parliamentary sittings, the controversial corporate tax cut plan for the big end of town (i.e., companies with an aggregated turnover of over $50 million) was defeated.
In addition, long-awaited legislation impacting the company tax and franking rates for small to medium companies (i.e., introducing a new ‘base rate entity passive income test’ from the 2018 income year to qualify for the lower 27.5% tax rate) was passed.
This legislation was particularly relevant for company rates applicable to passive investment and ‘bucket’ companies, which may now need to reconsider earlier lodged 2018 company tax returns, as well as the amount of franking credits attached to dividends paid from 1 July 2017.
Additionally, consideration may also need to be given to the company tax rates (and in certain circumstances, the franking rates) previously applied with respect to the 2016 and 2017 income years.
This is in light of the recently issued ATO compliance and administrative approaches for the 2016, 2017 and 2018 income years.
Unfortunately, the recent Government delays have created much confusion in this area, and in certain cases, a review and possible amendments may be required for previously lodged returns.
Division 7A benchmark interest rate for 2019
The benchmark interest rate for 2019, for the purposes of the deemed dividend provisions of Division 7A and the associated complying Division 7A loan agreements, has been set at 5.20% (i.e., down from 5.30% for 2018).
Black economy recommendations will impact day-to-day business
Recently issued draft legislation has focused on introducing new measures to manage the growing cash economy (i.e., the ‘black economy’) in light of the Black Economy Taskforce recommendations and recent Federal Budget announcements.
Two of these key recommendations are outlined below.
Removing tax deductions for PAYG failure
The Government is currently considering removing tax deductions where businesses fail to comply with their PAYG withholding obligations for payments to employees and contractors from 1 July 2019.
Specifically, deductions are proposed to be denied for these types of payments where the payer has failed to either:
- comply with their obligations in relation to withholding from these payments; or
- notify the ATO of the withholding amount (i.e., via their BAS).
Interestingly, deductions will only be denied if no withholding took place or no notification has been made.
That is, incorrect amounts withheld or reported to the ATO will not impact a taxpayer’s entitlement to deductions.
Further expansion of the taxable payments reporting system (‘TPRS’)
The TPRS was introduced for the first time in the 2013 income year with respect to businesses in the building and construction industry, requiring the reporting of total payments made to contractors for building and construction services each year.
The taxable payments annual report is due by 28 August each year.
Legislation is currently being considered by Parliament to extend the TPRS to the cleaning and courier industries from the 2019 income year.
Furthermore, draft legislation has now been released to further expand the TPRS to the following industries from the 2020 income year:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
Crowdfunding donations to help drought-affected farmers
The ATO is currently offering various support measures to individuals and businesses from drought-affected communities to help with managing their tax and super obligations or who are struggling with their mental health.
It has also recently provided a summary of the potential tax impact of making donations to, or raising funds via a crowdfunding platform for drought relief (as outlined below).
For taxpayers wishing to make a contribution to a drought relief fund, it is important to be aware of the tax implications associated with making such donations.
For example, donations of $2 or more to an organisation that is a deductible gift recipient will be tax deductible.
To check to see if a particular appeal is a registered charity, the ATO has advised that taxpayers should use the ‘ABN lookup’ function on the Australian Business Register website before donating.
For those looking to raise funds through crowdfunding platforms to assist their farming business, payments received from the crowdfunding platforms may be assessable income, depending upon how the funds are used.
- Where the funds are used for emergency relief (i.e., such as food and clothing), then the amounts are not assessable.
- Where the funds are spent on deductible expenses (i.e., such as purchasing feed for livestock), the amount is assessable income, but will be offset by the relevant deductions obtained, ensuing there is no net taxable outcome.
Further company tax cuts deferred (for now . . .)
The Government has decided not to put the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 to a vote in the Senate … for the present point in time (it had already passed the House of Representatives without amendment).
The Bill aims to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023/24 financial year, and further reduce the corporate tax rate in stages so that, by the 2026/27 financial year, the corporate tax rate for all entities would be 25%.
Parliament resumes on 13 August 2018, coincidentally after some by-elections have taken place on 28 July . . .
Opposition confirms it won’t repeal already legislated company tax cuts
Just in case the tax cut situation wasn’t confusing enough, the leader of the Opposition, Bill Shorten, announced at a doorstop interview that, if elected, Labor would repeal the existing company tax cuts for companies with turnover between $10 and $50 million.
