News & Views
Federal Election called!
The Federal Election has been called for Saturday 18 May 2019, and the Governor-General has ‘prorogued’ the Parliament from 11 April 2019 until 18 May 2019 and dissolved the House of Representatives.
The election will also be for half the Senate.
As a result, all outstanding Bills have also lapsed (so any measures not yet passed will need to be reintroduced in new Bills after the election if they are to become law).
2019/20 Budget Update
The Government handed down the 2019/20 Federal Budget on Tuesday 2 April 2019.
Some of the important proposals include:
Increasing and expanding access to the instant asset write-off from 7:30 pm (AEDT) on 2 April 2019 (i.e., ‘Budget night’) until 30 June 2020, as follows:
- Increasing the instant asset write-off threshold from $25,000 to $30,000.
- Making the instant asset write-off available to medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million).
The legislation to make the above changes to the instant asset write-off has already been passed and received Royal Assent.
Allowing individuals aged 65 and 66 years to:
- make voluntary superannuation contributions (both concessional and non-concessional) without meeting the work test from 1 July 2020; and
- make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).
- Increasing the upper threshold of the 19% personal income tax bracket to $45,000 from 1 July 2022 and reducing the 32.5% marginal tax rate to 30% from 1 July 2024 (in addition to changes already legislated).
- Increasing the Low- and Middle-Income Tax Offset (‘LAMITO’), with effect from the 2019 income year, to provide tax relief of up to $1,080 per annum, as well as an increased base amount of $255 per annum.
New industries entering the taxable payments reporting system
The ATO has reminded businesses that provide road freight, information technology (‘IT’), security, investigation, or surveillance services that they need to lodge a Taxable payments annual report (‘TPAR’) each year to tell the ATO about the payments they make to contractors who use an Australian business number (‘ABN’) (even if these services are only part of their business activities).
Such clients’ first TPAR will be due by 28 August 2020 for payments made from 1 July 2019 to 30 June 2020.
We can help with the lodgement of this report but affected clients will need to keep records of the payments made to contractors. The required information, including the contractor’s ABN, name, address, and total amounts paid during the financial year (including GST) will normally be contained in the invoices received from the contractors.
Scammers impersonate ATO phone numbers
The ATO is warning that scammers have adopted ‘Robocall’ technology to target taxpayers across the country.
Assistant Commissioner Gavin Siebert said: “Scammers are sending pre-recorded messages in record numbers and are manipulating caller identification so that your phone displays a legitimate ATO phone number despite coming from an overseas scammer”.
“If the scammers do make contact, they will request payment of a tax debt – usually through unusual methods like bitcoin, gift cards and vouchers. Legitimate ways to pay your tax debt are listed on our website. The scammers will threaten you with immediate arrest, attempt to keep you on the line until payment is made and may become rude or aggressive.”
The technique of displaying misleading phone numbers is known as “spoofing” and is commonly used by scammers to make their interactions with taxpayers appear legitimate.
FBT issues on the ATO’s radar
The ATO has updated its list of ‘What attracts our attention’, with six items that specifically relate to fringe benefits tax (‘FBT’), as follows:
- Failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits.
- Incorrectly calculating car parking fringe benefits due to:
- significantly discounting market valuations;
- using non-commercial parking rates; or
- parking rates not being supported by adequate evidence.
- Mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return.
- Claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising.
- Not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates.
- Not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.
FBT: Record-keeping exemption threshold
The exemption threshold for the FBT year commencing 1 April 2019 is $8,714 (up from the amount of $8,552 that applied in the previous year).
FBT: Benchmark interest rate
The benchmark interest rate for the FBT year commencing on 1 April 2019 is 5.37% per annum (up from the rate of 5.20% that applied for the previous FBT year).
This rate is used to calculate the taxable value of:
- a fringe benefit provided by way of a loan; and
- a car fringe benefit where an employer chooses to value the benefit using the operating cost method.
On 1 April 2019 an employer lends an employee $50,000 for five years at an interest rate of 5% p.a. with interest charged and paid six-monthly, and no principal being repaid until the end of the loan.
The actual interest payable by the employee for the current year is $2,500 (i.e., $50,000 x 5%).
However, the notional interest, with a 5.37% benchmark rate, is $2,685, so the taxable value is $185 (i.e., $2,685 – $2,500).
Continued focus on the cash economy
ATO Assistant Commissioner Peter Holt has announced that, in the 2019/20 financial year, the ATO will be visiting a further 10,000 small businesses across the country, including up to 500 small businesses in Tasmania.
He further said that businesses that advertise as ‘cash only’ and businesses that are operating outside of the ATO’s performance benchmarks for their industry will be especially targeted for a visit from the ATO.
“Businesses that pay cash in hand or fail to lodge income tax or business activity statements, get an unfair advantage and make it harder for other businesses who are doing the right thing. By detecting and addressing this behaviour, we’re helping ensure a level playing field for honest small businesses.”
