Category Archives: Individual News

Treasury has released a consultation paper entitled Targeted amendments to the Division 7A integrity rules, outlining the Government’s proposed reforms to Division 7A.
Division 7A is a tax integrity measure designed to ensure that certain taxpayers (i.e., shareholders of private companies and their associates) cannot directly access funds taxed at the applicable company tax rate.
Specifically, where a company makes a payment or otherwise lends to or provides assets for the private use of shareholders and/ or their associates, Division 7A will generally treat such amounts as unfranked dividends, which are taxable in the hands of the recipient.

These include (amongst other things):

  • simplified Division 7A loan rules; and
  • legislative clarification that unpaid present entitlements (‘UPEs’) come within the scope of Division 7A.

The proposed amendments are intended to apply from 1 July 2019. Arguably, if enacted, these changes will be the most significant tax reforms to impact business and investment clients over the next two years.
In particular, the proposed reforms relating to the new ‘simplified’ Division 7A loan rules will require both taxpayers and the practitioners who advise them to adjust their traditional approach to such loan arrangements and internal cash flow funding.

New 10-year Division 7A loans
Currently, the rules allow Division 7A amounts to be converted into one of two types of loans, being either:

  • a seven-year loan; or
  • a 25-year loan where the loan is appropriately secured.

Following the implementation of the proposed amendments as outlined in the consultation paper, a new single loan model will apply, with the following features:

  • A maximum term of 10 years.
  • The annual benchmark interest rate will be the Small business; Variable; Other; Overdraft Indicator Lending rate (which is generally higher than the current Division 7A rate).
  • No formal written loan agreement will be required, although written or electronic evidence showing that the loan was entered into must exist by the lodgement day of the private company’s income tax return.
  • The minimum yearly repayment amount will still consist of both principal and interest, however:
  • The principal component would be a series of equal annual payments over the term of the loan (e.g., Principal repayments of $10,000 would be required in each year for a $100,000 loan);
  • The interest component would be calculated on the opening balance of the loan each year; and
  • Interest would be calculated for the full income year, regardless of when the repayment   was made during the year (except for Year 1, when interest is always proposed to be calculated based upon the loan outstanding at lodgement day).

Transitional rules for existing Division 7A loans
Transitional rules are also proposed to allow taxpayers that have existing seven or 25-year loans to transition to the new 10-year loan model, as follows:

  • Seven-year loans – All complying seven year loans in existence as at 30 June 2019 will be required to comply with the new proposed loan model and the new benchmark interest rate (with their existing outstanding term).
  • 25-year loans – All complying 25-year loans in existence as at 30 June 2019 will be exempt from the majority of changes until 30 June 2021, except the interest rate payable for these 25-year loans during this proposed transitional period must equal or exceed the new benchmark interest rate.

On 30 June 2021, it is proposed the outstanding value of any 25-year loans will give rise to a deemed dividend unless a complying 10-year loan agreement is put in place prior to the lodgement day of the relevant 2021 company tax return.

Other significant Div. 7A reforms
Other significant reforms include:

  • Special transitional rules to apply to traditionally quarantined pre-1997 loans that have not already been forgiven and have been reported on the tax return;
  • The removable of the concept of distributable surplus; and
  • An extension of the period of review to account for a deemed dividend to a proposed 14 years!

Division 7A and UPEs
A UPE is created where a trust makes a private company presently entitled to a share of its income for a year, but does not pay that entitlement out in full.
Since 16 December 2009, the Commissioner has taken the view that UPEs owing to companies are generally within the scope of Division 7A, unless the funds representing the UPE are held for the sole benefit of the private company. Refer to TR 2010/3.

Under the current treatment, this means that UPEs owing to company beneficiaries (e.g., ‘bucket’ companies) either need to be:

  • paid to the relevant beneficiary;
  • put on complying Division 7A terms; or n held under a ‘sub-trust arrangement’, such that the funds are held for the sole benefit of the private company (e.g., on seven or 10-year interest-only terms as outlined in PS LA 2010/4).

Following the introduction of the proposed amendments, a UPE will be a deemed dividend from the relevant corporate beneficiary to the trust unless:

  • the UPE is paid by the trust to the private company in full; or
  • the UPE is put on ‘complying loan terms’ (under which principal and interest payments will be required to be made over a maximum period of 10 years);

by the lodgement day of the company’s income tax return for the relevant income year.
The intention of this change is for UPEs to be treated consistently with other payments made by private companies.

Transitional rules for existing UPEs
The application of the proposed Division 7A treatment of UPEs will depend on when the UPE first arose, as follows:

  • UPEs arising on or after 16 December 2009 and on or before 30 June 2019, that have not already been put on complying Division 7A loan terms or deemed to be a dividend, will need to be put on complying terms by 30 June 2020.

Any amounts outstanding will result in a deemed dividend.

  • All corporate beneficiary UPEs that arise on or after 1 July 2019 will need to be either:

 – paid to the private company; or
 – put on complying loan terms under the new 10-year loan model prior to the private company’s lodgement day.
Otherwise, they will be deemed to be a dividend in the year the UPE arose.
Ref: Treasury consultation paper: Targeted amendments to the Division 7A integrity rules

It’s tax time 2018! What you need to know about the key changes

It’s that time of year again – tax return time!

Before you complete your tax return for 2018, here are some key dates, changes and information that you should be aware of in case they affect you.

5 tax time changes that may affect you

Several new tax time-related changes have happened since last year. Here are just five of them to be aware of.

1. First home super saver scheme

The first home super saver (FHSS) scheme allows you to save money for your first home inside your superannuation fund.

From 1 July 2017, you can make voluntary concessional (before-tax) and non-concessional (after-tax) contributions into your super fund to save for your first home.

From 1 July 2018, you can then apply to withdraw your voluntary contributions to help you purchase your first home.

Note! You can only request a release of amounts under the FHSS if you are:

  • 18 years old or older;
  • never owned property in Australia; and
  • have not previously requested the ATO to issue a FHSS release authority in relation to the scheme.

2. Personal income tax plan

From 1 July 2018:

This will reduce the amount of tax withheld from your pay.

  • A new low and middle-income tax offset is available to individuals with a taxable income less than $125,334.

This offset won’t reduce the amount of tax withheld from your pay – it will be a one-off amount applied to your Notice of Assessment to reduce the overall amount of tax you have to pay.

3. Cryptocurrency

If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.

Usually, a CGT event occurs when you dispose of your cryptocurrency. If you make a capital gain when you dispose of your cryptocurrency, some or all of the gain might be taxable.

Cryptocurrency as an investment: If you held cryptocurrency as an investment, any capital gain you make would usually be taxable.

Cryptocurrency as a personal use asset: Personal use of cryptocurrency is not subject to income tax or GST in Australia. Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption. In this case, any gain you make on disposing of cryptocurrency that is a personal use asset would usually be disregarded for tax purposes.

Cryptocurrency in a business: If you carry on a business that involves transacting in cryptocurrency, the trading stock rules rather than the CGT rules may apply. In this instance, gains made on disposing of cryptocurrency would be ordinary income rather than a capital gain. However, you would first need to check whether you are carrying on business and that you are holding the cryptocurrency for sale or exchange in the ordinary course of your business before the trading stock rules will apply.

Note! The tax treatment of the gains or losses you make from disposing cryptocurrency will depend on the circumstances in which you are holding it. Your tax adviser will be able to assist you to work out the correct tax treatment of your gains and losses.

Tip!

  • Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.
  • If you have dealt with a foreign exchange and/or cryptocurrency there may also be tax consequences for your transactions in the foreign country.

4. Tax deductions for personal super contributions

Eligibility rules for claiming a deduction for personal super contributions have changed.

From 1 July 2017, most taxpayers under 75 years old (including those aged 65 to 74 who meet the work test) are able to claim a deduction for personal super contributions regardless of their employment arrangement.

5. Super contributions – changes to tax offset for spouse contributions

From 1 July 2017, the spouse income threshold increased from $10,800 to $37,000. This means that more people are eligible to claim the tax offset for the 2017-18 and future financial years.

You can claim the maximum tax offset of $540 if:

  • you contribute to the eligible super fund of your spouse, whether married or de-facto, and
  • your spouse’s income is $37,000 or less.

The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.

You will not be entitled to the tax offset when your spouse receiving the contribution:

  • exceeds their non-concessional contributions cap for the relevant year, or
  • has a total superannuation balance equal to or exceeding the general transfer balance cap ($1.6 million for 2017-18) immediately before the start of the financial year in which the contribution was made.

What’s on the ATO’s radar this tax time?

The ATO is paying close attention to a few expenses this year. Find out what is attracting the ATO’s attention.

Clothing and laundry claims

The ATO is closely examining claims for work-related clothing and laundry expenses this year.

You can legitimately claim work-related clothing and laundry if you were required to wear either a uniform that is unique and distinct to your employer, protective or occupation specific clothing.

Did you know?

  • Last year, around 6 million people claimed work-related clothing and laundry expenses which totalled nearly $1.8 billion.
  • Around a quarter of these clothing and laundry claims were exactly $150, which is the threshold over which taxpayers are required to keep detailed records to support their claims.

Tip!

  • The $150 limit is there to reduce the record-keeping burden and is not an automatic entitlement for everyone.
  • The ATO’s technology and access to data is improving every year – be careful about what you claim, and always be ready to substantiate your claims!

Shares and capital gains

The ATO is also paying close attention to taxpayers who have sold or transferred shares and the amount they are reporting as capital gains. Speak to your tax adviser for more information.

Claims for work-related car expenses

The ATO is concerned about taxpayers making mistakes or deliberately lodging false claims in relation to work-related car expenses this tax time.

This year, the ATO will be particularly focused on people claiming things they’re not entitled to. For example, claiming things like home to work travel or other private trips; making claims for trips that they didn’t do or claiming expenses that their employer has already paid for or reimbursed.

Did you know?

  • Last year around 3.5 million people made a work-related car expense claim, and together they totalled about $8.8 billion.

Note!

  • The ATO uses analytics to identify unusual claims being made by taxpayers by comparing them to their peers – those who are in similar occupations, earning similar amounts of income.
  • The analytics are also used to identify claim patterns. For example, the ATO were able to identify that over 800,000 people claimed exactly 5,000 kilometres under the cents per kilometre method last year.

Unusual behaviours and characteristics

Broadly, the following behaviours and characteristics may attract the ATO’s attention:

  • tax or economic performance is not comparable to similar businesses
  • low transparency of your tax affairs
  • large, one-off or unusual transactions, including the transfer or shifting of wealth
  • aggressive tax planning
  • tax outcomes inconsistent with the intent of the tax law
  • choosing not to comply or regularly taking controversial interpretations of the law, without engaging with the ATO
  • lifestyle not supported by after-tax income
  • accessing business assets for tax-free private use poor governance and risk-management systems.

Common lodgment mistakes and how to avoid them

According to the ATO, the most common mistakes when it comes to completing tax returns are:

  • Leaving out income, either deliberately or inadvertently

This often includes income from casual or temporary work and money earned through the sharing economy. Ensure you are including all income in your tax return and not just relying on pre-fill information.

  • Claiming deductions for personal expenses which cannot be claimed even though they may have some remote connection with work

This would include:

  • Travel from home to work;
  • Normal clothes which don’t qualify as uniforms;
  • Phone calls made that relate to their personal affairs, albeit on a phone which is also used for work-related purposes. In this case, an apportionment on a reasonable basis is almost certain to be accepted by the ATO.
  • Not having records of an appropriate kind to substantiate expenses which exceed the minimum amount for which expenses must be substantiated

This can include not obtaining an appropriate receipt or record of the expense, or not keeping receipts appropriately in case they are asked to be produced at a later time.

  • Claiming an amount for something which was never paid

There is no such thing as a standard deduction under Australian law as currently drafted. The idea that everyone is entitled to a standard deduction, usually in the amount of $300 is wrong.

In relation to an expense where substantiation is not required, because the amount in question in total is less than $300, it does not mean that a taxpayer can never be asked to prove that the expense was incurred or that it was incurred for purposes related to their work. It simply means that a detailed tax invoice or receipt is not necessary.

Note!

  • The ATO can still challenge a $200 expense, in relation to which substantiation was not required, on the basis either that no expense was incurred, the amount claimed was more than the expense that was incurred, or that the expense that was incurred had nothing to do with work.
  • How you go about proving the expense was incurred, its magnitude and its relevance to work will vary from case to case.
  • Claiming personal expenses for rental properties

You cannot claim a deduction for rental expenses in relation to a property where, during certain times of the year, that property is being used by the taxpayer for their personal use. In such a case, an appropriate apportionment of the rental expenses is essential.

4 golden rules to claiming work-related deductions

  • You must have spent the money;
  • The expenditure must not have been reimbursed to you either directly or indirectly;
  • The expense must be directly related to earning your income; and
  • You must have some sort of record to prove that the expense was incurred (which can be produced if asked).

Note!

  • There is no such thing as a standard deduction! For example, if you claim a total of $250 as work-related expenses, you can be asked to provide evidence to show the money was spent.

If you can’t provide evidence that you actually spent the money, the ATO can deny the deduction on the basis that you’ve failed the fourth golden rule – which is that they need a record to demonstrate that you have spent the money. This is so even though the total is less than $300.

Claiming deductions? Top 10 myths busted

The ATO has identified the top 10 tax myths it says are causing incorrect claims.

  • Myth 1: Everyone can automatically claim $150 for clothing and laundry, 5000 kilometres for car related expenses, or $300 for work-related expenses, even if they didn’t spend the money
  • Myth 2: I don’t need a receipt, I can just use my bank or credit card statement
  • Myth 3: I can claim makeup that contains sunscreen if I work outside
  • Myth 4: I can claim my gym membership because I need to be fit for work
  • Myth 5: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday
  • Myth 6: I can claim my work clothes because my boss told me to wear a certain colour
  • Myth 7: I can claim my whole Netflix or Foxtel subscription because I need to keep up to date for work
  • Myth 8: I can claim home-to-work travel because I need to get to work to earn my income
  • Myth 9: I’ve got a capped phone plan, so I can claim both personal and private phone calls
  • Myth 10: If I use an agent, they will take responsibility for my claims.  

Lodgment deadline

The deadline for lodging your tax return for the 1 July 2017 to 30 June 2018 fiscal year is 31 October 2018.

If you use a registered tax agent, the deadline for lodging your tax return is generally later. Your tax agent will consult with you about this and let you know.

ATO’s processing timelines

The ATO started full processing of 2017-18 tax returns on 6 July 2018 and started paying refunds from 17 July 2018.

  • If you lodged electronically, you can expect that the ATO will process your tax return within 12 business days of receipt;
  • If you lodged by paper, you can expect that the ATO will process your tax return within 50 business days of receipt.

What might delay a return?

Processing may be delayed if your tax return contains incorrect or incomplete details. Common examples of delayed returns are because:

  • the ATO has identified omitted income;
  • the ATO needs to cross-check data provided by third parties;
  • a tax file number (TFN) has been compromised;
  • you have a debt obligation with the ATO.

Tip!

  • Check any pre-filled information against your own records. You can amend or delete your pre-filled information if you have more up-to-date information.
  • You could also contact the organisation providing the data and resolve any discrepancies before lodging your return.

What happens if an inadvertent error occurs?

From 1 July 2018, the ATO will not apply a penalty to tax returns and activity statements where you have made an inadvertent error in your tax return by failing to take reasonable care or have not taken a reasonably arguable position.

Penalty relief doesn’t apply to everyone. For example, wealthy individuals and their businesses or associates of wealthy individuals that may be classified as a small business entity in their own right are not eligible.

It is only available to individuals and entities with a turnover of less than $10 million. The entities can be:

  • small businesses
  • self-managed super funds (SMSFs)
  • strata title bodies
  • not-for-profit (NFP) organisations
  • co-operatives.

Note!

  • Your tax adviser cannot apply for penalty relief for you. The ATO will provide it during an audit if you are eligible.
  • Penalty relief will be available once every three years at most.

Rental property deductions – the do’s and don’ts!

Do you own a rental or investment property? If the answer is yes and you are thinking of buying one, read on for the do’s and don’ts, and other helpful information to help you with your tax obligations.

What expenses can you claim?

Did you know that in Australia, there are over 2 million people who claim some $46 billion in rental property deductions in their tax returns?

The lion’s share of the available tax deductions is generally the interest portion of a mortgage connected with the property.

However, other costs can be claimed on an immediate basis provided that they have been incurred by the relevant taxpayer, and they have not been recouped from elsewhere, such as a payment from the tenant.