However, a few days later, after a Shadow Cabinet meeting, Mr Shorten confirmed that a Labor government would nottouch business tax cuts that have already been legislated, due to the uncertainty that would generate.
However, he reiterated that Labor does notsupport the further tax cuts for larger companies that may be legislated in the future.
ATO guide to the 5 most common Tax Time mistakes
As Tax Time 2018 has ‘kicked off’, the ATO has profiled the five most common mistakesthey see, including taxpayers who are:
- leaving out some of their income (e.g., forgetting a temp or cash job, capital gains on cryptocurrency, or money earned from the sharing economy);
- claiming deductions for personal expenses (e.g., home to work travel, normal clothes or personal phone calls);
- forgetting to keep receipts or records of their expenses (around half of the adjustments the ATO makes are because the taxpayer had no records, or they were poor quality);
- claiming for something they never paid for – often because they think everyone is entitled to a ‘standard deduction’; and
- claiming personal expenses for rental properties – either claiming deductions for times when they are using their property themselves, or claiming interest on loans used to buy personal assets like a car or boat.
ATO Assistant Commissioner Kath Anderson reiterated the three ‘golden rules’ for work-related expenses: “You musthave spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it.”
Single Touch Payroll Update
Single Touch Payroll (STP) officially commenced for larger employers on 1 July 2018, and the ATO has provided some further guidance for affected entities.
The ATO is writing to employers who started reporting through STP before 1 July 2018, providing them with information about how their employees’ payment summary for 2017/18 may change with STP, including the following:
- They are not required to provide their employees with payment summaries for the information they report through STP (although they may choose to provide payment summaries for the first year of STP reporting).
- ‘Income statements’ will replace payment summaries.
- Employees’ income statements are available through pre-filling and myGov.
- The income statement has three categories: ‘Tax ready’, ‘Not tax ready’ and ‘Year-to-date’. Only ‘tax ready’ income statements are complete and will be available through pre-filling.
- Income statements may not be tax ready until 14 August this year.Employers have until this date to finalise their STP data.
The ATO has also recognised that some employers may not have been ready to start STP reporting from 1 July 2018, and these employers (or their tax agent) may be able to apply for a deferral.
For example, employers that live in an area where there is no internet connection, or where the connection or service is intermittent or unstable, can apply for a deferral or even (in very limited circumstances) an exemption.
Please contact our office if you would like our assistance in this regard.
Cents per Km Deduction Rate for Car Expenses from 1 July 2018
The Commissioner of Taxation has determined that the rate at which work-related car expense deductions may be calculated using the cents per kilometre method is 68 cents per kilometre for the income year commencing 1 July 2018 (up from 66 cents per kilometre).
Suburban scammers pushing illegal early access to super
The ATO has become aware of people in some suburban areas of major cities attempting to encourage others to illegally access their super early (generally for a fee) to help them to purchase a car, to pay debts, to take a holiday, or to provide money to family overseas in need.
The ATO advises that anyone approached by someone telling them that they can access their super early, or anyone hearing about it from family, friends or work colleagues:
- should not sign any documents nor provide them with any personal details;
- stop any involvement with the scheme, organisation or the person who approached them; and
- seek advice from a professional advisor or the ATO
Transacting with cryptocurrency
With interest in cryptocurrencies (such as Bitcoin) increasing, the ATO has issued guidance regarding various tax consequences of transactions involving cryptocurrencies.
Any capital gains made on the disposal of a cryptocurrency (including using the cryptocurrency or converting it to Australian dollars) may be taxed, although certain capital gains or losses from disposing of a cryptocurrency that is a ‘personal use asset’ are disregarded.
Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption (but the longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset).
Note: If the cryptocurrency is held as an investment, the taxpayer will not be entitled to the personal use asset exemption but, if they hold the cryptocurrency as an investment for 12 months or more, they may be entitled to the CGT discount.
If the disposal is part of a business the taxpayer carries on, the profits made on disposal will be assessable as ordinary income and not as a capital gain.
The ATO has also provided guidance regarding the tax consequences of the loss or theft of cryptocurrency, as well as of ‘chain splits’.
GST withholding measures now law Personal Income Tax Cuts passed!
Parliament has passed the Government’s Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.
According to the Prime Minister, taxes “will now be lower, fairer and simpler”.
The Government’s plan has three steps:
- The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year).The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.
- Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:
- From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
- From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.
The low income tax offset will also be lifted to $645.
- The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.
Early release of super on compassionate grounds: ATO
From 1 July 2018, responsibility for the administration of the early release of superannuation benefits on compassionate grounds will be transferred from the Department of Human Services (DHS) to the ATO.