Businesses in the following industries are most likely to get a visit from the ATO:
- Restaurants and cafes;
- Vehicle repairers;
- Personal care businesses including
- hairdressers and nail salons;
- Construction businesses;
- Clothing stores;
- Grocery stores / small supermarkets; and
Whilst on the road, ATO officers will also be available to help those businesses that are trying to do the right thing.
Mr Holt said the ATO will not hesitate to take strong enforcement action against those deliberately avoiding their tax and super obligations and the visits may uncover this deliberate non-compliance.
“If businesses know they have made mistakes we encourage them to let us know and work with us or their tax professional.”
Common errors with new GST withholding rules
The ATO has noticed some common errors made in activity statements since the introduction of “GST at settlement” on 1 July 2018.
These new laws require purchasers to withhold GST on settlement (and pay it to the ATO directly) generally when buying ‘new residential premises’ from developers.
In particular, the new “GST at settlement” law does not affect a supplier’s obligation to lodge their activity statement and report their GST liabilities on taxable supplies in the activity statement period in which settlement occurred.
In addition, suppliers are advised not to report GST that has been withheld at settlement and paid to the ATO by the purchaser.
Instead, a credit for the amount the purchaser withheld and paid will appear on the supplier’s activity statement account once the activity statement is processed.
Latest ATO benchmarks released
The ATO has released updated benchmark data drawn from over 1.5 million small businesses around the country to “help small businesses across the country . . . gauge the strength of their business and keep an eye on their competition”.
Updated benchmarks for more than 100 industries are now available for the following categories:
- Accommodation and food;
- Building and construction trade services;
- Education, training, recreation and support
- Health care and personal services;
- Automotive electrical services;
- Machinery and equipment repair and maintenance;
- Architectural services;
- Veterinary services;
- Retail trade; and
- Transport, postal and warehousing.
The benchmarks are one of the tools the ATO uses to crack down on the black economy, along with data matching and referrals from the community.
“Businesses operating outside the benchmarks may trigger a red flag for businesses we suspect could be engaging in the black economy,” Mr Holt said.
“A frequent red flag is a business reporting minimal profit while the business owner seems to be maintaining a lifestyle far exceeding their personal income.”
“If you use a registered tax professional, it’s also a good idea to have a chat with them about where your business sits in comparison with our benchmarks. They might have some advice about steps you can take to improve your performance.”
ATO warning regarding annual leave loading and OTE
The ATO has recently warned employers that it considers that annual leave loading should normally be part of ordinary time earnings (‘OTE’) for superannuation guarantee (‘SG’) purposes, unless it is referable to a “lost opportunity to work overtime”.
Therefore, if employers have self-assessed on the basis that their annual leave loading is not OTE, and there is a lack of evidence to demonstrate the purpose of the entitlement, there is a risk that they may have historical SG shortfalls and be liable for the SG charge.
However, the ATO acknowledges the uncertainty around this topic, and the evidentiary difficulties in identifying the purpose for annual leave loading entitlements, and will apply a concessional compliance approach where certain requirements are met.
If this is a concern for your business, please contact our office and we can help with your SG obligations and (if necessary) determine whether you will be eligible for the ATO’s concessional compliance approach.
Taxpayer living in serviced apartments overseas not a resident
The Full Federal Court has found that a taxpayer had a “permanent place of abode” in Bahrain, even though he lived in temporary accommodation, and therefore allowed his appeal against a decision that he was a resident of Australia.
This decision confirms that the correct focus of the “permanent place of abode” residency test is whether there has been an abandonment of Australian residence (i.e., to live permanently outside of Australia), rather than whether a person lives in permanent accommodation overseas.
In particular, the Full Court considered that the phrase “place of abode” is not a reference to a person’s house or flat or other dwelling but rather the town or country in which a person is physically residing permanently.
Mostly vacant property still an ‘active’ asset
The AAT has held that a block of land next door to a taxpayer’s main residence, which they used to store materials, tools and other equipment for their business, was still an ‘active asset’ for the purpose of the small business CGT concessions.
The small business CGT concessions can reduce, or eliminate, the tax payable on the sale of an ‘active asset’ (basically, a business asset).
Changes to the small business instant asset write-off
On 29 January 2019, the Prime Minister announced that legislation will be introduced to:
- extend the small business instant asset write-off by 12 months to 30 June 2020; and
- increase the write-off threshold from less than $20,000 to less than $25,000(effective immediately).
The current threshold of $20,000 has applied since 7.30pm AEST on 12 May 2015 and was due to revert to $1,000 on 1 July 2019.
Under the proposed changes, from 29 January 2019until 30 June 2020, small businesses with an aggregated annual turnover of less than $10 millionmay claim an immediate deduction for the business-use portion of each depreciating asset costing less than $25,000.