Items that can be claimed include:

  • advertising for tenants;
  • bank charges;
  • body corporate fees and charges/strata levies;
  • cleaning costs;
  • council rates;
  • depreciation (including certain capital works);
  • electricity and gas;
  • gardening and lawn mowing services;
  • in-house audio/video service charges;
  • insurance (including building contents and public liability);
  • land tax;
  • letting fees;
  • pest control services;
  • property agent’s fees and commission;
  • quantity surveyors’ fees;
  • secretarial and bookkeeping fees;
  • security patrol fees;
  • servicing costs (eg costs of servicing a water heater);
  • stationery and postage costs;
  • tax-related expenses;
  • phone calls and rental costs;
  • water rates.

What expenses can’t you claim?

You cannot claim expenses which are:

  • of a capital nature or of a private nature;
  • related to the acquisition and disposal of the relevant property;
  • body corporate payments to a special purpose fund to pay a particular capital expenditure;
  • expenses which are not actually incurred by the taxpayer – eg water and electricity charges paid by the tenants;
  • expenses that are not related to the rental of a property – eg expenses connected to a holiday home that is rented out for part of the year.

A few tips…

  • Keep good records and receipts!

An absence of receipts will make life difficult if an ATO audit calls for proof of the expense claimed.

  • Your property must either be rented or “genuinely available" for rental in the income year for which a deduction is claimed.

If you use the property for private purposes, you cannot claim expenses.

  • You must demonstrate a clear intention to rent out the property.

If no attempt is made to advertise the property, or the rent is set at an unrealistically high non-commercial level such that it could not on any reasonable basis be rented out, the ATO is likely to take the view that there was no intention to rent out the property, and the rental claims will be disallowed.

  • Rental expenses, in some situations, need to be apportioned.

This usually arises in the context of holiday homes, where either you or your family or friends, can stay in the property free of charge for part of the year.

To the extent that the expenses relate to that part of the year during which the property is not rented or available for rent, you are not entitled to a deduction for costs incurred during those relevant periods.

Note!

  • If your property is rented to family or friends for less than arms-length market rental, the ATO may treat the arrangement as being of a private nature, and could only allow you to claim sufficient deductions to offset the rent, but not so as to make a tax loss.
  • You are no longer able to claim any deductions for the cost of travel relating to inspecting, maintaining, or collecting rent for a residential rental property.

You can only claim travel deductions if you are carrying on a business of property investing or are an excluded entity (ie a corporate tax entity, public unit trust etc).

  • Plant and equipment depreciation deductions will be limited.

If residential investment properties were purchased after 9 May 2017, plant and equipment depreciation deductions will be limited only to outlays actually incurred by the investor.

Tip!

  • All these various rules can give rise to some complex outcomes. Where investment property is involved, it can be worthwhile obtaining the professional advice of a competent tax agent who can reliably advise on what can and cannot be claimed as a deduction.

Things you need to know about donating to drought relief

As the drought in Australia continues, many Australians have started donating to charities or relief funds to help those who are most in need of help. Many Australians have also started raising funds or donating through crowdfunding platforms.

Tip! There are tax implications associated with donating or raising funds. If you are planning to donate, direct your generosity to registered charities or organisations that are deductible gift recipients (DGRs) and are focussed on rural assistance.

Donating to drought relief?

Donations of $2 or more will be tax deductible only where donations are made through an organisation that is a DGR.

To claim a tax deduction for a donation or gift, it must meet four conditions:

  • The gift must be made to a DGR. Check whether your donation was made to an endorsed DGR on the ABN Lookup website.
  • The gift must truly be a gift. A gift is a voluntary transfer of money or property where you receive no material benefit or advantage.
  • The gift must be money or property, which includes financial assets such as shares.
  • The gift must comply with any relevant gift conditions. For some DGRs, the income tax law adds extra conditions affecting types of deductible gifts they can receive.

Note! You cannot claim a tax deduction for donations made to crowdfunding platforms if they are not a DGR.

What is drought assistance crowdfunding?

Crowdfunding is the practice of using internet platforms, mail order subscriptions, benefit events and other methods to find supporters and raise funds for a project or venture.

Drought assistance crowdfunding is when someone is planning to raise funds through crowdfunding platforms to assist those affected by the current drought.

If you’re involved in crowdfunding – regardless of your role – you need to be aware of the tax consequences. These vary depending on the nature of the arrangement, your role in it and your circumstances.

There are usually three parties (or roles) in a crowdfunding arrangement:

  • the initiator of the project or venture or the campaign creator (who may act in a personal capacity or use a company or organisation as the vehicle to progress the crowdfunding project or venture) known as the ‘promoter’
  • the organisation providing the crowdfunding website or platform, known as the ‘intermediary’
  • individuals or entities that contribute or pledge money, known as ‘contributors’.

Each party may have income tax and GST obligations, depending on their circumstances and the nature of the crowdfunding arrangement.

Are you raising funds through crowdfunding?

If you are planning to raise funds through crowdfunding platforms, you need to be aware of the potential tax implications.

Payments you receive from crowdfunding platforms may be assessable income depending upon how the funds are used. For example:

  • where the amounts received are used for emergency relief, such as food and clothing, then these amounts are not assessable;
  • where the amounts are spent on deductible expenses, such as purchasing feed for livestock, there should be no net taxable outcome if all the money is spent on deductible expenses, as the income amounts should be offset by the deductions obtained.

This means, for most farmers, there should be no tax payable in relation to money donated to them for their farm expenses. Income tax will likely be payable should the farmer make a net business profit.

Note! Crowdfunding amounts will only be assessable if they are intended for use in the business rather than for emergency relief purposes, such as food and clothing. Check with your tax adviser about the tax implications for your particular circumstances.

Tip!

  • It is important to determine whether the money you receive through crowdfunding is income and whether you need to consider GST.
  • If it is income, you will need to include it in your tax return and there may be deductions you can claim. Speak to your tax adviser who can explain the GST requirements if you are subject to GST on transactions.

Attention all car owners! You must declare what you share

Do you earn income through car sharing platforms? If you do, it is important to include the income – no matter how little – in your tax return. It’s no different to anyone else renting out an asset, like a house or a car park. You must declare the income and you cannot avoid tax by calling it a hobby.

The growing popularity of third party services (eg Car Next Door, Carhood or DriveMyCar Rentals) has prompted the ATO’s interest.

Note! The ATO has sophisticated systems and data to help identify where sharing platforms are being used to generate income.

Deductions that car sharers can claim

The good news is that individuals who rent their vehicle are entitled to claim some deductions. The expenses claimed must relate directly to the renting, hiring or sharing of your car, and accurate records such as receipts must be maintained to back up all claims.

Car sharers can claim deductions for expenses like:

  • platform membership fees;
  • availability fees;
  • cleaning fees; and
  • car running expenses.

However, a deduction can only be claimed for cleaning and running expenses if you are responsible for them under your car sharing agreement. For example, different agreements require either the car borrower or the car owner to bear the costs of refuelling the car.

Do you use your car for private travel?

If you use your car for your own private travel, you will need to exclude all the related costs.

If you own a car jointly, you will need to declare income and claim expenses in proportion to your share of ownership. You must declare the income and claim the deductions in proportion to your ownership interest.

Note! You cannot claim for expenses related to a car that you salary sacrificed.

Tip! Keep good records to help ensure you declare the right amount of income and have evidence for claims made. Your sharing platform should be able to provide you with accurate records of the income and the kilometres travelled for sharing purposes, which would form a good basis for your deductions.

Renting or hiring your car and GST reporting

If you are registered for GST, you must account for it on the extra income you have earned. If you are not registered for GST but your turnover from all of your enterprises is $75,000 or more per year, you need to register for and report GST.

If you report GST, you should also be able to claim credits on the GST included in the price for things you purchase for renting or hiring your car.

Key tax dates

 

Date

 

Obligation

21 Sep 2018

Aug monthly BAS due

22 Oct 2018*

Sep monthly BAS due

29 Oct 2018*

Sep quarter SG due
Sep quarterly BAS due
Sep quarter PAYG instalment due

31 Oct 2018

2018 income tax return due

21 Nov 2018

Oct monthly BAS due

28 Nov 2018

Sep quarter SG charge statement due

21 Dec 2018

Nov monthly BAS due

* Actual due date falls on a Sunday.

DISCLAIMER

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

Investing in Bitcoin? Know the tax implications

A bit confused about Bitcoin? What is it and what does tax have to do with it?

Here, we share a few key facts and the tax consequences that may arise if you are thinking about investing (or have already invested) in Bitcoin.

Note! Any reference to Bitcoin in this article refers to cryptocurrency, or other crypto or digital currencies that have the same characteristics as Bitcoin.

Cryptocurrency (and Bitcoin) explained

Bitcoin was the first cryptocurrency but now, it is just one of many types of cryptocurrencies. As at 2017, there were around 1,100 different cryptocurrencies in existence.

Cryptocurrencies are a type of global digital currency that uses encryption techniques to buy or sell items. Where traditional currencies are regulated by a central bank, Bitcoin is an unregulated currency. Each transaction is registered on a shared public ledger called a ‘blockchain’.

Tip! Be aware of tax scammers impersonating the ATO and demanding Bitcoin or other cryptocurrency as a form of payment for fake tax debts. Cryptocurrency operates in a virtual world, and once the scammers receive payment, it is virtually impossible to get it back.

Is Bitcoin money or an asset?

The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is treated as an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes.

Capital gains tax implications

CGT ‘events’ are the different types of transactions that may result in a capital gain or capital loss. A CGT event happens when you dispose of your cryptocurrency.

Disposing of your cryptocurrency means:

  • selling, trading or exchanging your cryptocurrency;
  • converting it to Australian dollars; or
  • using it to obtain goods or services.

If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

What if you acquire Bitcoin as a personal use asset?       

Personal use of cryptocurrency is not subject to income tax or GST in Australia.

Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Note!

  • Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
  • All capital losses you make on personal use assets are disregarded.

What if you acquire Bitcoin as an investment?

If you acquire Bitcoin as an investment, it means you have kept or used your cryptocurrency in a profit-making scheme or in the course of carrying on a business.

The tax consequences are:

  • you may have to pay tax on any capital gain you make on disposal of the cryptocurrency;
  • you will not be entitled to the personal use asset exemption;
  • if you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.

Tip! You must keep records of:

  • the date of transactions
  • the value of the cryptocurrency in Australian dollars at the time of the transaction
  • what the transaction was for and who the other party was.

Claiming deductions if you’re carrying on a business?

Examples of businesses that involve cryptocurrency include:

  • cryptocurrency traders
  • cryptocurrency mining businesses
  • cryptocurrency exchange businesses (including ATMs).

In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you receive money or property in the ordinary course of your business.

If these gains or profits are ordinary income, you may be able to claim deductions. Any capital gains you make are reduced to the extent that they are also ordinary income.

Note! Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income.

A reminder to SMSF trustees investing in Bitcoin

While self-managed superannuation funds (SMSFs) are not prohibited from investing in Bitcoin and other cryptocurrencies, trustees are reminded that the investment must:

  • be allowed for under the fund’s trust deed
  • be in accordance with the fund’s investment strategy
  • comply with regulatory requirements concerning investment restrictions.

ATO cracking down on your work-related expenses!

Did you know that the ATO scrutinises every tax return?

This year, the ATO is cracking down on taxpayers claiming incorrect ‘other’ work-related expenses. It’s important to make sure you don’t claim more than you are entitled to!

The ATO uses real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.

4 quick points to remember when claiming work-related expenses

To claim work-related expenses, keep in mind these 4 points:

  • You must have spent the money yourself.
  • You were not reimbursed for the money spent.
  • The expense must be directly related to earning your income.
  • You must have a record to prove it.

Work expenses reimbursed to you by your employer are not deductible in your personal income tax return. The ATO can seek information from your employer if it suspects you have claimed as a deduction an expense for which you have already been reimbursed.

Tip! If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

11 deductions you (probably) can’t claim

  • Trips between home and work. Generally, you can’t claim a deduction for these because they’re considered private travel.
  • Car expenses for transporting bulky tools or equipment, unless:
  • you need to use your bulky tools to do your job
  • your employer requires you to transport this equipment
  • there is no secure area to store the equipment at work.
  • Car expenses that have been salary sacrificed.
  • Meal expenses for travel, unless you were required to work away from home overnight.
  • Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.
  • Everyday clothes you bought to wear to work (e.g. a suit), even if your employer requires you to wear them.
  • A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.
  • Higher education contributions charged through the HELP scheme.
  • Self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count.
  • Private use of phone or internet expenses – only the work-related portion counts.
  • Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years, which is called depreciation. ■

Claiming the cost of repairs on a rental property? What you can and can’t claim

Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.

The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.

Repairs vs maintenance

Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).

Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).

Tip!

  • If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
  • If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.

Expenses that you can immediately deduct

You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.

If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.

Expenses for which you may be entitled to claim an immediate deduction include:

  • advertising for tenants
  • body corporate fees and charges
  • council rates
  • water charges
  • land tax
  • cleaning
  • gardening and lawn mowing
  • pest control
  • insurance (building, contents, public liability)
  • interest expenses
  • property agent’s fees and commission
  • repairs and maintenance
  • some legal expenses

Expenses that you can’t immediately deduct

You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).

These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

Note!

Improvement means work that:

  • provides something new
  • furthers the income-producing ability or expected life of the property
  • changes the character of the item you have improved
  • goes beyond just restoring the efficient functioning of the property.

How this works!

Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.

The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure.

However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used.

Tip!  If you invest in a rental property, you’ll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return. ■

Are you risking your retirement savings?

If you’re planning for your retirement, don’t risk your nest egg by getting involved in arrangements that are at odds with tax and superannuation laws!

The ATO has identified a range of new arrangements that are directed towards minimising or avoiding tax. They are designed to help individuals and other related entities to minimise their tax bill by channelling money inappropriately through SMSFs.

If you are involved in an illegal arrangement, you can face severe penalties under tax and super laws. You could lose your retirement savings or your rights, as a trustee, to manage your own super fund.

Often these arrangements are structured in a way so that they appear to satisfy regulatory rules while minimising tax or even providing a tax refund. You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting.

Tip! Seek independent advice from a trusted SMSF tax adviser before entering into ‘too good to be true’ arrangements!

Key tax dates

Date

Obligation

15 May 2018

2017 income tax return due if lodging through a tax agent if your return not due earlier. Tax to be paid as advised on the notice of assessment.

5 June 2018

2017 income tax return due for individuals with a lodgement due date of 15 May 2018 if lodging through a tax agent provided you also pay any liability due by this date.

 

DISCLAIMER

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

This is a concessional arrangement provided to tax agents where individuals will not pay failure to lodge on time (FTL) penalties if they lodge and pay by this date.

IN THIS ISSUE

  • It’s TaxTime 2017! What you need to know about the key changes
  • Claiming work-related expenses?
  • myDeductions – a record keeping tool
  • Housing tax deductions: disallowing travel deductions and limiting depreciation deductions
  • ATO warning on holiday rental properties
  • Changes to capital gains withholding rules for foreign and Australian residents
  • Housing-related superannuation measures
  • Superannuation – Key rates and thresholds
  • Do the super changes affect you?
  • Superannuation changes to be aware of
  • Tax incentives for early stage investors
  • Stop! Scammer time!
  • Claiming the HECS-HELP benefit
  • Notice of an update to ATO data matching program
  • Changes to Medicare Levy and Medicare Levy Surcharge
  • GST on low value imported goods – Summary of reforms
  • Certainty for stakeholders who rely on ATO systems

It’s Tax Time 2017! What you need to know about the key changes

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time. 

These include: 

  • Working holiday makers tax rate
  • Norfolk Island tax
  • Tax relief for New Zealand special visa holders
  • Foreign resident capital gains withholding
  • Reportable fringe benefits
  • Business services wage assessment tool payments
  • Farm management deposit reforms
  • Primary production averaging reforms
  • Expanded access to small business concessions
  • Small business income tax offset changes
  • Reduction to the small business company tax rate
  • Early stage venture capital limited partnership
  • Early stage investor tax incentives
  • Significant global entities
  • Limited recourse borrowing arrangement reporting
  • Transitional capital gains tax relief for super funds
  • Increasing access to company losses. 

Key dates for Tax Time 

The ATO started full processing of 2016-17 tax returns on 7 July 2017 and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt. 

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible.
Go to this timeline to view the key dates for Tax Time 2017. 

Claiming work-related expenses?

The ATO is paying attention to people who are over-claiming work-related expenses. 