Since the ATO is responsible for most of an individual’s interactions with the superannuation system, this change will enable the ATO to build on these existing relationships and provide a more streamlined service to superannuation fund members.
A key improvement under the new process is the ATO providing electronic copies of approval letters to superannuation funds at the same time as to the applicant, which will mitigate fraud risk and negate the need for superannuation funds to independently verify the letter with the Regulator.
Individuals will also upload accompanying documentation simultaneously with their application, rather than the current ‘two-step process’.
Since DHS will accept early release applications up until 30 June 2018, there will be a short transition period where DHS will continue to process those existing applications and complete any necessary reviews.
Nonetheless, from 1 July 2018 the ATO will process all new applications.
ATO putting clothing claims through the wringer
A focus on work-related clothing and laundry expenses this Tax Time will see the ATO “more closely examine taxpayers whose clothing claims don’t suit them”.
According to Assistant Commissioner Kath Anderson, around 6 million people claimed work-related clothing and laundry expenses last year, with total claims adding up to nearly $1.8 billion.
She went on to say:
“While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing.”
With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming.
Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.
“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.
“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”
Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims. However, far too many are claiming for normal clothing, such as a suit or black pants. Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line. Others think they can claim normal clothes because they bought them just to wear to work.
“Unfortunately, they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.
Tax time tips for small business
The ATO claims that it is committed to supporting small businesses and making it as easy as possible for them to understand and meet their tax obligations at tax time.
Consequently, Assistant Commissioner Mathew Umina has some tips to help small business in the lead up to and during tax time, including:
- keeping up-to-date records, which will help small businesses to complete and lodge their tax returns, manage cash flow, meet their tax obligations and understand how their business is doing;
- consider small business tax concessions, such as:
- simplified trading stock rules (if the estimate of the difference between opening and closing trading stock is $5,000 or less, the small business doesn’t need to do a stocktake);
- concessions that allow new small businesses to claim an immediate deduction for start-up costs like professional, legal and accounting advice;
- simplified depreciation rules, including the $20,000 instant asset write-off for assets costing less than $20,000 bought and installed by 30 June 2018.
Please contact our office if you need any advice as to how any of the above mentioned small business tax concessions may be relevant to your business.
2018 Budget Update
The Government handed down the 2018/19 Federal Budget on Tuesday 8th May 2018. Some of the important proposals include:
- The introduction of the ‘Low and Middle Income Tax Offset’, a temporary non-refundable tax offset of up to $530 p.a. to Australian resident low and middle income taxpayers for the 2019 to 2022 income years. This offset will apply in addition to the Low Income Tax Offset.
- Providing tax relief for individual taxpayers by progressively increasing some of the tax brackets (including an increase in the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000 from 1 July 2018), and eventually removing the 37% tax bracket entirely.
- The $20,000 immediate write-off for small business will be extended by a further 12 months to 30 June 2019 (i.e., for businesses with aggregated annual turnover less than $10 million).
- From 1 July 2019:
- Increasing the maximum number of allowable members in an SMSF from four to six members;
- Ensuring that unpaid present entitlements (or ‘UPEs’) come within the scope of Division 7A; and
- Denying deductions for expenses associated with holding vacant residential or commercial land.
Superannuation guarantee amnesty introduced
The Government has introduced legislation to complement the superannuation guarantee (‘SG’) integrity package already before Parliament by introducing a one off, twelve month amnesty for historical underpayment of SG.
The Bill incentivises employers to come forward and “do the right thing by their employees” by paying any unpaid superannuation in full, as well as the high rate of nominal interest (but without the penalties for late payment that are normally paid to the Government by such employers).
Employers that do not take advantage of the amnesty will face higher penalties when they are subsequently caught – in general, a minimum 50% on top of the SG Charge they owe.
In addition, throughout the amnesty period the ATO will still continue its usual enforcement activity against employers for those historical obligations they don’t own up to voluntarily.
The amnesty will run for twelve months from 24 May 2018.
ATO scrutinising car claims this tax time
The ATO has announced that it will be closely examining claims for work-related car expenses this tax time as part of a broader focus on work related expenses.
Assistant Commissioner Kath Anderson said:
“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.”
This is no doubt because over 3.75 million people made a work-related car expense claim in 2016/17 (totalling around $8.8 billion), and, each year, around 870,000 people claim the maximum amount under the cents-per-kilometre method.
Ms Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics: “Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job . . . simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.”