To illustrate, assume an individual acquires a van for $22,000 (excluding GST entitlements) on 1 February 2019.
The individual is a small business entity and estimates the van will be used 90% for the business and 10% for private purposes.
Under the current rules, while the business-use portion of the cost of the van is less than $20,000 (i.e., $22,000 x 90% = $19,800), an immediate deduction is not available because the entire cost is $20,000 or more.
However, the van may be depreciated as part of the taxpayer’s SBE small business pool.
In contrast, an immediate deduction of $19,800 may now be claimed under the proposed changes, as the entire cost of the van is below the new threshold of $25,000.
This measure is expected to benefit more than 3 million eligible small businesses.
On 13 February 2019, the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was introduced in the House of Representatives.
Once this Bill becomes law, it will open up opportunities for small businesses to claim an immediate deduction for depreciating assets (where they cost less than $25,000) up until 30 June 2020.
Tax scammer alert
The ATO has again warned taxpayers to be alert for scammers impersonating the ATO, as it appears they have changed tactics in 2019.
Specifically, the ATO is seeing the emergence of a new tactic where:
“scammers are using an ATO number to send fraudulent SMS messages to taxpayers asking them to click on a link and hand over their personal details in order to obtain a refund”.
The ATO has received reports of scammers maliciously manipulating the calling line identification so the phone number that appears is different to the number from which the call originated.
This is referred to as “spoofing” and is a common technique used by scammers to appear legitimate.
It appears these scams aim to steal taxpayers’ personal details and identities.
The ATO has advised it will not:
- send an email or SMS asking a taxpayer to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
- use aggressive or rude behaviour, or threaten taxpayers with arrest, jail or deportation;
- request payment of a debt via iTunes or
Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
- request a fee in order to release a refund owed to taxpayers.
If you are unsure about a call, text message or email purportedly received from the ATO, the best advice is not to reply.
Should you have any concerns, please contact our office directly, or alternatively you can call the ATO on 1800 008 540 to check if the contact was legitimate or to report a scam.
Non-compliant payments to workers
The rules for claiming deductions for payments to workers are changing.
From 1 July 2019, businesses can only claim deductions for certain payments made to workers wherethey’ve met the Pay As You Go (‘PAYG’) withholding obligation for that payment.
Specifically, a business can only claim a deduction for the following payments if it complies with the relevant PAYG withholding rules:
- Salary, wages, commissions, bonuses or allowances to an employee.
- Directors’ fees.
- Payments to a religious practitioner.
- Payments made under a labour hire arrangement.
- Payments made for a supply of services (except from supplies of goods and real property) where the contractor has not provided their ABN.
Where the PAYG withholding rules require an amount to be withheld, the business must:
- withhold the amount from the payment before they pay their worker; and
- report that amount to the ATO.
Importantly, a deduction will not be lost if an incorrect amount is withheld (or reported) by mistake.
What’s new for Australian business
The ATO has recently reminded small businesses of the expanded tax concessions potentially available to them, as outlined below:
- The pending increase in the small business instant depreciating asset write-off to less than $25,000(as discussed in further detail above).
- Accelerated depreciation deductions for primary producers for eligible fodder storage assets, as well as for fencing and water facilities.
- Assistance for primary producers impacted by drought at Drought Help, or by contacting the ATO on 1800 806 218.
- A lower company tax rate of 5%for companies qualifying as a Base Rate Entity (‘BRE’).
- Increased Small Business Income Tax Offset (‘SBITO’) for eligible sole traders and individual partners and beneficiaries.
Finally, the ATO has reminded taxpayers that more businesses are now eligible for most small business tax concessions.
Specifically, from 1 July 2016, a range of small business tax concessions became available to all businesses with an aggregated turnover of less than $10 million(i.e., the turnover threshold).
Previously the turnover threshold was less than $2 million. The $10 million turnover threshold applies to most concessions, except for:
- the SBITO – which has a $5 millionturnover threshold from 1 July 2016; and
- the small business CGT concessions – which continue to have a $2 millionturnover threshold.
Note: The relevant turnover threshold for accessing the lower company tax rate is $50 millionfrom the 2019 income year (increased from $25 million in the 2018 income year).
Division 293 assessments
The ATO has been issuing ‘Additional tax on concessional contributions (Division 293) assessments’ with respect to liabilities relating to the 2018 income year.
Division 293 imposes an additional 15%tax on certain concessional (i.e., taxable) superannuation contributions.
It applies to individuals with income and concessional superannuation contributions exceeding the relevant annual threshold.
This means that impacted individuals may ultimately pay 30% tax(when the Division 293 tax is combined with the existing 15% contributions tax) with respect to:
- superannuation contributions made on their behalf as a result of employer super guarantee obligations or effective salary packaging arrangements; or
- personal deductible contributions.