To get your deductions right, you need to satisfy the following rules: 

  • you must have spent the money and were not reimbursed;
  • it must be directly related to earning your income, and not of a private nature;
  • you must have a record to prove it.

To do!

Talk to your tax agent about any claims you would like to make in your tax return. They will be able to assist you to ensure you get them right!

myDeductions – a record keeping tool

If you are a sole trader and have simple tax affairs, the ATO’s myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

To learn more, visit the ATO website.

Tip!

While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns.

For specialist advice and to ensure you claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

Housing tax deductions: disallowing travel deductions and limiting depreciation deductions

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

To do!

If you own a rental property, talk to your tax agent about whether these changes affect you in any way.

ATO warning on holiday rental properties

The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia. 

Claiming deductions for your holiday home? 

Make sure it is genuinely available for rent by answering these four questions: 

  • How do you advertise your rental property?
  • What location and condition is your rental property in?
  • Do you have reasonable conditions for renting the property and charge market rate?
  • Do you accept interested tenants, unless you have a good reason not to? 

Changes to capital gains withholding rules for foreign and Australian residents

The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

  • for real property disposals where the contract price is $750,000 and above (previously $2 million);
  • the FRCGW withholding tax rate is now 12.5% (previously 10%).

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.
Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Main residence exemption

From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

Housing-related superannuation measures

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing" contribution into superannuation.

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

Superannuation Key rates and thresholds

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions. 

For the 2017-18 income year, the: 

  • concessional contribution cap is $25,000
  • non-concessional contribution cap is $100,000 (conditions apply)
  • CGT cap amount is $1,445,000
  • Div 293 tax threshold amount is $250,000
  • low rate cap amount is $200,000
  • ETP cap for life benefit termination payments is $200,000
  • ETP cap for death benefit termination payments is $200,00. 

The full list of rates and thresholds can be found on the ATO website.

Do the super changes affect you?

Most of the changes to the superannuation system commenced on 1 July 2017.  

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

Superannuation changes to be aware of

  • Change to personal super contributions deductions

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition. 

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

  • Changes to concessional contributions – constitutionally protected and unfunded defined benefit funds

From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap. 
The ATO has released information on the following topics, which can be accessed on the ATO website

  • What are CPFs and unfunded defined benefit funds?
  • What are the changes?
  • New rules for accumulation interests
  • New rules for defined benefit interests
  • Excess concessional contributions.
  • Removal of election to treat super income streams as lump sums

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes. 

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change. 

  • New transfer balance cap – child death benefit recipients

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams. 

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18). 

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests.

  • New transfer balance cap – death benefit income streams

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams. 

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary: 

  • reversionary – the income stream reverts to you automatically upon the member’s death
  • non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these). 
  • Transfer balance account – credits and debits

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

Note!

There have been a lot of changes to the superannuation rules recently. It is worth sitting down with your tax adviser or tax agent to discuss how these changes might affect you.

Tax incentives for early stage investors

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives. 

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

Stop! Scammer time!

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time. 

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year. 

For tips on how to avoid tax time traps, visit the ATO website

Claiming the HECS-HELP benefit

If you have graduated from studies in early childhood education, maths, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit. 

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments. 

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

Notice of an update to ATO data matching program

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611. 

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program. 

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years. 

Changes to Medicare Levy and Medicare Levy Surcharge

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to increase:

  • the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
  • the Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
  • the Medicare levy surcharge low-income threshold in line with movements in the CPI. 

In addition:

  • The singles threshold will increase from $21,335 to $21,655.
  • The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
  • The single seniors and pensioners threshold will increase from $33,738 to $34,244.
  • The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

GST on low value imported goods – Summary of reforms

The Government has passed the Treasury Laws Amendment (GST Low Value goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018. 

Businesses that meet the registration threshold of A$75,000 will need to take action now to review their business systems to ensure that they are able to comply. 

The existing processes to collect GST on imports above $1,000 at the border are unchanged. 

In summary, the reforms: 

  • make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier; 
  • treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator; 
  • treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer; 
  • allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and 
  • prevent double taxation. 

More information on the new GST on low value imported goods can be found on the ATO website.

Certainty for stakeholders who rely on ATO systems

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking. 

DISCLAIMER

Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

It’s Tax Time 2017! What you need to know about the key changes

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time. 

These include: 

  • Working holiday makers tax rate
  • Norfolk Island tax
  • Tax relief for New Zealand special visa holders
  • Foreign resident capital gains withholding
  • Reportable fringe benefits
  • Business services wage assessment tool payments
  • Farm management deposit reforms
  • Primary production averaging reforms
  • Expanded access to small business concessions
  • Small business income tax offset changes
  • Reduction to the small business company tax rate
  • Early stage venture capital limited partnership
  • Early stage investor tax incentives
  • Significant global entities
  • Limited recourse borrowing arrangement reporting
  • Transitional capital gains tax relief for super funds
  • Increasing access to company losses.  

Key dates for Tax Time 

The ATO started full processing of 2016-17 tax returns on 7 July 2017 and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt. 

 

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible.

Go to this timeline to view the key dates for Tax Time 2017.

Claiming work-related expenses?

The ATO is paying attention to people who are over-claiming work-related expenses. 

To get your deductions right, you need to satisfy the following rules: 

  • you must have spent the money and were not reimbursed;
  • it must be directly related to earning your income, and not of a private nature;
  • you must have a record to prove it

myDeductions – a record keeping tool

 

If you are a sole trader and have simple tax affairs, the ATO’s myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

 

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

 

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

 

To learn more, visit the ATO website.

 Tip!

While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns.

For specialist advice and to ensure you claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

 

Housing tax deductions: disallowing travel deductions and limiting depreciation deductions

 

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

 

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

 

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

 

To do!

If you own a rental property, talk to your tax agent about whether these changes affect you in any way.

 

ATO warning on holiday rental properties

 

The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia. 

 

Claiming deductions for your holiday home? 

 

Make sure it is genuinely available for rent by answering these four questions: 

 

  • How do you advertise your rental property?
  • What location and condition is your rental property in?
  • Do you have reasonable conditions for renting the property and charge market rate?
  • Do you accept interested tenants, unless you have a good reason not to? 

 

Changes to capital gains withholding rules for foreign and Australian residents

 

The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

 

  • for real property disposals where the contract price is $750,000 and above (previously $2 million);
  • the FRCGW withholding tax rate is now 12.5% (previously 10%)

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.

Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

 

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

 

Main residence exemption

 

From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

 

Principal asset test

 

From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

 

Housing-related superannuation measures

 

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing" contribution into superannuation.

 

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

 

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

 

 

Superannuation Key rates and thresholds

 

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions. 

 

For the 2017-18 income year, the: 

  • concessional contribution cap is $25,000
  • non-concessional contribution cap is $100,000 (conditions apply)
  • CGT cap amount is $1,445,000
  • Div 293 tax threshold amount is $250,000
  • low rate cap amount is $200,000
  • ETP cap for life benefit termination payments is $200,000
  • ETP cap for death benefit termination payments is $200,00. 

 

The full list of rates and thresholds can be found on the ATO website.

 

Do the super changes affect you?

 

Most of the changes to the superannuation system commenced on 1 July 2017.  

 

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

 

Superannuation changes to be aware of

  • Change to personal super contributions deductions

 

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition. 

 

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

  • Changes to concessional contributions – constitutionally protected and unfunded defined benefit funds

 

From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap. 

The ATO has released information on the following topics, which can be accessed on the ATO website

 

  • What are CPFs and unfunded defined benefit funds?
  • What are the changes?
  • New rules for accumulation interests
  • New rules for defined benefit interests
  • Excess concessional contributions.
  • Removal of election to treat super income streams as lump sums

 

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes. 

 

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change. 

 

  • New transfer balance cap – child death benefit recipients

 

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams. 

 

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18). 

 

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests.

 

  • New transfer balance cap – death benefit income streams

 

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams. 

 

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary: 

 

  • reversionary – the income stream reverts to you automatically upon the member’s death
  • non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these). 
  • Transfer balance account – credits and debits

 

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

 

Note!

 There have been a lot of changes to the superannuation rules recently. It is worth sitting down with your tax adviser or tax agent to discuss how these changes might affect you.

 

Tax incentives for early stage investors

 

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives. 

 

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

 

  • non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

 

Stop! Scammer time!

 

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time. 

 

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year. 

 

For tips on how to avoid tax time traps, visit the ATO website

 

 

Claiming the HECS-HELP benefit

 

If you have graduated from studies in early childhood education, maths, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit. 

 

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments. 

 

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

 

Notice of an update to ATO data matching program

 

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611. 

 

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program. 

 

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years. 

 

Changes to Medicare Levy and Medicare Levy Surcharge

 

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to increase:

 

  • the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
  • the Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
  • the Medicare levy surcharge low-income threshold in line with movements in the CPI. 

In addition:

 

  • The singles threshold will increase from $21,335 to $21,655.
  • The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
  • The single seniors and pensioners threshold will increase from $33,738 to $34,244.
  • The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

GST on low value imported goods – Summary of reforms

The Government has passed the Treasury Laws Amendment (GST Low Value goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018. 

 

Businesses that meet the registration threshold of A$75,000 will need to take action now to review their business systems to ensure that they are able to comply. 

 

The existing processes to collect GST on imports above $1,000 at the border are unchanged. 

 

In summary, the reforms: 

  • make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier; 
  • treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator; 
  • treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer; 
  • allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and 
  • prevent double taxation. 

More information on the new GST on low value imported goods can be found on the ATO website.

 

Certainty for stakeholders who rely on ATO systems

 

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking. 

 

DISCLAIMER

 

Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

 

IN THIS ISSUE

Superannuation reform changes: what you need to know

  • Earning less than $40,000
  • Change to spouse tax offset 

From 1 July 2017, the spouse’s income threshold will increase to $40,000. The current 18% tax offset of up to $540 will remain and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $40,000. As is currently the case, the offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.

  • New low income superannuation tax offset

From 1 July 2017, the new low income superannuation tax offset (LISTO) will be introduced and will replace the low income superannuation contribution (LISC).
Eligible individuals with an adjusted taxable income of up to $37,000 will receive a LISTO contribution into their superannuation fund. The LISTO will equal 15% of total concessional (pre-tax) superannuation contributions for an income year. However, this will be capped at $500.
LISTO is intended to support low-income earners and ensure they do not have to have more tax on their superannuation contributions than they would pay on their salary and wages.

  • Part-time workers or time out of the workforce
  • Carrying forward unused concessional contributions

To improve flexibility in the superannuation system, from 1 July 2018, individuals will be able to make ‘carry-forward’ concessional superannuation contributions if they have a total superannuation balance of less than $500,000. Individuals will be able to access their unused concessional contributions cap for an income year on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
The first year in which an individual will be able to access unused concessional contributions is the 2019-20 income year.

  • Change in eligibility for co-contributions

Currently, to receive a government co-contribution you must meet the following requirements:

  • have made one or more eligible personal superannuation contributions to your superannuation during the income year;
  • pass the two income tests (‘income threshold’ and ‘10% eligible income’ tests);
  • be less than 71 years old at the end of the income year;
  • not hold a temporary visa at any time during the income year (unless you are a New Zealand citizen or it was a prescribed visa); and
  • lodge your tax return for the relevant income year.

From 1 July 2017, in addition to the above requirements:

  • you must have a total superannuation balance of less than the transfer balance cap ($1.6 million for the 2017-18 income year) at the end of the previous income year; and
  • you must not have contributed more than your non-concessional contributions cap.
  • Making extra contributions to your superannuation
  • Changes to personal superannuation contributions deductions

From 1 July 2017, all individuals under age 75 will be able to claim a deduction for personal contributions they make to their superannuation funds. Currently only individuals who derive less than 10% of their income from employment can claim this tax deduction. However, this condition is being removed to bring more flexibility into the superannuation system and allow more people to utilise their concessional contributions cap. Note that all the other conditions are remaining.
Individuals will have to lodge a notice of their intention to claim the deduction with their superannuation provider should they wish to claim this deduction. Generally, this notice will need to be lodged before lodging your income tax return. You can choose how much of your personal superannuation contribution to claim a deduction for. 
Note that these amounts count towards an individual’s concessional contributions cap and will be subject to 15% contributions tax in the fund. 
Certain untaxed and defined benefit superannuation funds will be prescribed, meaning members will not be eligible to claim a deduction for contributions to these funds. If a member of a prescribed fund wishes to claim a deduction, they may choose to make a personal contribution to another superannuation fund. Therefore, should you intend to make extra personal contributions, you will have to consider if your fund can receive them.
Note also that the government announced that it will retain the work test for individuals aged 65 to 74. 

  • Change to the concessional (pre-tax) contributions cap

From 1 July 2017, the concessional contributions cap is $25,000 for everyone. Prior to this, it was $35,000 for people 49 years and older at the end of the previous income year and $30,000 for everyone else. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down). 

  • Before 30 June 2017: If you would like to make extra concessional contributions, check how much concessional contributions have been made on your behalf to all your super funds since 1 July 2016, first estimate the amount of contributions that will be made on your behalf (eg by your employer) before 30 June 2017 or through an existing salary sacrifice arrangement, then work out the gap between these amounts and the amount of concessional cap that is relevant to you that remains before you make additional concessional contributions.
  • After 1 July 2017: If you would like to make extra concessional contributions, ensure that your concessional contributions made throughout the year from yourself, made on your behalf or through a salary sacrifice arrangement do not exceed $25,000.
  • Change to non-concessional (post-tax) contributions cap

From 1 July 2017, the annual non-concessional contributions cap will be reduced from $180,000 to $100,000 per year. This will remain available to individuals between 65 and 74 years old if they meet the work test. The cap is set at four times the concessional contributions cap (ie 4 x $25,000) and will be indexed in line with the concessional contributions cap. 
In addition, from 1 July 2017, your non-concessional contributions cap will be nil for the income year if you have a total superannuation balance greater than or equal to the general transfer balance cap (which is $1.6 million for the 2017-18 income year) at the end of June of the previous income year. In this case, if you make non-concessional contributions in that year, they will be treated as ‘excess non-concessional contributions’ and taxed at a much higher rate.
There is a ‘bring-forward’ arrangement for individuals under 65, who may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward the non-concessional contributions cap for a two- or three-year period. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future-year caps.
From 1 July 2017, the non-concessional contributions cap amount you can bring forward, and whether you have a two or three-year bring-forward period, will depend on your total superannuation balance at the end of June of the previous income year.

For 2017-18, to access the non-concessional bring-forward arrangement:

  • you must be under 65 years of age for one day during the triggering year (the first year); and
  • you must have a total superannuation balance of less than $1.5 million.

The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for an income year if your total superannuation balance is greater than or equal to the general transfer cap at the end of the previous income year.

  • Earning close to or over $250,000
  • Change to Division 293 income threshold

Currently, individuals with income and concessional superannuation contributions greater than $300,000 will trigger a Division 293 assessment.

From 1 July 2017, the government will lower the Division 293 income threshold to $250,000. An individual with income, and concessional superannuation contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the lesser of:

  1. the excess, or
  2. the concessional contributions (except excess contributions).

The ATO will send an email or SMS to individuals who will receive their first Division 293 tax assessment or, who will receive it in myGov if they have linked their account to the ATO. These emails and SMS will only issue during peak assessment periods – you may have already received one in November 2016 or could do so between April and early June 2017. 

  • Approaching retirement
  • Change to transition to retirement income streams

From 1 July 2017, the tax-exempt status of earnings from assets that support a Transition to Retirement Scheme (TRIS) will be removed. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.
TRIS are currently available to assist individuals to gradually move to retirement by accessing a limited amount of their superannuation. Where a superannuation fund member is currently receiving a TRIS, their fund receives the earnings on the assets used to support the TRIS on a tax-free basis.
Earnings on assets supporting transition to retirement income streams will now be taxed concessionally at 15%. This change will apply irrespective of when the transition to retirement income stream commenced. 
Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes. 
The intent of this change is to ensure that TRIS are used to support individuals who are still in the workforce and are transitioning out, rather than being accessed mainly for tax purposes.

  • Innovative retirement income stream products

Currently, there are rules restricting the development of new retirement income products. From 1 July 2017, the government will remove these barriers by extending the tax exemption on earnings in the retirement phase to innovative products, such as deferred lifetime annuities and group self-annuitisation products. The intent of the change is to provide greater choice and flexibility for retirees to manage the risk of outliving their retirement savings.