Ms Anderson said there are three golden rules for taxpayers to remember to get it right.
“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.”
A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim.
However, upon investigation the ATO discovered that the logbook wasn’t printed until the following year – the taxpayer admitted the logbook was fraudulent and it was ruled invalid.
Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had travelled at least 5,000 kilometres for work-related purposes, so the ATO used the cents per kilometre method to calculate the taxpayer’s deduction (but his claim was reduced from over $11,000 to under $4,000).
Claiming for home to work travel
A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres.
However, he advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work.
The ATO advised the taxpayer that home to work travel is a private expense and is not an allowable deduction – his claim was reduced to nil and the ATO applied a penalty for failure to take reasonable care.
What the super housing measures mean for SMSFs
The ATO has reminded members of SMSFs that they will be able to use their voluntary super contributions to assist with buying their first home, or to make a contribution into their super from the proceeds of the sale of their main residence (under changes passed by Parliament in December 2017).
The First Home Super Saver Scheme
The First Home Super Saver (FHSS) Scheme allows SMSF members to save faster for a first home by using the concessional tax treatment available within super.
From 1 July 2018, SMSF members can apply to release certain voluntary concessional and non-concessional contributions made from 1 July 2017, along with associated earnings to help buy their first home.
There are various conditions that need to be met in order to take advantage of this measure – contact our office if you would like to know more.
The downsizing measure
SMSF members who are 65 or over and exchange a contract for sale of their main residence on or after 1 July 2018 may be eligible to make a downsizer contribution of up to $300,000 into their super.
This downsizer contribution won’t count towards their contributions caps or total super balance test in the year it’s made.
However, it will count towards the transfer balance cap and be taken into account for determining eligibility for the age pension.
SMSFs must ensure the member’s contribution has satisfied all relevant conditions and completed the downsizer contribution form before accepting a downsizing contribution.
Car limit for 2018/19
The car limit is $57,581 for the 2018/19 income year (unchanged from the previous year). This amount limits depreciation deductions and GST input tax credits.
FBT: Car parking threshold
The car parking threshold for the FBT year commencing 1 April 2018 is $8.83.
This replaces the amount of $8.66 that applied in the previous year commencing 1 April 2017.
GST withholding measures now law
Legislation has been passed to “clamp down” on GST evasion in the property development sector.
From 1 July 2018, purchasers of new residential premises and new residential subdivisions will generally be required to withhold the GST on the purchase price at settlement and pay it directly to the ATO.
Property developers will also need to give written notification to purchasers regarding whether or not they need to withhold.
The new obligations are primarily aimed at ending the practice of some developers collecting GST on new properties before dissolving their business prior to remitting such tax to the ATO.
Continued ATO focus on holiday home rentals
The ATO has recently advised that they are “setting their sights on the large number of mistakes, errors and false claims made by rental property owners who use their own property for personal holidays”.
While it confirms that the private use of holiday homes by friends and family is entirely legitimate, the ATO states that such use reduces a taxpayer’s ability to earn income from the property, and therefore impacts on (i.e., reduces) the amount of claimable deductions.
As a result, the ATO has reminded holiday home owners that:
- They can only claim deductions for a holiday home with respect to periods it is genuinely available for rent.
- They cannot place unreasonable conditions on prospective tenants/renters, set rental rates above market value, or fail to advertise a holiday home in a manner that targets people who would be interested in it and still claim that the property was genuinely available for rent.
- Where a property is rented to friends or relatives at ‘mates rates’, they can only claim deductions for expenses up to the amount of the income received.
- Property owners whose claims are disproportionate to the income received can expect greater scrutiny from the ATO.
Get ready for Single Touch Payroll
Single Touch Payroll (or ‘STP’) is mandatory for ‘substantial employers’ (being those with 20 or more employees) from 1 July 2018.
All employers are required to count the number of employees on their payroll on 1 April 2018 to find out if they are a substantial employer (note that this can be done after 1 April, but they need to count the employees who were on their payroll on 1 April).
They must count each employee (not the full time equivalent), including full-time, part-time and casual employees, as well as those employees based overseas or absent or on leave (paid or unpaid).
Employers that are part of a company group must include the total number of employees employed by all member companies of the wholly-owned group.
However, employers don’t have to include the following in the headcount:
- any employees who ceased work before 1 April;
- casual employees who did not work in March;
- independent contractors;
- staff provided by a third-party labour hire organisation;
- company directors or office holders; or
- religious practitioners.