The ATO reportedly expects to issue about 90,000 assessments during the first two months of 2019.
Payment needs to be made by the due date to avoid any additional interest charges, although alternative payment methods are available (including the ability to release money from any existing super balances).
More individuals will receive Division 293 assessments (and be required to pay the additional 15% tax) for the 2018 financial year due to a drop in the applicable threshold from $300,000 to $250,000.
Additionally, one of the key ALP tax policies for the upcoming Federal Election includes a further reduction of this Division 293 threshold from $250,000 to $200,000.
Claims for home office expenses increased
The ATO has updated the hourly rate taxpayers can use to determine deductions for home office expenses from 45 cents to 52 cents per hourfor individual taxpayers, effective 1 July 2018 (i.e., from the 2019 income year).
According to the ATO’s recently updated PS LA 2001/6, individual taxpayers who claim deductions for either work or business-related home office running expenses may either:
- claim a deduction for the actual expenses incurred; or
- calculate the running expenses at the rate of 52 cents per hour.
Taxpayers who use the rate per hour method to claim a deduction for home office running expenses only need to keep a record to show how many hours they work from home.
This reduced substantiation requirement can be recorded either:
- during the course of the income year; or alternatively
- they can keep a representative four-week diary (where their work from home hours are regular and constant).
The Mid-Year Economic and Fiscal Outlook (‘MYEFO’) report was recently released.
It indicates that the underlying Budget deficit is expected to be $5.2 billion in 2019 (down from the $14.5 billion deficit estimated in the 2018/19 Federal Budget).
The substantial deficit reduction is reportedly a result of increased tax collections, with individual tax collections up $4.1 billion and company tax collections up $3.4 billion.
Additionally, the MYEFO report also provides a useful snap shot of what the Government is thinking when it comes to tax policy – particularly where previously announced reforms are still pending.
A few tax-related policy updates confirmed in the MYEFO worth mentioning include the following:
- GST compliance program – The Government is looking to provide $467 million of ATO funding from 2020 to 2024 to fund additional GST-related audits and the development of analytical tools to combat emerging risks to the GST system.
- $10,000 cash payment limit –The Government will delay the introduction of an economy-wide cash payment limit of $10,000 from the originally proposed 1 July 2019 start date, until 1 July 2020.
- Abandonment of the proposed changes to intangible asset depreciation –The Government has announced it will not be proceeding with the current proposal to allow taxpayers to self-assess the effective lives of certain intangible depreciating assets.
- Super access for victims of crimes–The Government proposes to introduce legislation to allow victims of certain crimes (i.e., serious violent crimes) access to their perpetrator’s superannuation to pay any outstanding compensation.
- Increasing the integrity of limited recourse borrowing arrangements (‘LRBAs’) –The Government is making an adjustment to the previously announced reforms requiring outstanding balances of LRBAs to be included in a member’s total superannuation balance by extending the start date and limiting impacted taxpayers.
- Superannuation guarantee (‘SG’) penalty increase – Where employers fail to come forward during the 12-month SG amnesty, the Government is proposing to increase the minimum penalty from 50% to 100% of the Superannuation Guarantee Charge.
Note the required legislative amendments needed to implement the tax concessions promoted by the ATO under the SG amnesty (at the time of writing) is yet to be passed by Parliament.
This is despite the fact that the Government’s proposed SG Amnesty is meant to run from 24 May 2018 to 23 May 2019.
Taxation of income for an individual’s fame or image
The Government has released a consultation paper with respect to the implementation of the 2018/19 Federal Budget announcement relating to the direct taxation of an individual’s fame or image at their marginal tax rates.
The proposed reform aims to ensure that all remuneration (including both cash and non-cash benefits) provided for the commercial exploitation of a person’s fame or image will be included in their assessable income.
These reforms reflect the Government’s concern that high-profile individuals (including sportspersons, actors and other celebrities) have been ‘taking advantage’ of lower tax rates by licencing their fame or image to another (generally related) entity for the purpose of tax-effective income splitting.
Following the Federal Budget announcement, the ATO withdrew its draft Practical Compliance Guideline PCG 2017/D11 (the ‘draft PCG’).
The draft PCG had set out a 10% safe harbourfor apportioning lump sum payments for the provision of a professional sportsperson’s services and the use and exploitation of their ‘public fame’ or ‘image’ under licence.
In withdrawing the draft PCG, the ATO advised that for the period up to 1 July 2019, it will not seek to apply compliance resources to review an arrangement complying with the terms of the draft PCG if it was entered into prior to 24 August 2018 (i.e., being the date the draft PCG was withdrawn).
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.
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- From The Director
- Practical Updates
- 2013 Practical Updates
- 2014 Practical Updates
- 2015 Practical Updates
- 2016 Practical Updates
- 2017 Practical Updates