From 1 July 2017, the superannuation transfer balance cap of $1.6 million will apply. This means there will be a limit on how much of your superannuation you can transfer from your accumulation superannuation account to a tax-free ‘retirement phase’ account to receive an account-based pension income. 
The transfer balance cap will start at $1.6 million, and will be indexed in line with the consumer price index (CPI), rounded down to the nearest $100,000.

Individuals will need to track their own individual transfer balance cap. The amount of indexation you are entitled to will be calculated proportionally based on your available cap space. Only the amount of remaining cap space is indexed. Individuals will not be entitled to indexation if they exceed their transfer balance cap. However, you will be able to make transfers into the retirement phase so long as you have not reached your transfer balance cap.

Retirement phase income streams that started before 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017. New pension accounts starting from 1 July 2017 will count towards the transfer balance cap when they commence.
If you are currently in excess of your transfer balance cap, then you may have to remove the excess from the retirement phase account and pay tax on the earnings in excess of the cap. 
Different tax rules will apply if you receive a capped defined benefit income stream as you usually cannot transfer or remove excess amounts from these pensions. These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including some self-managed superannuation funds (SMSFs). 
If you have to move assets out of your retirement phase account back into your accumulation account to be under the cap before 1 July 2017, capital gains tax (CGT) relief is available to your superannuation fund to reset the cost base(s) of these assets. CGT relief is available if your fund holds the assets between 9 November 2016 and 30 June 2017.

  • Removal of the anti-detriment payment

From 1 July 2017, the government will remove the ‘anti-detriment’ provision preventing superannuation funds from claiming a deduction in their own tax return for a top-up payment made as part of a death benefit payment where the beneficiary is the dependant of the person.
The top-up amount represents a refund of a member’s lifetime superannuation contribution tax payments into an estate. Removing the ability of the superannuation fund to claim this deduction is intended to ensure consistent treatment of lump sum death benefits across all superannuation funds.

Superannuation funds may continue to claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti-detriment payments as part of a death benefit if the member dies on or after 1 July 2017.

To do!

These changes to superannuation are significant and will affect individual taxpayers differently, depending at what stage of working life individuals are at – low income earners or high income earners, in or out of the work force for the time being, nearing retirement or in retirement. Be ‘SuperWise’ – you should speak to your tax adviser to help determine how the changes impact on you, for example, whether you should take advantage of any of the changing caps now to top up your superannuation or reconsider how to plan for your retirement.

New tools to check your superannuation entitlements

The ATO has released three new tools you can use to work out if you are eligible to be paid superannuation contributions from your employer, and how much. There is also a tool to report employers failing to pay super contributions.

  • The eligibility tool works out if you are entitled to super guarantee contributions.
  • The estimate tool calculates your estimated superannuation guarantee amount, based on quarterly earnings.
  • The complaint tool can be used to report employers who are not paying super contributions correctly.

Diverting personal services income to Self-Managed Superannuation Funds

The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid income tax obligations as described in TA 2016/6 Diverting personal services income to self-managed superannuation funds
Under these arrangements, an individual performs services for a client. The individual does not directly receive any, or adequate, remuneration for the services they provide. Instead, the client is instructed to pay fees or remuneration for the service provided by the individual to a company, trust or other non-individual entity. The relevant non-individual entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment. The purported outcome of the arrangement is that the income is either exempt from tax or taxed concessionally rather than being subject to tax at the individual’s marginal tax rate. 
The ATO is aware that there have been many superannuation changes since July 2016 including extensive superannuation reforms enacted in November 2016. SMSF trustees and advisors have been required to understand how those changes impact their funds and to address them.  
The due date to contact the ATO in relation to TA 2016/6 has been extended to 30 April 2017.
If you have an arrangement as described in TA 2016/6 or a similar arrangement, please contact the ATO (email: SMSFStrategicCampaigns@ato.gov.au and put ‘TA 2016/6′ in the subject line, include the SMSF trustee name(s), contact details and a time that is convenient for the ATO to call you so that the ATO can work with you to resolve any issues in a timely manner, and minimise the impact on the you and the fund. 

Government cracking down on superannuation guarantee non-compliance

On 25 January 2017, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, released a statement about the government’s new multi-agency working group that will investigate and develop practical recommendations to deal with superannuation guarantee non-compliance.
Chaired by the ATO and comprising senior representatives from The Treasury, the Department of Employment, ASIC and APRA, the working group will identify the drivers of non-compliance, develop ways to improve compliance and policy options to ensure the law remains fit for purpose for Australia’s $2 trillion superannuation system.
The final report of the working group was due at the end of March. At the time of writing, the report was not available.

Tip!

You should ensure your employer is paying the right amount of superannuation guarantee on your behalf. If you are unsure of what the correct amount should be, seek advice from your tax professional.

Credit and debit card, online selling, and ride-sourcing data matching

The ATO is collecting data from financial institutions and online selling sites as part of their data matching programs for credit and debit cards, online selling and ride-sourcing. 
The data will include:

  • the total amount of credit and debit card payments businesses received
  • online sellers who have sold at least $12,000 worth of goods or services
  • payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator.

The ATO matches this data with information they have from income tax returns, activity statements and other ATO records to identify any discrepancies.

Tip!

If you need to correct a mistake you have made in your income tax return, you should talk to your tax agent.

Ride-sourcing data matching
The ATO’s ride-sourcing data matching program has been developed to address the compliance risk of the registration, lodgment and reporting of businesses offering ride-sourcing services as a driver. It is estimated up to 74,000 individuals (ride-sourcing drivers) offer, or have offered, this service. 
The ATO will request details of all payments made to ride-sourcing providers from accounts held by a ride-sourcing facilitator’s financial institution for the 2016-17 and 2017-18 income years.
They will match the data provided by the facilitator’s financial institution against our records. This will identify ride-sourcing drivers that may not be meeting their registration, reporting, lodgment and/or payment obligations.
Where the ATO is unable to match a driver’s details against ATO records, they will obtain further information from the financial institution where the driver’s account is held.
The protocol has been prepared to meet the requirements of the Office of the Australian Information Commissioner’s Guidelines on Data Matching in Australian Government Administration (2014) (the Guidelines).
This will impact you if you offer ride-sourcing as a way to earn income.

Black Economy’ Taskforce

On 14 December 2016, Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced that the government had established a taskforce to crack down on the ‘Black Economy’. Ms O’Dwyer said, “While there is no single, internationally-agreed definition, typically, the ‘black economy’ refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The ‘black economy’ can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods."
The ‘Black Economy’ Taskforce, to be chaired by former chair of the B20 anti-corruption taskforce, Mr Michael Andrew AO, will provide an interim report to government by April 2017. Tackling the ‘black economy’ requires a whole of government approach and participants will include the Reserve Bank of Australia, the Australian Federal Police, ASIC, APRA, AUSTRAC, and the Departments of Human Services and Immigration.
The Taskforce will provide a final report in October 2017 which will include an overarching whole of government policy framework and detailed proposals for action to counter the ‘black economy’.

Targeted amendments to Division 7A

In the 2016-17 Budget, the government announced it will make targeted amendments to improve the operation and administration of Division 7A of the Income Tax Assessment Act 1936
The amendments will apply from 1 July 2018 and will introduce: 

  • a self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly;
  • appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers;
  • simplified rules regarding complying Division 7A loans, including in relation to loan duration and the minimum interest rate; and
  • a number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers. 

The proposed changes draw on a number of recommendations from the Board of Taxation’s post-implementation review into Division 7A.

 To do!

This change may impact you if you have private loans from your business. In that case, you should seek advice from your tax professional.

ATO issues warning on contrived trust arrangements

The ATO recently released Taxpayer Alert TA 2016/12 cautioning against arrangements that minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts. 
Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to improperly gain favourable tax breaks, or sometimes pay no tax at all. 
The ATO identified these arrangements through ongoing monitoring and reviews by the Trusts Taskforce, and continues to look for these arrangements using sophisticated analytics. 
The Trusts Taskforce was established in 2013 to undertake targeted compliance action against people involved in tax avoidance or evasion using trusts. Since this time, the ATO has raised $772 million in liabilities and collected $164.5 million. In addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation. 

Goods taken from stock for private use

If you take items from your business’ trading stock for your own use, make sure you include the value of these items as part of your business’ assessable income.
To do this, you should record the actual value of the goods (excluding GST) or use estimates provided by the ATO if you are a sole trader or in a partnership. The ATO estimates are updated yearly and are available for the following industries:

  • bakery
  • butchery
  • restaurant/café
  • caterer
  • delicatessen
  • fruiterer/greengrocer
  • takeaway food shop
  • mixed business (including milk bar, general store and convenience store).

For more information on amounts the ATO accepts as estimates and small business benchmarks, visit the ATO’s website.

Note!

Seek advice from your tax agent or adviser if you are unsure how to treat stock used for private purposes in your accounts for tax purposes.

GST matters

In the 2015-16 Budget, the government announced that the application of the GST will be extended to cross-border supplies of digital products and other services imported by Australian consumers. 
This includes digital products such as streaming or downloading of movies, music, apps, games, e-books as well as services such as architectural or legal services. Under the new law, overseas businesses will be required to pay GST on these sales from 1 July 2017.
If you have interactions with overseas businesses that supply digital products and services to Australian consumers, let them know they may be subject to the transitional rule for GST.
The transitional rule applies to businesses that:

  • meet the registration turnover threshold of A$75,000; and
  • supply digital products and services before 1 July 2017 and continue after this date. The portion after 1 July 2017 is subject to GST.

A simplified system will be available on the ATO website from 1 April 2017 for these businesses to electronically register, lodge and pay GST.

To do!

Talk to your tax agent about the GST implications for you if goods and supplies you have been acquiring from an overseas business that you may have been using in your business become subject to GST.

In the 2016-17 Budget, the government confirmed that from 1 July 2017, the GST will be extended to low value imports of physical goods imported by consumers.
In summary, the reforms will:

  • make supplies of goods valued at $1,000 or less at the time of supply connected with Australia if the goods are, broadly, purchased by consumers and are brought to Australia with the assistance of the supplier; 
  • treat the operator of an electronic distribution platform as the supplier of low value goods if the goods are purchased through the platform by consumers and brought to Australia with the assistance of either the supplier or the operator; 
  • treat re-deliverers as the suppliers of low value goods if the goods are delivered outside Australia as part of the supply and the re-deliverer assists with their delivery into Australia as part of, broadly, a shopping or mailbox service that it provides under an arrangement with the consumer; 
  • allow non-resident suppliers of low value goods that are connected with Australia only because of these amendments to elect to be a limited registration entity and as such access the simplified registration and reporting system; and
  • prevent double taxation by making importations of goods non-taxable importations if the supply of the goods is a taxable supply only as a result of these amendments and notice is provided in the approved form. 

A vendor registration model will be used where non-residents with an Australian turnover of $75,000 or more will be required to register and charge the GST. 
At the time of writing, the Treasury Laws Amendment (GST on Low Value Goods) Bill 2017 which contains this measure was sitting before Parliament.

  • When to charge GST (and when not to)

i)          When to charge GST
If you are registered for GST, most of the sales you make in Australia will include GST.
Sales which include GST (taxable sales) are:

  • made for payment (monetary or other);
  • made in the course of operating your business (including any capital assets sold); and
  • connected with Australia.

For these taxable sales, you:

  • include GST in the price;
  • issue a tax invoice to the buyer;
  • pay the GST you’ve collected when you lodge your activity statement.

ii)          When not to charge GST
You do not include GST in the price of goods and services that are:

  • GST free – such as most basic foods, some education courses and health care products and services.
  • Input taxed – such as lending money and renting out residential premises.
  • Claiming GST credits – refresher

You can claim a credit for any GST included in the price of goods and services that you purchase for your business and use to make either taxable or GST-free sales. This is called a GST credit.
You can’t claim a GST credit for the GST included in the price of purchases you use to make your input taxed sales.

 Note!

Your tax agent knows when you can and can’t claim GST credits. They will be able to ensure you put the right information into your activity statement and make the right claims for GST purposes.

  • Ride-sourcing and GST

On 17 February 2017, ride-sourcing company Uber lost its battle with the ATO over whether its drivers have to pay 10% GST on their earnings. 

In a judgment handed down by the Federal Court, it was ruled that ride-sourcing is considered to be taxi travel and Uber will therefore need to pay GST on travel.  

If you earn income through providing ride-sourcing services, you need to: 

  • keep records
  • have an Australian business number (ABN)
  • be registered for GST, regardless of how much you earn
  • lodge business activity statements (BAS)
  • pay the GST portion of the full fare received from passengers for each trip you provide
  • include your income from ride-sourcing in your income tax returns. 

Drivers are also entitled to claim income tax deductions and GST credits (for GST paid) on expenses (you may need to apportion these so you only claim amounts relating to providing ride-sourcing services). 

The ATO’s data matching activities will identify if you provide ride-sourcing services. If you do, you may receive a letter from them explaining your tax obligations.

Foreign resident capital gains withholding

New rules apply to vendors disposing of certain taxable Australian property under contracts entered into from 1 July 2016. A 10% non-final withholding will be applied to these transactions at settlement.
Australian resident vendors selling real property will need to obtain a clearance certificate from the ATO prior to settlement, to ensure they don’t incur the 10% non-final withholding.
This new withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 10% of the purchase price and pay it to the ATO, where a vendor enters into a contract on or after 1 July 2016 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).
The foreign resident vendor must lodge a tax return at the end of the income year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

  • Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement:
    • for Australian real property, a clearance certificate obtained from the ATO
    • for other asset types, a vendor declaration they are not a foreign resident. 
  • Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding. 

Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation. 

Note!

If you are buying or selling property and a foreign resident party is involved in the transaction, talk to your tax agent to ensure you meet your tax obligations in relation to this transaction.

Working holiday makers

From 1 January 2017, the first $37,000 of a working holiday maker’s income is taxed at 15%, with the balance taxed at ordinary rates.
The tax on any departing Australia superannuation payment made to working holiday makers after 1 July 2017 has also increased to 65%.
A person is a working holiday maker if they have a visa subclass 417 (Working Holiday) or 462 (Work and Holiday).
When they lodge an income tax return, the ATO will work out how much tax they should have paid. If they have paid too much, the ATO will give a refund. If they have not paid enough, the ATO will send the working holiday maker a bill. 

  • Employer registration

Employers employing working holiday makers must be registered.
Once an employer is registered, a withholding rate of 15% applies to the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply.
If an employer does not register, they must withhold tax at 32.5% for the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply. Penalties may apply to the employer for failing to register.

From 1 July 2017, departing Australia superannuation payments (DASPs) made to working holiday makers (WHMs) will be taxed at 65%.
If an individual holds or has held a 417 (Working Holiday) or 462 (Work and Holiday) visa, they are classified as a WHM.
This change is related to a new income tax rate for WHMs which was introduced by the Australian government in December 2016. Payments made before 1 July 2017 will be taxed at the current rate, which is 38% for a taxed-element. Employers of working holiday makers will need to be aware of their relevant obligations.

To do!

If you are a working holiday maker, you should seek the advice of a tax professional to ensure you have been taxed correctly.

Deductions – current matters

  • Deductions – what the ATO is paying extra attention to

The ATO has been paying extra attention to people claiming higher than expected deductions during TaxTime 2016.
Individuals should make sure their claims for work-related expenses are right by using the series of occupation guides or other general advice available on the ATO website, which help people in specific industries understand and correctly claim the expenses they may be entitled to. 
If you use myTax to lodge your return, your claims are compared with the claims of taxpayers in similar occupations and with similar income, giving you a real-time warning if your claims are unusually high in comparison. 
You can visit the ATO to learn more about work-related expenses and the occupation guides. However, it is best to seek the advice of a tax professional if you are unsure what deductions you are entitled to or how much you can claim.

  • Keeping track of deductions made easy

The ATO’s myDeductions tool in the ATO app can help you keep track of your work-related expenses, car trip data, gifts and donations. You can record your expenses on the go using your phone or device. Come tax time, you can then email your deductions file to your tax agent to review, who can then advise you on your claims and lodge your tax return. 
You can also keep the file on record in case you need it later. If you use the upload feature in the app, your tax agent can access your data via the Practitioner Lodgment Service and check it before lodging.