Note that, although directors, office holders and religious practitioners are not included in the headcount, if the employer starts reporting through STP, the payment information of these individuals will need to be reported (because the payments are subject to withholding and are currently reported in the Individual non-business payment summary).
Employers don’t need to send the ATO the headcount information, but they may want to keep a copy for their own records.
Once an employer becomes a substantial employer, they will need to continue reporting through STP even if their employee numbers drop to 19 or less (unless they apply for and are granted an exemption).
Please contact our office if you need any assistance regarding the new STP regime.
Employee denied deductions for work-related expenses
An employee photographer has been denied deductions for travel expenses (when travelling with his family), and other purported work related expenses.
The AAT held that the travel expenses were primarily incurred for the purposes of a family trip or holiday and were therefore non-deductible, as they were private and domestic in nature.
Also, in relation to the taxpayer’s reliance on bank statements in the absence of invoices and receipts, the AAT observed that “evidence of the mere transfer of funds, be it by way of bank transfer or by any other means, is not sufficiently informative of the actual character of an expense”, so the other disputed expenses could not be claimed as allowable deductions.
New FBT rates for the 2018/19 FBT year
The ATO has released Taxation Determinations setting out the following rates for the FBT year commencing on 1 April 2018.
FBT: Benchmark interest rate
The benchmark interest rate for the 2018/19 FBT year is 5.20% p.a., which 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.
On 1 April 2018, 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 5.20% benchmark rate, is $2,600.
Therefore, the taxable value of the loan fringe benefit is $100 (i.e., $2,600 – $2,500).
FBT: Cents per kilometre basis
The rates to be applied where the cents per kilometre basis is used for the 2018/19 FBT year in respect of the private use of a vehicle (other than a car) are:
|Engine Capacity||Rate per kilometre|
|0 – 2,500cc||54 cents|
|Over 2,500cc||65 cents|
FBT: Record keeping exemption threshold
The small business record keeping exemption threshold for the 2018/19 FBT year is $8,552.
The ATO has also released Taxation Determinations setting out the indexation factors to value non-remote housing, and the amounts the ATO considers reasonable for food and drink expenses incurred by employees receiving a living-away-from-home allowance (LAFHA) fringe benefit, for the FBT year commencing on 1 April 2018.
New superannuation rates and thresholds released
The ATO has published the key superannuation rates and thresholds for the 2018/19 income year.
- The Non-Concessional Contributions cap will remain at $100,000 (although transitional arrangements may apply), and the Concessional Contributions cap will remain at $25,000.
- The CGT cap amount will be $1,480,000.
- The Division 293 tax threshold will be $250,000.
- The maximum super contribution base for superannuation guarantee purposes will be $54,030 per quarter.
- The maximum superannuation co-contribution entitlement for the 2018/19 income year will remain at $500 (with the lower income threshold increasing to $37,697 and the higher income threshold increasing to $52,697).
The superannuation benefit caps for the 2018/19 income year include:
- a low rate cap amount of $205,000;
- an untaxed plan cap amount of $1,480,000;
- a general transfer balance cap of $1.6m;
- a defined benefit income cap of $100,000;
- an ETP cap amount for life benefit termination payments and death benefit termination payments of $205,000; and
- the tax-free part of genuine redundancy payments and early retirement scheme payments comprising a base limit of $10,399 and for each complete year of service an additional $5,200
Super guarantee payable on ‘public holidays’ and ‘additional hours’!
The Federal Court has held that superannuation guarantee contributions were payable with respect to the ‘additional hours’ and ‘public holidays’ component of annualised salaries paid by BlueScope Steel, on the basis that these particular components formed part of ordinary time earnings (‘OTE’).
Under an enterprise agreement, primarily due to the specific working environment, the employees in question were required to be available (at short notice) 365 days per year and 24 hours per day, including a requirement to work additional hours and public holidays.
As such, the employees were paid an annualised salary, which was made up of a base rate, as well as a component which absorbed all additional payments, such as penalty rates, allowances, public holiday loadings and pay-outs, and payment for additional hours worked outside the normal rostered hours.
However, when paying superannuation, adjustments were made to the annualised salary, so that the additional hours and public holiday components were not included by BlueScope Steel as OTE for superannuation guarantee purposes.
The Federal Court did not agree with the employer’s adjustments, instead finding that, under the circumstances, the ‘additional hours’ and ‘public holidays’ formed part of an employee’s ‘ordinary hours of work’ and, therefore, were considered OTE for superannuation guarantee purposes.
This remained the case whether or not the employee actually worked the additional hours or the public holidays.
That is, the ordinary conditions of the employee’s work required them to be available outside their rostered shifts and on public holidays (on short notice) and, as this was factored into their annual salary, they were considered ordinary hours for these particular employees
Inactive ABNs will be cancelled by the ATO
The ATO has recently advised that, in an effort to maintain accurate data, the Australian Business Register (or ‘ABR’) periodically checks its records for Australian Business Numbers (‘ABNs’) and automatically cancels those that appear inactive.
Ultimately, a taxpayer’s ABN may be cancelled if they:
- have told the ATO they stopped their business activity;
- declared no business income in the last two years; or
- have not lodged a BAS or an income tax return in more than two years.
To avoid cancellation, the ATO has reminded taxpayers that they need to bring their lodgments up to date, and have reminded sole traders that, regardless of their income, they need to lodge the individual tax return with the supplementary section, as well as the business and professional items schedule.
Commissioner’s speech highlights ATO’s focus areas
Recently, the Commissioner of Taxation highlighted the areas in which the ATO has recently increased its focus, including:
- undeclared income;
- individuals’ unexplained wealth or lifestyle;
- incorrectly claimed private expenses;
- unpaid superannuation guarantee; and
- cash-only businesses and those with low usage of merchant banking facilities, with black economy visits to over 2,600 businesses across 8 locations in 2017.
The Commissioner also highlighted ongoing ATO concern with respect to the predicted ‘work-related expense claim gap’, which (at least by the ATO’s estimates) could amount to being greater than the ‘large corporate tax gap’ of $2.5 billion of lost revenue.
No need to actually ‘downsize’ for ‘downsizer contributions’
From 1 July 2018, individuals aged 65 or over may use the proceeds from the sale of an eligible dwelling that was their main residence to make superannuation contributions (referred to as ‘downsizer contributions’), up to a maximum of $300,000 per person (i.e., up to $600,000 per couple), without having to satisfy the age or gainful employment tests that usually apply.
This measure was announced in the 2017/18 Federal Budget, and aims to provide an incentive for older Australians to ‘downsize’ their home.
This, in turn, is expected to reduce pressure on housing affordability by freeing up stocks of larger homes for growing families.
Importantly, it should be noted that there is no requirement for an individual to actually ‘downsize’ by acquiring a smaller property, or to even acquire another property at all.
In this regard, all that is required is that the individual (or their spouse) ‘downsizes’ by selling their ‘main residence’.
The individual can then move into any living situation that suits them, such as aged care, a retirement village, a bigger or smaller dwelling than the one sold, a rental property, or living with family.
Also, the property sold does not need to have been the individual’s (or their spouse’s) main residence during their entire ownership of it, provided the property was owned for at least 10 years and was their main residence at some time during the ownership period. Therefore, the sale of an investment property that at one stage was their main residence may enable an individual (or their spouse) to make downsizer contributions.
Big changes proposed to eligibility for the CGT SBCs
The Treasurer has released draft legislation containing new “integrity improvements” to the CGT small business concessions (‘SBCs’) (i.e., including the 15-year exemption, the retirement exemption, the 50% active asset reduction and the small business roll-over).
Due to the government’s “continued support for genuine small business taxpayers”, it proposes making amendments so that the CGT SBCs can only be accessed in relation to assets used in a small business or ownership interests in a small business.
Predominantly, the amendments include additional basic conditions that must be satisfied for a taxpayer to apply the CGT SBCs to a capital gain arising in relation to a share in a company or an interest in a trust (i.e., a unit in a unit trust).
This integrity rule is designed to prevent taxpayers from accessing these concessions for assets which are unrelated to their small business, such as where taxpayers arrange their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
Under the proposed amendments, the measure would be backdated to apply from 1 July 2017.
The proposed amendments, if enacted as currently drafted, will significantly restrict access to the CGT SBCs where taxpayers owning shares in a company, or units in a unit trust, seek to dispose of their interests in the entity.
This will particularly be the case where such interests are held in an asset-owning entity (i.e., which holds and/or leases business assets across to a separate, yet related, business entity).
It is to be hoped that the more draconian aspects of these measures may be scaled back, but due to the retrospective nature of the proposed amendments (i.e., from 1 July 2017), caution is warranted with respect to the SBCs in relation to the disposal of shares or units
.ATO’s focus on work-related expenses
This year, the ATO is paying close attention to what people are claiming as ‘other’ work-related expense deductions, so it’s important when taxpayers claim these expenses that they have records to show:
- they spent the money themselves and were not reimbursed;
- the expense was directly related to earning their income; and
- they have a record to prove it.