  • Work-related travel expenses not deductible

Re Reany and Commissioner of Taxation [2016] AATA 672
The Administrative Appeals Tribunal (AAT) has found that a first class sheet metal worker employed at an alumina refinery in Western Australia was not entitled to deductions for the cost of transporting his tools and equipment between his home and his workplace.
It is accepted that one exception to the general rule that the cost of travel between home and work is not deductible is where an employee is required by his or her employer to carry bulky tools or equipment from home to work and no secure storage is provided by the employer to the employee to store the tools and equipment at the worksite.
In this case, the evidence established that the taxpayer’s employer provided him with a locker to store his tools and equipment at his primary place of work. The taxpayer said that it was his decision to take his tools and equipment home each night as he did not believe the storage lockers provided by the employer to be secure.
The AAT found that the taxpayer was not entitled to a deduction for any amount of his work related travel expenses as he was not required by his employer to carry his bulky tools and equipment from home to work. By his own admission, this was the taxpayer’s own personal choice, arising out of his unsupported safety concerns.

Note!

If you are in a similar situation and are claiming a deduction for the cost of travel from home to work because you are taking bulky tools home with you, you should seek advice from your tax professional to confirm whether you are entitled to this deduction.

If you own a holiday home you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent. Even if you do not rent it out, there are capital gains tax implications when you sell it. 
The ATO has provided information and examples on the following scenarios, please visit their website

  • Holiday homes – not rented out;
  • Holiday homes – rented out;
  • Holiday homes that are not genuinely available for rent; and
  • Claiming deductions.

Renting out a room or your house is rental income

Money you earn from renting out a room in your house is rental income. This applies to rooms rented by traditional means or through a sharing economy website or app. 
The ATO has examples on its website to help you understand how claiming deductions works when renting rooms, or your main residence, on an occasional basis.

To do!

If you are renting a room out or your home out using a service like Airbnb or Stayz, you should seek advice from your tax professional to ensure you are not only declaring the right amount of income, but also claiming deductions you may be entitled to for earning income this way.

 DISCLAIMER

Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

In this issue

  • Tax Time 2016: It’s tax time! What you need to know about the key changes
  • Targeted personal income tax cut
  • Claiming work-related expenses?
  • ATO retires e-tax in 2016
  • myTax
  • myTax tools
  • What might delay your return?
  • Backpacker tax delayed until January 2017
  • FBT exemption for work-related electronic devices
  • ATO paying extra attention to ‘unusual’ deduction claims, in particular car expenses
  • Div 293 messages in myGov
  • Tax deductions for personal superannuation contributions
  • Tax implications for the sharing economy
  • New law applying GST to imported digital products and services
  • New tax rules for property sales over $2 million
  • Attention Company Directors: Obtaining information from the ATO
  • Lifetime cap on non-concessional superannuation contributions
  • New ATO project Super Scheme Smart: Pre-retirees warned against tax schemes
  • Diverting personal services income to SMSFs
  • Tax Time 2016: It’s tax time! What you need to know about the key changes

    Key changes

    There are a number of key changes and new measures to be aware of when completing your return this Tax Time. The key changes that may be relevant to your circumstances are listed below with links to further information:

  • Immediate deductions for start-up costs – if you are thinking of starting your own business, you may be able to immediately deduct a range of expenses, including professional fees (such as legal and accounting fees) (which began on 1 July 2015).
  • Changes to gender identifiers – the ATO no longer asks for an individual taxpayer’s gender on the tax return form, though the ‘Spouse details’ section does ask for gender (and includes a number of options) and has been retained for administration purposes.
  • Net medical expenses tax offset phase out – from 1 July 2015, the net medical expenses tax offset can only be claimed for a limited number of items including disability aids or aged care. The offset will be abolished from 1 July 2019.
  • First home savers accounts abolished – First Home Saver Accounts were abolished on 1 July 2015 and became ordinary savings accounts. Earnings from these accounts must be included in your tax return.
  • Business services wage assessment tool payment – this tool has a specific application for eligible employees who worked for an Australian disability enterprise and received a lump sum.
  • Processing of returns

    The ATO started processing 2015-16 tax returns on 8 July and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt.

    Targeted personal income tax cut

    The 2016-17 Federal Budget contains a proposal to raise the income threshold at which the 37% marginal tax rate will start to apply from $80,000 to $87,000. However, at the time of writing, this measure had not yet become law as the Government was in caretaker mode due to the 2016 Federal Election held on 2 July this year.
    To benefit from this measure, your taxable income must be more than $80,000. The maximum amount of tax you can save is $315. 

    See the tables below for the current tax rates that are in the law and apply from 1 July 2016 and the proposed tax rates should the measure become law.

    Current rates from 1 July 2016*

    Taxable Income

    Tax Payable

    $0 – $18,000

    NIL

    $18,201 – $37,000

    19c for each $1 over $18,200

    $37,001 – $80,000

    $3,572 plus 32.5 cents for each $1 over $37,000

    $80,001 – $180,000

    $17,547 plus 37 cents for each $1 over $80,000

    $180,001 and over

    $54,547 plus 45 cents for each $1 over $180,000

    *Does not include the Medicare Levy

    Proposed rates from 1 July 2016*

    Taxable Income

    Tax Payable

    $0 – $18,000

    NIL

    $18,201 – $37,000

    19 cents for each $1 over $18,200

    $37,001 – $87,000

    $3,572 plus 32.5 cents for each $1 over $37,000

    $87,001 – $180,000

    $19,822 plus 37 cents for each $1 over $87,000

    $180,001 and over

    $54,232 plus 45 cents for each $1 over $180,000

    *Does not include the Medicare Levy

    Claiming work-related expenses?

    If you are claiming work-related expense deductions, you need to satisfy the following:

  • you must have spent the money and were not reimbursed;
  • it must be related to your job; and
  • you must have a record to prove it.
  • If you receive an allowance from your employer, it does not automatically entitle you to a deduction. You still need to show that you have spent the money and it was related to your job.

    The ATO will be paying extra attention to people whose deduction claims are higher than expected, in particular:

  • car expenses claims including those for transporting bulky tools;
  • travel;
  • internet and mobile phone; and
  • self-education.
  • To do!

    Talk to your tax agent about any claims you would like to make in your tax return. They will be able to assist you to ensure you get them right!

    ATO retires e-tax in 2016

    The ATO has retired its legacy online lodgement tool e-tax and replaced it with Tax Time 2016 (myTax), which will became available on 1 July 2016.  The ATO has said myTax has been expanded to do everything that e-tax could do and more. It has been upgraded and improved since last tax time and is now suitable for any Australian who wants to lodge their own tax return – regardless of their tax affairs. 

    Australians with rental properties be able to use myTax for their 2015-16 return and will also be able to take advantage of the fully integrated tools and calculators. One of these new tools allows property investors to record depreciation and capital gains. 

    myTax 

    myTax has replaced e-tax and is no longer just for individuals. Sole traders who prepare their own tax return will be able to lodge online using myTax. myTax has been upgraded to include business and professional items sections for sole traders and distributions from a partnership or trust. myTax also gives sole traders access to new online tools to assist with their tax return. 

    Do you need to complete a partnership, trust or company tax return as well?

    To use myTax, you will need a myGov account. If you use a tax or BAS agent, check with them before creating a myGov account. If you need to complete a partnership, trust or company tax return these will need to be lodged through a tax agent or on paper.

    myTax tools 

    If you are a sole trader planning to use myTax, you will find a number of inbuilt tools to help you save time and avoid mistakes. 

  • The new depreciation and capital allowance tool will help you work out the deductible amount for your depreciating assets. It will also reduce your search time when determining the effective life of an asset. 
  • The new capital gains tax record keeping tool can help you calculate your capital gains events. Capital gains events might include the sale of a rental property, vacant land, holiday home, real estate or shares in a company or units in a unit trust. 
  • To do!

    While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns. For specialist advice and to ensure you declare all the income you are supposed to and claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

    What might delay your return?

    Some returns may take longer to process. This may be due to a number of reasons, including:

  • You have lodged prior year returns together with this year’s return;
  • The ATO needs to cross-check data with other Government agencies, including Centrelink and Child Support;
  • If you have a debt  or insolvency obligation with the ATO;
  • The ATO has queries about the information provided on your return.
  • To prevent delays in the processing of your return:

  • Try to avoid common errors like including insufficient information or repeating information;
  • Check the personal details you have included are correct;
  • Don’t include information that isn’t necessary.
  • Backpacker tax delayed until January 2017

    In May this year, the Government announced that it would conduct a review of working holiday visas and postpone any changes to the current system until January 2017. The Government has listened to rural and regional communities (about possible labour shortages) and those in the tourism sector that have raised these concerns.

    The Government has agreed to review the tax and that a further extension to next January was a good outcome for regional Australia.

    The backpacker tax was part of the Government’s 2015-16 Budget proposal to change the tax status of temporary working holiday makers from that of ‘resident’ to that of ‘non-resident’ from 1 July 2016. If implemented, people in Australia on a working holiday will lose access to the tax-free threshold and will be subject to the 32.5% ‘backpacker tax’ on income of up to $80,000.

    A review of the proposed ‘backpacker tax’ was conducted in August this year with the outcomes not yet known.

    FBT exemption for work-related electronic devices

    As mentioned in the previous edition of TaxWise, if you are employed by a small business, your employer is now able to provide you with multiple work-related devices without incurring fringe benefits tax (FBT) liabilities. This applies even if the devices have similar functions. Devices can include laptops, tablets, mobile phones, calculators and GPS navigators.

    • Items purchased prior to 1 April 2016 but supplied to employees after this date are eligible for the exemption.
    • Multiple devices bought and given to employees before 1 April 2016 are not eligible. In these cases, the exemption only applies to one item for that FBT year.
    • ATO paying extra attention to ‘unusual’ deduction claims, in particular car expenses

      With Tax Time underway, the ATO is encouraging people to check which work-related expenses they are entitled to claim and understand what records they need to keep. The ATO will be paying extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses – including those for transporting bulky tools, and deductions for travel, internet and mobile phone, and self-education.

      The ATO advises that there has been a change in the rules for calculating car expenses this year and people need to use a logbook or the cents per kilometre method to support their claims. In particular, if claims are substantially higher than others in similar occupations, earning similar amounts of income, a message will appear, asking taxpayers to check their claims.

      The ATO will also take a closer look at any unusual deductions and contact employers to validate these claims. Therefore, it is best to get your claims right from the start. Your tax agent is the best person to help you do that.

      Div 293 messages in myGov

      The ATO has been sending an email or SMS to clients with ‘Division 293’ tax liabilities to let them know a notice of assessment is issuing to their myGov inbox.

      Division 293 applies to individuals whose income is greater than $300,000 and imposes additional tax on concessional contributions individuals affected make to their superannuation.

      This additional message is being sent to reinforce that clients should check the notice in myGov as it contains important information about tax on their super contributions.
      The notice you receive might also include notice of a deferred debt amount. Deferred debt amounts are assessed on your defined benefit contributions. The amount of defined benefit contributions represents the annual increase in a defined benefit superannuation account. This amount is based on the benefit an individual is expected to receive when they leave the fund.

      To do!

      If you have received one of these messages, speak to your tax agent to find out what you should do next to ensure you meet all your relevant obligations.

      Tax deductions for personal superannuation contributions

      In the 2016-17 Federal Budget, the Government announced that, from 1 July 2017, certain individuals under age 75 will be able to claim an income tax deduction for personal superannuation contributions. These amounts will then count towards an individual’s concessional contributions cap and be subject to 15% contributions tax in the fund. 

      Currently, only individuals who derive less than 10% of their income from employment sources can claim this tax deduction. 

      To access the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction with their superannuation provider. Generally this notice will need to be lodged before they lodge their income tax return. Individuals can choose how much of their personal superannuation contribution to claim a deduction for. 

      Certain untaxed and defined benefit superannuation funds will be prescribed, meaning members will not be eligible to claim a deduction for contributions to these funds. If a member of a prescribed fund wishes to claim a deduction, they may choose to make a personal contribution to another superannuation fund. 

      Legislation is currently being developed for this measure.

      To do!

      If you would like to make additional contributions to your superannuation and you want to know if you can claim a tax deduction for them, you should speak with your tax agent.

      Tax implications for the sharing economy

      If you earn income through the sharing economy, you have tax obligations that you should know about. 

      The sharing economy refers to the sharing of goods and services where the buyers (users) and sellers (providers) are connected through a facilitator who may be operating through an app or a website. 

      Examples of sharing economy services include: 

    • ride-sourcing – providing taxi travel services to transport passengers for a fare;
    • renting out a room or a whole house or unit on a short term basis;
    • renting out parking spaces;
    • providing personal services, for example:
    • web or trade services;
    • completing odd jobs, errands, deliveries etc.
    • If you provide sharing economy services, you may need to: 

    • assess whether you are carrying on an enterprise;
    • register for an Australian business number (ABN) and/or GST;
    • account for GST when you make taxable supplies of goods and services;
    • declare your income; and
    • determine if you can claim GST credits/input tax credits and income tax deductions for your expenses. 
    • The nature of the goods or services you provide and the extent of your activities will determine what you need to do for tax purposes.

      Tip!

      Seek advice from your tax agent about what your income tax and GST obligations are if you earn income from or provide services in the sharing economy.

      New law applying GST to imported digital products and services

      From 1 July 2017, overseas businesses will be required to pay GST on international sales of digital products and services provided to Australian consumers. 

      If you sell digital products or services to Australian consumers and you meet the registration turnover threshold of over $75,000 Australian in sales, you will be required to register for, report and pay GST on sales made. If you sell through an electronic distribution platform, for example, an app store, the platform operator is responsible for registering, reporting and paying the GST. 

      Examples of digital products include downloaded movies, games and electronic books. Examples of services include architectural, legal or educational services. The new law applies very broadly to sales of anything except non-digital goods or real property. 

      New tax rules for property sales over $2 million

      New rules have been introduced to strengthen the foreign resident capital gains tax regime to assist in the collection of the CGT liabilities of foreign residents.

      Australian residents buying or selling real property with a market value of $2 million or more need to be aware of the new withholding tax rules which came into effect on 1 July 2016.

      Australian residents who are selling a ‘taxable Australian property’ with a market value of $2 million or more need to obtain a clearance certificate from the ATO to confirm a 10% withholding amount does not need to be withheld from the transaction. 

      A seller (either Australian resident or foreign resident) needs to provide a clearance certificate to the buyer by settlement, or the buyer will be required to withhold 10% of the sales price and pay this to the ATO. A seller can claim a credit for the withholding amount paid to the ATO against the final tax assessed in their income tax return. A purchaser can vary down the 10% non-final withholding tax if the seller has received a variation notice from the ATO and provided it to the purchaser prior to settlement.

      Note!

      Though conveyancers do know about these new rules, your tax agent is best placed to assist you in applying for a clearance certificate (if you are a seller) and helping you with your obligations (if you are a buyer).

      Attention Company Directors: Obtaining information from the ATO

      The ATO has published a new overview for directors on what information they can expect to obtain from the ATO regarding their companies, particularly for companies in liquidation. 

      Once a company is insolvent, its pre-insolvency ‘covered entities’ are no longer relevant for the purpose of accessing information about the company. This has implications for former directors trying to obtain information about their company from the ATO. 

      Lifetime cap on non-concessional superannuation contributions

      In the 2016-17 Federal Budget, it was announced that from 7.30pm (AEST) on 3 May 2016 there will be a lifetime cap of $500,000 on non-concessional superannuation contributions. 

      The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will be indexed to the Average Weekly Ordinary Time Earnings (AWOTE), increasing in $50,000 increments. 

      If an individual has exceeded the cap prior to commencement, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. 

      If an individual makes contributions after commencement that causes them to exceed their cap, they will be notified by the ATO to withdraw the excess from their superannuation account. Individuals who choose not to withdraw the excess amount will be subject to the current penalty arrangements. 

      Non-concessional contributions made into defined benefit accounts will be included in an individual’s lifetime non-concessional cap. 

      Following the Federal election, in August, the Treasurer, the Hon Scott Morrison MP, confirmed that there will be changes to the Government’s proposal for a lifetime cap of $500,000 on non-concessional superannuation contributions. Mr Morrison said draft legislation on the measures will be coming out shortly with one of the exemptions being “If you have entered into a contract before Budget night to settle on a property asset out of your self-managed super fund and you are using after tax contributions to settle that contract – well, that won’t be included." At the time of writing, draft legislation had not yet been released.

      Tip!

      Your tax agent will be keeping abreast of the changes to this proposal. Chat to them about how this proposal might affect your personal circumstances.

      New ATO project Super Scheme Smart: Pre-retirees warned against tax schemes

      There has been an increase in aggressive retirement planning schemes, where individuals avoid paying tax by channelling money inappropriately through a self-managed superannuation fund (SMSF). 

      The ATO has now introduced Super Scheme Smart – a new initiative aimed at educating individuals about the potential pitfalls of retirement planning schemes that are of increasing concern to the ATO. Super Scheme Smart provides information and resources including an information pack, case studies and videos. More information can be found on the ATO’s website here.