If the expense is for work and private use, the taxpayer can only claim a deduction for the work-related portion.
Importantly, taxpayers are not automatically entitled to claim standard deductions, but need to be able to show how they worked out their claims.
‘Other’ work related expenses are expenses incurred by employees in relation to their work that are not for travel, clothing or self-education, such as home office expenses.
Taxpayer can’t explain where she got the money to pay her expenses
The Administrative Appeals Tribunal has upheld amended assessments issued by the ATO to a beauty technician, based on the high volume of money passing through the taxpayer’s various accounts when compared with the modest income she had included in her tax returns.
For example, in the 2015 income year, the taxpayer had declared income of $61,842, but the ATO’s analysis of her bank accounts, records of international money transfers, and casino data suggested she had spent $107,328.
The Tribunal noted that, in cases like this, the ATO is effectively making an “informed guess” as to the taxpayer’s income, but, provided there is
a rational basis for the estimate, the ATO’s assessment will stand, unless the taxpayer can:
- demonstrate the assessment was excessive; and
- establish what the correct (or more nearly correct) figure is.
After hearing from the taxpayer and witnesses at the hearing, and after reviewing the documents, the Tribunal was not persuaded that the taxpayer had demonstrated that the Commissioner’s assessments were ‘excessive’.
In particular, the taxpayer’s explanation regarding her income and expenditure was not supported by the objective facts in the hearing, being:
- the ‘churn’ through her bank accounts;
- the absence of contemporaneous records beyond the bank accounts (for example, she was always paid in cash without receiving pay slips); and
- the deficiency in corroborating evidence from other witnesses.
In addition to upholding the amended assessments, the Tribunal was also satisfied that the ATO’s 75% administrative penalty on top of the tax payable was properly imposed.
Uber driver not an ’employee’
In a recent case, an Uber driver’s access to the Uber app had been terminated as a result of failing to maintain an adequate overall rating, and he applied to the Fair Work Commission (FWC) for an unfair dismissal claim against Uber.
However, the FWC held that he was an independent contractor and not an ’employee’, and therefore his application for unfair dismissal was dismissed.
Although this was not a tax case, it is obviously of interest to anyone involved in the ‘gig economy’, and it may have flow-on implications for other employment issues, such as super guarantee.
Government to fix a problem with reversionary TRISs
The government has released draft legislation to ensure that a reversionary Transition to Retirement Income Stream (‘TRIS’) will always be allowed to automatically transfer to eligible dependants (i.e., upon the death of the primary recipient).
Currently, a reversionary TRIS cannot transfer to a dependant if the dependant has not personally satisfied a condition of release.
If this positive measure is legislated, it will apply to reversionary TRISs from 1 July 2017.
New small business benchmarks are available
The ATO has updated its small business benchmarks with the latest data from the 2015/16 financial year.
In addition to helping businesses to see if they are performing within their industry average, the benchmarks are one of the tools the ATO uses to identify businesses that may be a higher risk.
That is, they use the benchmarks to pick their audit targets, so please contact us if you would like us to check whether your data is inside or outside the average benchmark range for your industry.
Guide to the new Small Business Super Clearing House
The Small Business Superannuation Clearing House (SBSCH) joined the ATO’s online services on 26 February 2018.
This is intended to streamline how businesses use the SBSCH, and will also include extra functionality, such as the ability to sort employee listings and payment by credit card.
The SBSCH is a free service that businesses with 19 or fewer employees (or which are SBEs) can use to comply with their super obligations.
Deputy Commissioner James O’Halloran said “We recognise there are some major new considerations and decisions for SMSFs and their advisers to make in this first financial year of operation of the superannuation reforms that came into effect from 1 July 2017.
“We have therefore decided to extend the lodgement date for 2016/17 SMSF annual returns so that SMSF trustees and their advisers can focus on these important matters.”
Further ‘affordable housing’ measures passed
Parliament has passed the legislation allowing first home buyers to save for a deposit inside superannuation through the First Home Super Saver Scheme (FHSSS), and also allowing older Australians to ‘downsize’ and then contribute the proceeds of the sale of their family home into superannuation.
From 1 July 2018, a first home buyer will be able to withdraw voluntary superannuation contributions they have made since 1 July 2017 (up to $30,000 each, with individuals being able to contribute up to $15,000 a year within existing caps), along with a deemed rate of earnings, to help buy their home.
Also, from 1 July 2018, when Australians aged 65 and over sell a home they have owned for at least 10 years, they may contribute up to $300,000 from the proceeds into their superannuation accounts, over and above existing contribution restrictions. Both members of a couple may take advantage of this measure, together contributing up to $600,000 from the proceeds of the sale into superannuation.
Consultation on ‘protecting superannuation entitlements’
Following the recommendations of the Superannuation Guarantee Cross‑Agency Working Group, the Government has released draft legislation “to protect workers’ superannuation entitlements and modernise the enforcement of the superannuation guarantee”.
The draft laws extend Single Touch Payroll to all employers from 1 July 2019 and will require superannuation funds to commence ‘event-based’ reporting to the ATO of payments they receive for employees from their employer from 1 July 2018.
Combined, these measures (if passed as drafted) should provide the ATO with more timely information to support earlier detection and proactive prevention of non‑payment of superannuation owed to employees.
The ATO will have a suite of enforcement and collection tools for employers who break the law, including
- strengthened arrangements for director penalty notices and security deposits for superannuation and other tax-related liabilities;
- the ability (for the first time) to apply for court‑ordered penalties, including up to 12 months imprisonment; and
- the ability to require employers to undertake training.
The Government’s commitment to a Director Identification Number will also help identify those directors who are robbing their employees of their superannuation.
The Government introduced legislation last year to implement another recommendation by the Working Group to close a loophole that could be used by unscrupulous employers to short‑change employees who use salary sacrifice arrangements, and will progress that legislation along with this broader compliance Bill
ATO warning regarding small business record-keeping
According to the ATO, of all of the things that can cause small businesses to fold, “high on that list is poor record keeping”.
More than half of the businesses they visited in their Protecting honest business campaign needed to improve their record keeping.
Issues they found include businesses:
- estimating their sales and income;
- using the ‘no sale’ and ‘void’ button on cash registers when taking cash payments;
- not keeping cash register tapes and not reconciling at the end of the day; and
- paying their employees cash-in-hand.
They are writing to these businesses to recommend they attend one of the ATO’s record keeping workshops, which cover why good record keeping is important and how it will save them time.
ATO data matching program – Visa Holders
The ATO will acquire information on holders of a Visa from the Department of Immigration and Border Protection for the 2017/18, 2018/19 and 2019/20 financial years.
It is estimated that records of 20 million individuals will be obtained over the course of the three-year period.
These records will be electronically matched with ATO data holdings to identify non‑compliance with obligations under taxation and superannuation laws, as well as (for example) support compliance activities under Australia’s foreign investment rules.
Review of rules for early release of superannuation
The Government has announced that Treasury will review the current rules governing early release of superannuation on grounds of severe financial hardship and compassionate grounds.
It will also review whether, and the circumstances in which, a perpetrator’s superannuation should be available to pay compensation or restitution to victims of crime.
The review will not examine other general conditions of release for superannuation.
The Government also announced that it will transfer the regulatory role of administering the early release of superannuation benefits on compassionate grounds from the Department of Human Services to the ATO in 2018, to enable the ATO to provide a more streamlined service to members.
ATO extends due date for 2016/17 SMSF returns
The ATO will extend the due date for lodgement of self-managed superannuation fund (SMSF) annual returns for 2016/17 to 30 June 2018.
Deputy Commissioner James O’Halloran said “We recognise there are some major new considerations and decisions for SMSFs and their advisers to make in this first financial year of operation of the superannuation reforms that came into effect from 1 July 2017.
“We have therefore decided to extend the lodgement date for 2016/17 SMSF annual returns so that SMSF trustees and their advisers can focus on these important matters.”
Taskforce to help digitise small business
The Government has established a Small Business Digital Taskforce, to be headed by entrepreneur Mark Bouris AM, to ensure more Australian small businesses can thrive in an increasingly digital economy.
Mark Bouris said: “When a business begins to digitise and use digital tools, it opens up new opportunities to grow, diversify revenue streams, find talent, access finance, work smarter and enhance the value of the business when it is time to sell. If you’re not going digital, you should be.”
Deloitte research has found that small businesses with advanced levels of digital engagement are 1.5 times more likely to be growing revenue, 8 times more likely to be creating jobs and 14 times more likely to be innovating.
The Taskforce will conduct a series of meetings, workshops and ‘hackathons’ with businesses over the coming months to explore impediments for business in engaging with digital technologies and how these impediments might be addressed.
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