      4 common features of a scheme

      While retirement planning schemes can vary, there are four common features that people should be aware of. Usually these schemes: 

    • are artificially contrived and complex, usually connected with a SMSF;
    • involve a lot of paper shuffling;
    • are designed to leave the taxpayer with minimal or zero tax, or even a tax refund;
    • aim to give a present day tax benefit by adopting the arrangement. 
    • Who is most at risk? 

      You are most at risk of being targeted by promoters of this scheme if you are:

    • approaching retirement;
    • trustees of self-managed superannuation funds (SMSFs);
    • self-funded retirees looking for the best ways to maximise their retirement assets and income.
    • What is the ATO on the lookout for? 

      Some current examples that the ATO is concerned about include: 

    • dividend stripping;
    • non-arm’s length limited recourse borrowing arrangements (LRBAs); and
    • personal services income.
    • Penalties 

      Promoters of retirement planning schemes may incur significant punishment including prosecution and where intermediaries are found to have been encouraging clients to adopt these arrangements, the ATO will consider the application of the promoter penalty laws. The ATO may also consider referring the matter to the Tax Practitioners Board. 

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

      The ATO is encouraging people to report tax avoidance schemes via a confidential call to 1800 177 006, or via email to reportataxscheme@ato.gov.au. For more information about the specific schemes, visit ato.gov.au/superschemesmart.

      Diverting personal services income to SMSFs

      The ATO is currently reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid income tax obligations as described in TA 2016/6 Diverting personal services income to self-managed superannuation funds

      The ATO has requested that individuals contact them to resolve any issues and to minimise potential income tax and superannuation regulatory implications for the fund and the individual. 

      Issues affecting the SMSF will be addressed on a case-by-case basis, but the ATO has advised that they will take the individual’s cooperation into account when determining the final outcome. 
      Individuals and trustees who are not currently subject to ATO compliance action, and who come forward before 31 January 2017, will have administrative penalties remitted in full. However, shortfall interest charges still apply. 

      To read about these arrangements and how the ATO can help, click here.

      To do!

      If you have any concerns about what income amounts are going into your SMSF, talk to your tax agent.

      DISCLAIMER

      Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

      IN THIS ISSUE

      FBT changes: salary packaged meal and other entertainment benefits
      As the current FBT year ends on 31 March 2016 and a new one begins on 1 April 2016, there are a number of upcoming changes to salary packaged meal and other entertainment benefits that employees need to be aware of, including:

      • Changes for employees

      From 1 April 2016, there are changes to the FBT treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits (meal and other entertainment benefits). Some of the changes will affect all employees, while others will affect employees of not-for-profit organisations.

      The following applies to all employees:

      • all salary packaged meal and other entertainment benefits are reportable and will be included on the payment summary where the reporting exclusion threshold is exceeded; and 
      • the 50-50 split method and 12-week register method cannot be used by the employer for valuing salary packaged meal and other entertainment benefits which may affect how much an employee can salary package. 
      • Specific changes for Not-for-profit employees

      For employees who work for a not-for-profit employer:

      • a separate single grossed-up cap of $5,000 will apply for salary packaged meal and other entertainment benefits for employees of not-for-profit organisations able to access a general FBT exemption or rebate ($31,177 or $17,667 exemption; or $31,177 rebate); and 
      • the amount of those benefits exceeding the separate grossed-up cap of $5,000 are included in calculating whether the value of all benefits an employee receives exceeds the general FBT exemption or rebate cap. 

      This means that from 1 April 2016 employees can receive such benefits worth between $2,329.59 and $2,549.98 (depending on whether the employer is entitled to GST credits) without exceeding the $5,000 cap.
      Other FBT updates

      The ATO reminded employers over the festive season that employers who provide entertainment to their employees during the festive season (or at any other time of the year) should remember to think about the following:

      • when providing food, drink or recreation may be considered ‘entertainment’;
      • whether the entertainment is subject to fringe benefits tax (FBT); and
      • the methods available for valuing entertainment fringe benefits.

      Depending on the sort of entertainment that your employer provided to you as an employee, there may be different FBT implications which may need to be included in your 2015-16 Payment Summary.

      To do!

      Talk to your tax adviser about the entertainment you may have received from your employer over the festive season (Did you have a Christmas party? Did you receive a gift from your employer?) if you are concerned with how this might impact your 2015-16 tax return.

      • FBT exemptions for work-related electronic devices

      From 1 April 2016, small business employers (with turnover of less than $2 million) will be able to provide employees with multiple electronic devices to use for work without incurring a fringe benefits tax (FBT) liability.

      Employers can provide to employees:

      • mobile phones
      • tablets
      • laptops
      • calculators
      • GPS navigation receivers.

      If you need more than one device for work, talk to your employer about having them provided to you, but note they won’t be able to provide you with multiple devices until 1 April 2016 or they will be subject to FBT.
      Note that providing these devices may be a benefit in addition to or part of your salary or wages package.

      To do!

      If you are planning on requesting multiple devices from your employer, talk to your tax adviser first to find out how the FBT rules may impact this.

      Car expense substantiation methods simplified
      To simplify the car expense deduction rules, from 1 July 2015, the government has abolished the one-third of actual expenses method and 12% of original value method. The cents per kilometre method (with the existing 5,000km cap) and the logbook method (with unlimited kms) remain.
      The cents per kilometre method has been simplified to use a standard rate of 66 cents per kilometre for the 2015-16 income year, rather than a rate based on the engine size of the car. The Commissioner will set the rate for future income years.
      The ATO has advised employers to be aware that the ATO set the approved PAYG withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015. Employers should withhold from any amount above 66 cents for all future payments of a car allowance. Failure to do so may result in the employee having a tax liability when he or she lodges a tax return.
      Employees who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.
      See your tax professional if you require more information about this change.
      Superannuation rates and thresholds for 2016-17
      The ATO has released the key superannuation rates and thresholds for 2016-17. The rates apply to contributions and benefits, employment termination payments, super guarantee and co-contributions and include the following:

      • Concessional contributions cap
        The general concessional contributions cap is $30,000 for those aged under 49 years old. A higher cap of $35,000 applies to those aged 49 years or over on 30 June 2015.
      • Non-concessional contributions cap
        The non-concessional contributions cap is $180,000.

      People aged under 65 years may be able to make non-concessional contributions of up to 3 times their non-concessional contributions cap for the year, over a three-year period. This is known as the “bring-forward" option.

      • Maximum superannuation contribution base
        The maximum superannuation contribution base for 2016-17 is $51,620 per quarter.
      • Superannuation co-contributions
        If you are an eligible low or middle income earner and make personal (after-tax) contributions to your super during a financial year, the government will match your contribution with a co-contribution up to a certain amount. The maximum superannuation co-contribution entitlement for the 2016-17 year remains at $500. However, the lower income threshold increases to $36,021 and the higher income threshold increases to $51,021.

      A summary of the past 5 years’ relevant income thresholds is below:

      Financial year

      Lower income threshold

      Higher income threshold

      Maximum entitlement

      2016-17

      $36,021

      $51,021

      $500

      2015-16

      $35,454

      $50,454

      $500

      2014-15

      $34,488

      $49,488

      $500

      2013-14

      $33,516

      $48,516

      $500

      2012-13

      $31,920

      $46,920

      $500

      Lost and unclaimed superannuation
      In the 2015-16 Federal Budget, the government announced it will implement a package of
      measures to reduce red tape for superannuation funds and individuals by:

      • removing redundant reporting obligations; and
      • streamlining lost and unclaimed superannuation administrative arrangements.

      The changes are intended to make it easier for individuals to be reunited with their lost and unclaimed superannuation.

      The Treasury will work with the ATO and superannuation industry stakeholders to implement these changes, which will be rolled out progressively from 31 December 2015. For a detailed description of the proposed changes please visit the ATO website.

      Work-related car expenses, third party reporting and other measures – amendments now law

      In previous editions of TaxWise, we noted changes that were going to occur in the following areas:

      • work-related car expenses;
      • Zone Tax Offset;
      • FBT concessions on salary packaged entertainment benefits; and
      • third party reporting.

      The changes have now become law. See earlier editions of TaxWise (and above in relation to the FBT concessions on salary packaged entertainment benefits and work-related car expenses) for details of the changes.

      Note!

      If you think any of these changes may affect you, speak to your tax adviser who will be able to advise you if these changes impact your personal circumstances.

      Accessing business profits through an interposed partnership with a private company partner – TA 2015/4

      On 12 November 2015, the ATO issued a Taxpayer Alert about arrangements where a purported partnership with a private company partner is used to enable individuals to access business profits without paying top-up income tax at their marginal rates of tax: TA 2015/4 (12 November 2015).

      The ATO is currently reviewing arrangements where profits are claimed to be directed through a purported partnership that has a private company as a partner. Most of the profits are taxed to the private company at the corporate tax rate, but are accessed by one or more individuals without paying additional tax reflecting their higher marginal tax rate.

      The ATO is currently undertaking a pilot compliance program reviewing a number of cases involving arrangements of this type and will be engaging with additional taxpayers over the coming months.

      To do!

      Should you be involved in arrangements of this kind, talk to your tax adviser to see if your arrangement could come under review by the ATO.

      Reviewing taxable payments annual reports

      Are you a contractor in the building and construction industry? If so, you should be aware that the ATO is contacting businesses in the building and construction industry about information that businesses have provided on their Taxable Payments Annual Report. The ATO will be contacting businesses who have:

      • provided a report with missing or invalid ABNs;
      • included amounts paid for GST when the contractor isn’t registered for GST;
      • not lodged a report, when ATO records indicate they should;
      • advised the ATO they are not required to report, but the ATO’s records indicate the business should have reported.

      The ATO will advise businesses that are reviewed what the review has found and will suggest ways to make it easier for the business to complete their reports more accurately in the future, such as using the ABN Lookup tool or ATO app to check a contractor’s ABN or if they are registered for GST.
      This may impact the kind of information businesses ask contractors to provide. It may be best to review your ABN registration to ensure all the details recorded on the Australian Business Register about your registration are accurate (www.abr.gov.au).

      Changes to Family Tax Benefits

      • Restriction on the availability of Family Tax Benefit Part B for couple families

      From 1 July 2016, Family Tax Benefit Part B will not be available for ‘couple families’ (other than grandparents and great-grandparents) with a youngest child aged 13 or over.

      Single parents, grandparents and great-grandparents caring for a youngest child aged 13 to 18 will continue to have access to Family Tax Benefit Part B (subject to satisfying other relevant requirements). 

      These measures have now become law and was introduced by the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 on 21 October 2015.

      On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to introduce two 2015 Budget measures: Social Services Legislation Amendment (Family Measures) Bill 2015.
      This Bill will introduce the following 2015 Budget measures:

      • Portability of Family Tax Benefit

      From 1 January 2016, the Bill will reduce to six weeks the length of time for which Family Tax Benefit Part A, and additional payments that rely on Family Tax Benefit eligibility, will be paid to recipients who are outside Australia (known as ‘portability’). The ‘portability’ extension, and exemption provisions that allow longer portability under special circumstances, will continue to apply.
      This measure will align the portability rules for Family Tax Benefit Part A with those for Family Tax Benefit Part B and most income support payments.

      • Cease the large family supplement

      The large family supplement will cease from 1 July 2016. The supplement is a component of Family Tax Benefit Part A, and is currently paid at a rate of $324.85 per year (or $12.46 per fortnight) for the fourth and each subsequent Family Tax Benefit child in the family.

      On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to make further reforms to Family Tax Benefit Part A and Part B: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No 2) 2015.

      • Reform Family Tax Benefit Part A and at-home under-18 year old youth fortnightly rates

      Family Tax Benefit Part A fortnightly rates will be increased by $10.08 for each Family Tax Benefit child in the family aged up to 19. An equivalent rate increase, of around $10.44 per fortnight, will apply to youth allowance and disability support pension recipients aged under 18 and living at home. These increases will apply from 1 July 2018.

      • Reforms to Family Tax Benefit Part B

      From 1 July 2016, the Bill will introduce a new rate structure for Family Tax Benefit Part B, and make other amendments to the rules for Part B, to:

      • increase the standard rate by $1,000.10 per year for families with a youngest child aged under one;
      • maintain the current standard rate for families with a youngest child;
      • maintain the current standard rate for families with a youngest child aged between five and 13;
      • maintain the current standard rate for single parents who are at least 60 years of age, grandparents and great-grandparents with a youngest child aged between 13 and 18; and
      • introduce a reduced standard rate of $1,000.10 per year for individuals with a youngest child aged 13 to 16 (currently $2,737.50) who are not single parents aged 60 or more or grandparents or great-grandparents.
      • Phase out the Family Tax Benefit Part A and Part B supplements

      The Bill will phase out the Family Tax Benefit Part A supplement by reducing it to $602.25 a year from 1 July 2016, and to $302.95 a year from 1 July 2017. It will then be withdrawn from 1 July 2018.
      The Family Tax Benefit Part B supplement will also be phased out. It will be reduced to $302.95 a year from 1 July 2016, and to $153.30 a year from 1 July 2017. It will then be withdrawn completely from 1 July 2018.

      To do!

      Some of these changes have now made their way into law and others are not far away from becoming law. It may be a little confusing to work out exactly how you might be affected by these changes if you are eligible for either Family Tax Benefit Part A or Part B. Therefore, you should seek professional advice from your tax agent or adviser to work out the precise impact on you, if any, of these changes.

      ‘Certainty’ letters being issued by the ATO

      The ATO will be contacting more than 500,000 taxpayers through a pilot program it is running to let them know that their recently submitted 2014-15 tax returns are finalised and will not be subject to any further review.

      The ATO says that individuals who receive a ‘certainty’ letter can be assured that the ATO is happy with their tax return, and has closed the books permanently on the return, provided there is no evidence of fraud or deliberate avoidance of tax.

      The letter is intended to acknowledge and provide certainty to taxpayers who meet their obligations with their tax. Receiving this letter means the ATO has completed its routine information checks on a recipient’s tax return and is satisfied with the information provided. There will be no further review or audit of that return.

      The letter is being trialled with a sample of people who meet certain criteria. These include:

      • the taxpayer lodged his or her return electronically by myTax, e-tax or via a tax agent;
      • the taxpayer had taxable income under $180,000;
      • the taxpayer’s income was only from salary or wages, allowances, Australian government allowances and payments, gross interest and dividends;
      • deductions claimed were work-related expenses, interest or dividend deductions, gifts and donations or cost of managing tax affairs;
      • a range of other factors, including good lodgement, compliance and debt history;
      • the taxpayer had straight-forward tax affairs (such as no links to other entities).

      Not everyone who meets the criteria will receive a letter during the pilot. Depending on the success of the pilot, the ATO aims to expand this program to more taxpayers for tax time 2016.

      For more information, go to the ATO website.

      National Innovation and Science Agenda – tax changes announced

      On 7 December 2015, a suite of new tax and business incentive measures was announced under the Commonwealth government’s National Innovation and Science Agenda (NISA): Prime Minister’s media release (7 December 2015); Treasurer’s media release (7 December 2015).

      The intention is that the government’s tax and business incentives under the NISA will encourage smart ideas to encourage innovation, risk taking and build an entrepreneurial culture in Australia.

      Tax and business incentives

      The following tax and business incentive measures have been announced as part of the agenda. The government will:

      • provide new tax breaks for early stage investors in innovative start-ups. Investors will receive a 20% non-refundable tax offset based on the amount of their investment, as well as a capital gains tax exemption. This scheme is based on the successful Seed Enterprise Investment Scheme in the United Kingdom, which has resulted in over $500 million in funding to almost 2,900 companies in its first two years. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
      • build on the recent momentum in venture capital investment in Australia including by introducing a 10% non-refundable tax offset for capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLPs), and increasing the cap on committed capital from $100 million to $200 million for new ESVCLPs. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
      • relax the “same business test" that denies tax losses if a company changes its business activities, and introduce a more flexible “predominantly similar business test". This will allow a start-up to bring in an equity partner and secure new business opportunities without worrying about tax penalties. Legislation is expected to be introduced in the first half of 2016. The “predominantly similar business test" will apply to losses made in the current and future income years
      • remove rules that limit depreciation deductions for some intangible assets (like patents) to a statutory life and instead allow them to be depreciated over their economic life as occurs for other assets. The new arrangements will apply to assets acquired from 1 July 2016.

      Small businesses and start-ups

      The government will:

      • support incubators which play a crucial role in the innovation ecosystem to ensure start-ups have access to the resources, knowledge and networks necessary to transform their ideas into globally scalable new businesses; and
      • make existing employee share scheme (ESS) rules more user friendly. The new rules will allow companies to offer shares to their employees without having to reveal commercially sensitive information to their competitors. These changes build on the recent reforms to ESS, which included deferring the taxing point for employees and introducing an additional concession for those working in start-up companies. Legislation is expected to be introduced in the first half of 2016.

      The full text of the National Innovation and Science Agenda is available on the NISA website.

      Should you have any plans to invest in start-up, or to start your own, it would be worth seeking advice from your tax adviser about these proposed changes,
      Paper activity statements to stop for myGov users and electronic lodgers
      Individual and sole trader taxpayers who have myGov accounts linked to the ATO will no longer receive paper activity statements or instalment notices.
      If you previously received paper statements, all your activity statements or instalment notices will now be delivered electronically.
      When an activity statement or instalment notice is ready, the ATO will send a message to your myGov Inbox. To lodge or pay, you should simply click the link in the message to go to the ATO’s online services for individuals and sole traders.
      However, before proceeding to lodge, it would be worth asking your tax agent for assistance with this lodgement obligation.
      Going overseas to work?

      If you are planning on living and working overseas, there are some things you should fix up with the ATO before you go. Your tax adviser will be able to tell you about what you will need to do before leaving Australia. For example, where you have a HELP debt, make sure you update your contact details with the ATO.

      You should also note that once you earn a certain amount of income overseas, you will need to make payments towards your HELP debt.

      More information about this can be found on the ATO website.
      Also, if you work overseas, for 91 days or more, you may or may not need to pay tax on the income you earn overseas. For example you might get a credit for tax you pay overseas. More information about what you need to do can be found on the ATO website.

      Data matching programs

      The ATO is undertaking a number of data matching programs that may impact you as an individual taxpayer depending on what sort of activities you have been engaged in. Should you have any concerns about these data matching programs or have received correspondence from the ATO about any of them, you should speak with your tax adviser.

      The ATO has announced that it will acquire details of real property transactions for the period 20 September 1985 to 30 June 2017 from State and Territory revenue and land titles departments and offices and rental bond authorities in every State and Territory in Australia: Australian Government Gazette No C2015G02019 (8 December 2015).

      The objectives of this data matching program are to:

      • obtain intelligence about the acquisition and disposal of real property and identify risks and trends of non-compliance across the broader compliance program;
      • identify a range of compliance activities appropriate to address risks with real property transactions by taxpayers;
      • work with real property intermediaries to obtain an understanding of the risks and issues, as well as trends of non-compliance;
      • gain support and input into compliance strategies to minimise future risk to revenue;
      • promote voluntary compliance and strengthen community confidence in the integrity of the tax system by publicising the outcomes of the data matching program; and
      • ensure compliance with registration, lodgment, correct reporting and payment of taxation and superannuation obligations
      • Data matching on insurance asset classes

      The ATO is currently working with insurance providers to identify policy owners on a wider range of asset classes. These asset classes include:

      • Marine;
      • Aviation;
      • enthusiast motor vehicles;
      • fine art; and
      • thoroughbred horses.

      The purpose of the ATO obtaining this information is to gain a better understanding of certain taxpayers’ wealth and to help the ATO to provide tailored services to taxpayers to ensure they meet their tax obligations.
      During January and February, the ATO will issue formal notices to insurers to provide the ATO with these policy details. The ATO anticipates it will receive 100,000 records where the different asset classes meet certain threshold amounts.

      • Ride sourcing – data matching program

      The ATO has given notice of a data matching program pursuant to which it will acquire data to identify individuals that may be engaged in providing ride sourcing services during the 2013-14, 2014-15 and 2015-16 financial years: Commonwealth Gazette C2015G01623 (7 October 2015).
      Details of all payments to ride sourcing providers from identified accounts held by ride sourcing facilitators with various financial institutions will be requested for those financial years. Ride sourcing facilitators provide an electronic platform enabling members of the public to engage the services of a ride sourcing provider (eg, a driver).
      The data acquired will be electronically matched with certain sections of ATO data holdings to identify taxpayers that can be provided with tailored information to help them meet their tax obligations, or to ensure compliance with taxation law.
      The ATO will obtain the following data items from the source entities:

      The ATO has given notice of a data matching program under which it will acquire online selling data relating to registrants who sold goods and services to a value of $10,000 or more during the period 1 July 2014 to 30 June 2015: Commonwealth Gazette C2015G01628 (8 October 2015).
      Data will be sought from eBay Australia and New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au.
      The data requested will include information that enables the ATO match online selling accounts to a taxpayer, including name, address and contact information as well as information on the number and value of transactions processed for each online selling account. This acquired data will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with taxation law.
      It is estimated that records relating to between 15,000 and 25,000 individuals will be matched.

      The ATO has given notice of a data matching program under which the Department of Immigration and Border Protection will provide the ATO with names, addresses and other details of visa holders, their sponsors and migration agents for the 2013-14, 2014-15, 2015-16 and 2016-17 financial years: Commonwealth Gazette C2015G01712 (21 October 2015).

      DISCLAIMER

      Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

      Phone, internet and home phone expense claims

      The ATO has issued an information sheet setting out how taxpayers can claim phone and internet expenses.
      Basically, it revolves around taxpayers keeping a 4-week diary so they can apportion the expenses between work and private use.
      Unfortunately, unlike the person*, or persons*, responsible for this information sheet, other workers are generally not mentally attuned to this sort of regime of keeping such a diary.
      That said, clients will still expect their tax agent to claim the highest amount possible.
      Now that this unfortunate document has seen the light of day, tax agents will need to advise those clients who made a similar claim in their 2015 return, that they will need to keep a 4- week diary – every year!
      The fun will start next year when the clients come in with no diary, and high expectations of a big refund!
      (*) An ATO investigator once told us that, at the ATO, they have to do so much paperwork for something simple like taking an ATO car out that they find paperwork like this run-of the-mill. No wonder they think a 4-week diary is normal!

      Claiming mobile phone, internet and home phone expenses

      Where taxpayers use their own phone(s) or internet for work purposes, they may be able to claim a deduction if they paid for these costs and have records to support their claims.
      If they use their phone(s) or internet for both work and private use, they will need to work out the percentage that reasonably relates to their work use.

      Substantiating claims

      To claim a deduction of more than $50, taxpayers need to keep records for a 4-week representative period in each income year.
      These records may include:

      • diary entries – including electronic records;
      • bills; and preferably
      • evidence that their employer expects them to work at home, or make some work-related calls.

      How to apportion work use of a taxpayer’s phone

      Incidental use
      If a taxpayer’s work use is incidental and they are not claiming a deduction of more than $50 in total, they may make a claim based on the following, without having to analyse their bills:

      • $0.25 for work calls made from their land line;
      • $0.75 for work calls made from their mobile; and,
      • $0.10 for text messages sent from their mobile.

      Usage is itemised on bills

      Taxpayers who receive an itemised bill will need to determine their percentage of work use over a 4-week representative period which can then be applied to the full year.
      They need to work out the percentage using a reasonable basis.
      This could include:

      • the number of work calls made as a percentage of total calls;
      • the amount of time spent on work calls as a percentage of total calls; and
      • the amount of data downloaded for work purposes as a percentage of total downloads.

      Where usage is not itemised on bills

      Taxpayers on a phone plan where they don’t receive an itemised bill, should determine their work use by keeping a record of all their calls over a 4-week representative period, and then calculate their claim using a reasonable basis.

      Bundled phone and internet plans

      Phone and internet services are often bundled. When taxpayers are claiming deductions for work-related use of one or more services, they need to apportion their costs based on their work use for each service.
      If other members in their household also use the services, they need to take into account their use in the calculation.
      Taxpayers with bundled plans need to identify their work use for each service over a 4-week representative period during the income year.
      This will allow them to determine their pattern of work use, which can then be applied to the full year.
      A reasonable basis to work out their work- related use could include:

      Internet

      • the amount of data downloaded for work as a percentage of the total data downloaded by all members of the household; and
      • any additional costs incurred as a result of their work-related use – for example, if their work-related use results in their exceeding their monthly cap.

      Phone

      • the number of work calls made as a percentage of total calls;
      • the amount of time spent on work calls as a percentage of their total calls; and
      • any additional costs incurred as a result of their work-related calls – for example, if their work-related use results in their exceeding their monthly cap.

      Example – Apportioning bundled services

      Mary has a $100 per month home phone and internet bundle.
      The bill identifies that the monthly cost of Mary’s phone service in her bundle is $40, and her internet service is $60.
      She also has a mobile phone plan of $90 per month, and receives a $10 per month discount.
      Her total costs for all services are $180 per month.
      Mary worked for 11 months during the income year, having had one month of leave.
      Based on her itemised accounts, Mary determines that the work-related use of her mobile phone is 20%.
      She also uses her home internet for work purposes and, based on her use, she determines that 10% of her use is for work. She does not use her home phone for work calls.
      As the components are part of a bundle, Mary can calculate her work-related use as follows:

      Home internet use

      10% x $60 per month x 11 months = $66

      Mobile phone use

      20% x $80 x 11 months = $176
      In her tax return, Mary claims a deduction  of $242 for the financial year ($66 home internet use + $176 mobile phone use).
      In the second example provided in the ATO’s document, the taxpayer has a $90 per month home phone and internet bundle, and unlimited internet use as part of his plan.
      There was no clear breakdown for the cost of each service, so the ATO accepted that it is reasonable for the taxpayer to allocate 50% of the total cost to each service.
      The ATO also stated that, if a taxpayer purchased a smart phone, tablet or other electronic device and uses it for work, they can claim a deduction for a percentage of its cost.

        IN THIS ISSUE

      • Personal income tax cuts repeal
      • Changes to the Medicare levy
      • Dependent spouse tax offset and other amendments   
      • Employee share schemes – proposed changes are now law
      • Work-related car expense deductions
      • Superannuation
      • Self-managed superannuation funds
      • Receipt of individual interest in net income of partnership – draft TD 2015/D2
      • Small business Budget measures
      • Limiting fringe benefits tax concessions on salary packaged entertainment benefits
      • Reasonable travel and overtime meal allowance expense amounts for 2015-2016 – TD 2015/14
      • Tax integrity: Extending GST to digital products and other services imported by consumers
      • GST on low-value overseas online transactions
      • ATO focus on rental property deductions
      • ATO focus on high work-related expense claims
      • The ATO myDeductions tool for employees
      • Have you been selling goods online?
      • ATO issues guidance on the Sharing Economy
      • ATO warns about phony tax debt scam

      Personal income tax cuts repeal

      As part of the introduction of the carbon tax, two rounds of personal income tax cuts were to occur. The first round commenced on 1 July 2012. However, the second round of personal income tax cuts, scheduled to have begun on 1 July 2015, have recently been repealed.
      The second round of tax cuts was intended to have done the following:

      • Increase the tax free threshold to $19,400;
      • increase the second personal marginal tax rate to 33 per cent;
      • reduce  the maximum value of the Low Income Tax Offset (LITO) to $300;
      • reduce the withdrawal rate of the LITO to 1 per cent; and
      • increase the threshold below which a person may receive LITO to a taxable income of $67,000.

      As a result of the repeal, none of these changes will be made.

      Changes to the Medicare levy

      The following changes will be made to the Medicare levy starting from the 2014-2015 income year:

      • increase the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
      • increase the Medicare levy low-income threshold for single taxpayers eligible for the seniors and pensioners tax offset (SAPTO), in line with movements in the CPI, so that they do not have a Medicare levy liability where they do not have an income tax liability; and
      • increase the Medicare levy surcharge low-income threshold in line with movements in the CPI.

      Medicare levy low-income thresholds

      • The individual income threshold for the 2014-2015 income year is $20,896.
      • The family income threshold for the 2014-2015 income year is $35,261.
      • The child-student component of the family income threshold for the 2014-2015 income year is $3,238.
      • The threshold for single taxpayers eligible for the SAPTO for the 2014-2015 income year is $33,044.

      Phase-in limits

      • The individual phase-in limit for the 2014-2015 income year is $26,120.
      • The phase-in limit for taxpayers eligible for the SAPTO for the 2014-2015 income year is $41,305.

      Dependent spouse tax offset and other amendments

      The Tax and Superannuation Laws Amendment (2015 Measures No 1) Bill 2015 that has recently passed into law makes amendments in the following areas:

      • Cessation of the First Home Saver Accounts Scheme

      The Bill repeals the legislation providing for the First Home Saver Accounts (FHSAs) scheme, including the related tax concessions for the 2015-2016 income year and later income years.

      The repeal of the FHSAs scheme applies from 1 July 2015 for accounts opened in respect of applications made before 7.30 pm on 13 May 2014. Generally, accounts opened after this date will not be eligible to be first home saver accounts.

      • Abolishing the dependent spouse tax offset

      The Bill amends the tax legislation to:

      • abolish the dependent spouse tax offset (DSTO) from 1 July 2014;
      • expand the dependant (invalid and carer) tax offset (DICTO) by removing the exclusion in relation to spouses previously covered by the dependent spouse tax offset;
      • remove an entitlement to DSTO where it is made available as a component of another tax offset, and replace that component with a component made up of DICTO; and
      • rewrite the notional tax offsets covering children, students and sole parents that are available as components of other tax offsets.

      This measure applies to the 2014-2015 income year and all later income years.

      These measures have now been passed into law.

      To do!

      If you have been eligible for any of these tax offsets in the past, you should speak with your tax agent to find out how these changes may impact you.

      Employee share schemes – proposed changes are now law
      Proposed changes to the taxation of employee share schemes have now become law. The changes include:

      • reversing some of the changes made in 2009 to the taxing point for rights for employees of all corporate tax entities;
      • introducing a further taxation concession for employees of certain small start-up companies; and
      • supporting the ATO to work with industry to develop and approve safe harbour valuation methods and standardised documentation that will streamline the process of establishing and maintaining an ESS.

      Despite these changes already being made, changes to further improve the taxation of employee share schemes may be coming shortly. Keep an eye out for further information in future editions of TaxWise.
      Work-related car expense deductions

      Following the announcement in the 2015-16 Federal Budget, exposure draft legislation was released in July this year to “modernise and simplify” the calculation of work-related car expenses.
      The four available methods will be reduced to two. The “cents per kilometre” and “logbook” methods will be retained and the “12 per cent of original value” and the “one-third of actual expenses” methods will be removed.
      The “cents per kilometre” method will be amended so that the three current rates based on engine size will be replaced with one rate set at 66 cents per kilometre, which applies to all motor vehicles.
      Revisions to the rate will be made by the Commissioner in future income years.
      Though not law yet, this change applies from 1 July 2015.

      2)PAYG withholding variation: allowances – cents per km car expenses
      On 17 June 2015 the ATO made a legislative instrument which varies the amount of withholding required by a payer under the PAYG withholding system for allowance payments in certain circumstances: Taxation Administration Act 1953 – Pay as you go withholding – PAYG Withholding Variation: Allowances (legislative instrument F2015L01047; registered 30 June 2015).
      The legislative instrument revokes and replaces the previous instrument, Taxation Administration Act 1953 – PAYG Withholding Variation: Allowances (legislative instrument F2013L00521; registered 21 March 2013). That instrument provided a variation to the rate of withholding from a number of allowances when certain conditions are met. Broadly, the variation applies in certain cases when the allowance is expected to be fully expended on tax deductible items and the payee would not be required to substantiate expenditure incurred in relation to the allowance.
      The new instrument differs from the previous instrument in only one respect. The variation for cents per kilometre car expense payments has been adjusted because of the proposed change to the calculation rules noted above.
      The variation for cents per kilometre car expense payments will now apply for up to 5,000 business kilometres at:

      • 66 cents per kilometre for the year commencing on 1 July 2015, or
      • the rate published by the Commissioner for later years.

      Where the allowance for car expenses is no more than the published rate, then no withholding will be required for payments up to 5,000 kilometres for a financial year. Withholding will be required from payments for distances travelled beyond 5,000 kilometres in a financial year.
      If the per kilometre rate paid exceeds the published rate withholding will be required from the amount of each payment which exceeds the amount calculated at the published rate.

      To do!

      Your employer also needs to be aware of the changes to the PAYG withholding requirements.

      Seek advice from your tax adviser about how best to manage these changes that apply for the 2015-16 financial year onwards.

      Superannuation

      On 7 May 2015 the Assistant Treasurer announced that the government will amend the provision for accessing superannuation for people suffering a terminal illness. This follows representations by Breast Cancer Network Australia and other organisations: Assistant Treasurer’s media release “Early access to superannuation for people with terminal illness" (7 May 2015).
      Under the current provision for early access to superannuation, a person with a terminal illness is required to obtain a certification from medical specialists that he or she has less than 12 months to live.
      This has proven difficult for some people, including women with secondary breast cancer diagnosis. Understandably, they want access to their money as they may experience significant financial burden associated with treatment costs or want to make the most of their time with their families.
      On 25 June 2015, the government amended the relevant regulations to change the life expectancy period to 24 months, with the change taking effect from 1 July 2015.

      On 28 May 2015, the Small Business Minister introduced a bill to remove the obligation for employers to offer a choice of superannuation funds to temporary resident employees, or when superannuation funds merge. The changes are to apply from 1 July 2015.

      In particular, these changes are intended to reduce compliance costs for businesses operating in industries that employ a high volume of individuals on working holiday visas, such as in hospitality and agriculture.

      Employees in these situations will retain the right to choose a superannuation fund if they wish to do so. Employers will not be required to give employees a standard choice form if the employee holds a temporary visa as defined by the Migration Act 1958 nor in the circumstance when their superannuation benefits are transferred from a chosen fund or a default fund to a successor fund as a result of a superannuation fund merger arrangement.

      These changes have now become law.

      The ATO has advised that from July 2015, it expects to start issuing elections to individuals with excess non-concessional contributions in 2013-2014. The election allows individuals to tell the ATO how they would like their excess non-concessional contributions to be treated.
      Upon receipt of an election, where an individual has chosen to have their excess non-concessional contributions (and associated earnings) withdrawn from their super fund, the ATO will issue the nominated super fund with a release authority to have the money withdrawn. Funds can expect to start receiving release authorities from July 2015.

      Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.

      From 1 July 2013, individuals have the option of withdrawing their excess non-concessional contributions along with 85% of associated earnings for those excess contributions from their superannuation fund. The full associated earnings amount will be included in assessable income and taxed at marginal tax rate in the year the excess contributions were made. The individual will also receive a 15% tax offset to recognise that the associated earnings are taxed in the fund.

      If you have superannuation that the ATO is holding on your behalf, you are now able to claim that superannuation through the MyGov website. The ATO has recently enhanced this function to allow ATO-held super to be paid directly to individuals, where eligible. Previously, ATO-held super had to be transferred to an existing super fund. For more go to the ATO website.

      Tip!

      Superannuation is often an area that most of us don’t pay much attention to. It’s a good idea to stay on top of superannuation changes, particularly the changes that affect your personal circumstances, and any super that you might have forgotten about. Your tax adviser will be able to assist you with any of your superannuation queries.

      Self-managed superannuation funds

      The ATO has warned members of self-managed super funds (SMSF) against claiming franking credit benefits by channelling dividends from shares in private companies through SMSFs.

      The practice occurs when a member of an SMSF with interests in a private company transfers his or her interest to a SMSF and then distributes retained profits and franking credits through the SMSF. The SMSF then claims the franking credit tax offset which results in the tax paid by the company being refunded directly to the SMSF which can then be distributed to the member tax free.

      The ATO believes that SMSF members approaching retirement age are more likely to get involved in these schemes because profits from shares are tax exempt as they are treated as supporting the payment of pensions. The ATO may undertake compliance activity seeking to apply the taxation and superannuation provisions, including anti-avoidance rules to such arrangements. The ATO will also consult on the application of relevant anti-avoidance provisions and consider a public ruling on such arrangements.

      Any taxpayers involved in similar arrangements should review their taxation affairs and consider seeking independent advice from an advisor not involved with the arrangement.

      The ATO is reviewing the returns of self-managed superannuation funds (SMSFs) which have received distributions from a discretionary trust.
      Distributions of income to SMSFs from discretionary trusts are considered to be non-arm’s length income, which is taxed at the highest marginal rate.
      Trustees of SMSFs (or their advisors) will receive an ATO letter asking them to contact the trustee of the distributing trust and review the trust deed and any resolutions to determine whether the amount reported in the annual return is non-arm’s length income. Returns may need to be amended as a result of this review.

      To do!

      Seek the assistance of your tax agent or adviser if you receive one of these letters.

      Receipt of individual interest in net income of partnership – draft TD 2015/D2
      In June this year, the ATO issued a draft taxation determination TD 2015/D2 entitled “Income tax: if a retiring partner receives an amount representing their individual interest in the net income of the partnership for an income year, is the amount assessable under section 92 of the Income Tax Assessment Act 1936?"
      The draft determination answers this question as ‘yes’. Subject to paragraph 3 of the draft determination, the amount is included in the partner’s assessable income for the income year under section 92 of the ITAA 1936.
      This is the case regardless of:

      • how the payment is labelled or described (including whether the payment is expressed to be consideration for something provided or given up by the partner); and
      • the timing of the partner’s retirement (including whether the partner retires before the end of the income year);  and
      • the timing of the payment.

      However, according to the draft determination, an amount is not assessable under section 92 to the extent that it represents net income of the partnership which is attributable to both a period when the partner was not a resident of Australia, and sources outside of Australia.

      To do!

      If you are part of a partnership, it would be useful to keep track of the progress of the ATO’s ruling on this issue, particularly if one of your partners, or you, is close to retiring from the partnership.

      Small business Budget measures
      More of the small business tax measures announced in the 2015-16 Federal Budget have recently passed through Parliament, including:

      • Tax rate cut for other business entities – A 5% tax discount for individual taxpayers capped at $1,000 with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will be introduced from the 2015-16 income year.

      The amount of the tax offset is 5% of the income tax payable on the portion of an individual’s income that is small business income, that is 5% of the person’s “total net small business income". An individual’s “total net small business income" is comprised of the “net small business income" they make as a small business entity, together with any share of the “net small business income" of a small business entity that is included in the individual’s assessable income.
      In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled to the extent the deductions are attributable to the income. Where an individual has a share of the net small business income of another entity included in his or her assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent the deductions are attributable to the share of the entity’s net small business income.

      • Electronic devices and FBT – The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.

      The exemption is extended to small businesses that provide employees with more than one work-related portable electronic device, even where the devices have substantially identical functions.
      Currently, a portable electronic device is not exempt from FBT if, earlier in the same FBT year, the employer has provided the employee, by way of an expense payment or property benefit, with an item that has substantially identical functions.
      For small businesses, this limitation will be removed with respect to portable electronic devices. Small business employers will be allowed an FBT exemption for multiple portable electronic devices provided to the same employee in the same FBT year, even if those devices have substantially identical functions.

      • Professional expenses – new businesses will be able to claim an immediate deduction for professional expenses (eg for the cost of advice from lawyers, accountants and other professionals) associated with starting a business from the 2015-16 income year.

      This will include government fees and charges as well as costs associated with raising capital that are presently only deductible over five years.
      For expenses to be immediately deductible, the entity claiming the deduction must be:

      • a small business entity; or
      • not carrying on a business and not connected with, or an affiliate of, an entity that carries on a business that is not a small business entity;

      for the income year in which the deduction is claimed.
      Immediate deductibility will be available for only two categories of expenditure:

      • expenditure on advice or services relating to the structure or the operation of the proposed business (including costs associated with raising capital, whether debt or equity); and
      • payment to an Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure.

      The amendments do not apply to expenditure incurred in relation to an ongoing business or a business that has ceased to operate (including expenditure relating to the liquidation or winding up of an entity).
      The amendments will apply to expenditure incurred in the 2015-2016 income year and later income years. The amendments will have retrospective application to a small group of taxpayers with substituted accounting periods for the 2015-2016 income year that commence before 1 July 2015.

      Tip!

      Do you have a small business? Are you thinking of setting up a new small business? If so, you should speak to your tax adviser to see if any of these new measures might apply to your business.

      Limiting fringe benefits tax concessions on salary packaged entertainment benefits
      In late June 2015, exposure draft legislation was released for consultation in relation to the 2015-2016 Federal Budget measure that will limit the FBT concessions on salary packaged entertainment benefits.
      The measure, which applies from 1 April 2016, will introduce a separate single grossed-up cap of $5,000 for salary packaged meal entertainment and entertainment facility leasing expenses (entertainment benefits) for employees of public benevolent institutions, health promotion charities and employees of public and not-for profit-hospitals and public ambulance services. Currently these employees can salary package entertainment benefits with no FBT payable by the employer and without the benefits being reported.
      All salary packaged entertainment benefits will also become reportable fringe benefits.

      Note!

      If you have salary packaged entertainment benefits from your employer, you should consult your tax adviser to see if this proposed law change affects you in any way.

      Reasonable travel and overtime meal allowance expense amounts for 2015-2016 – TD 2015/14
      On 1 July 2015 the ATO issued taxation determination TD 2015/14 “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year?"
      The determination sets out the amounts that the Commissioner considers are reasonable (reasonable amounts) for the substantiation exception in the income tax legislation for the 2015-2016 income year in relation to claims made for:

      • overtime meal allowance expenses – for food and drink in connection with overtime worked and where a meal allowance has been paid under an industrial instrument;
      • domestic travel allowance expenses – accommodation, food and drink, and incidentals that are covered by the allowance;
      • travel allowance expenses for employee truck drivers – food and drink that are covered by the allowance; and
      • overseas travel allowance expenses – food and drink and incidentals that are covered by the allowance.

      Tax integrity: Extending GST to digital products and other services imported by consumers

      On Budget Night, the Commonwealth Treasury released an exposure draft Bill and associated explanatory material which amend the GST law to give effect to the 2015-2016 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

      This measure does not commence until 1 July 2017, so there is quite a long lead time before this measure will be enacted. However, it is good to be aware that this change will soon be coming.
      GST on low-value overseas online transactions
      At the Australian Leaders’ Retreat held in Sydney on 22 July 2015, the Prime Minister, First Ministers from each State and Territory, and the President of the Australian Local Government Association agreed to keep Commonwealth and State tax changes on the table including the GST and the Medicare levy: Australian Leaders’ Retreat Communiqué (23 July 2015).
      As a first step, there was agreement in principle to broaden the GST to cover overseas online transactions under $1,000. This matter will be referred to the meeting of Treasurers that was to be held on 21 August 2015 to progress in detail.
      At the time of writing, no further details on proposed changes to the $1,000 were available and the Treasurers’ meeting had not yet occurred.
      Should the proposed changes be proceeded with, later issues of TaxWise Individual will contain any necessary updates.
      ATO focus on rental property deductions
      The ATO says that it will have an increased focus on rental property deductions this Tax Time and is encouraging rental owners to double-check that their claims are correct before lodging their tax returns.
      In particular, the ATO is paying close attention to:

      • excessive deductions claimed for holiday homes;
      • husbands and wives splitting rental income and deductions for jointly owned properties where such claims are not supported;
      • claims for repairs and maintenance shortly after the property was purchased; and
      • interest deductions claimed for the private proportion of loans.

      While the ATO will be paying closer attention to these issues in 2015, it will also be actively educating rental property owners about what they can and cannot claim.
      For example, the ATO will be writing to rental property owners in popular holiday locations, reminding them to claim only the deductions they are entitled to, for the periods the property is rented out or is genuinely available for rent.
      Your tax adviser will be able to assist you with ensuring you make the correct claims against your rental property.

      Tip!

      Your tax adviser is well-equipped to assist you to make appropriate claims for deductions against rental income you may have earned. Seek their advice and assistance to ensure you claim the right amounts.

      ATO focus on high work-related expense claims

      The ATO has warned that this year the ATO will be focusing on unusually high work-related expense claims across all industries and occupations, a much wider approach than in previous years.

      The ATO says that its ability to identify and investigate claims that differ from the norm is improving each year at a rapid rate due to enhancements in technology and the use of data.

      This means that every return is scrutinised and it is becoming a lot easier to identify claims that are significantly higher than those claimed by people with similar occupations and employment income.

      In addition to focusing on work-related expense claims that are significantly higher than expected, the ATO will also be paying particular attention to claims:

      • that have already been reimbursed by employers; and
      • for private expenses such as travel from home to work.

      Note!

      If you have not yet done your 2014-15 income year tax return, you should make sure that any claims you intend to make you are entitled to. If you are unsure what you are entitled to claim or how much of an expense you can claim, you should always seek the advice and assistance of a tax agent. Also, they will be able to tell you about expenses you might be able to claim that you hadn’t even thought of!

      Tip!

      The ATO has released some handy information about claiming mobile phone, internet and home phone expenses.

      The ATO myDeductions tool for employees

      The ATO has launched a tool for individuals who are employees claiming work-related expenses. The myDeductions tool is intended to make it easier and more convenient to keep individual income tax-related deductions all in one place.

      The myDeductions tool can be used to:

      • capture and classify work-related expenses, gifts and donations or the cost of managing tax affairs
      • store photographs of receipts
      • record car trips.

      Tip!

      This might be a handy new tool to record your deductions throughout the year, but your tax agent is still the best source of information to help you know what you should be recording. Consider sitting down with them now to talk about the kinds of expenses you should retain information about throughout the income year to help you prepare for your 2015-16 return.

      Have you been selling goods online?

      Have you been selling goods online? If so, you should note that the ATO has announced that it has set up the ‘2014 Online Selling Data Matching Program’ through which it will request and collect online selling data relating to registrants that sold goods and services of a total value of $10,000 or more for the period from 1 July 2013 to 30 June 2014.

      The data the ATO acquires will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with registration, reporting, lodgement and payment obligations under taxation law.

      ‘Data providers’ are included in the program based on the following principles:

      • the data owner or its subsidiary operates a business in Australia that is governed by Australian law;
      • the data owner provides an online market place for businesses and individuals to buy and sell goods and services;
      • the data owner tracks the activity of registered sellers;
      • the data owner has clients whose annual trading activity amounts to $10,000 or more;
      • the data owner has trading activity for the year in focus;
      • where the client base of a data owner does not present an omitted or unreported income risk, or the administrative or financial cost of collecting the data exceeds the benefit the data may provide, the data owner may be excluded from the program.

      Data will be sought from eBay Australia & New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au.

      Through this program, the ATO will be able to:

      • address the compliance behaviour of individuals and businesses selling goods and services via the online selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgment and reporting for goods and services tax; and
      • be more strategic in its approach to determine appropriate educational and compliance strategies to encourage voluntary compliance for taxpayers in the online selling market to ensure they meet their taxation obligations.

      It is expected that records relating to between 15,000 and 25,000 individuals will be matched.

      Note!

      If you have been selling goods online and you are concerned about whether you may be caught up in the ATO’s data matching program, speak with your tax agent to find out whether are likely to become involved in this program.

      ATO issues guidance on the Sharing Economy

      The ATO has released advice about the tax treatments of income earned from “sharing economy" activities. The “sharing economy" (also referred to as collaborative consumption, peer-to-peer or similar terms) is a way of connecting buyers (“users") and sellers (“providers") for economic activity.

      These activities are typically promoted via a website or app and include:

      • renting out a room, property or a car park (eg ‘Air BnB’);
      • providing odd jobs, errands, deliveries or more skilled services on an ad hoc basis; and
      • using a car to transport passengers for a fare (ride-sourcing) (eg Uber).

      The ATO points out that the same tax laws that apply to activities conducted in a conventional manner apply to activities in the sharing economy. If you have provided any of these services, you might have income to declare, expenses to claim and GST obligations to meet.

      The ATO has released advice on the tax consequences of a range of collaborative consumption activities, including taxi travel through ride-sourcing (also known as ride-sharing or ride-hailing), provided as part of the “sharing economy". There are both GST and income tax implications for persons who make money from such activities.

      In particular, the ATO has confirmed that people who provide ride-sourcing services are providing “taxi travel" under the GST law. The existing tax law applies and so drivers are required to register for GST regardless of their turnover. That is, if you provide taxi travel in the course of carrying on an enterprise, you must register for GST no matter what your turnover might be; the normal registration turnover threshold does not apply. “Taxi travel" is defined in the GST Act as travel that involves transporting passengers, by taxi or limousine, for fares. This includes making a car available for public hire and using it to transport passengers for a fare.

      Drivers who offer taxi travel must register for GST, charge GST on the full fare, lodge business activity statements and report the income in their tax returns.

      However, recognising that some taxpayers may need to take some corrective actions, the ATO gave drivers until 1 August 2015 to get an ABN and register for GST.

      There is also advice on the provision of accommodation supplies, parking services and making offers to provide goods or services to a consumer.

      For more information, including advice about the involvement of “facilitators" (third parties who operate a website or mobile device application used to facilitate a transaction between a driver and a passenger), refer to the ATO website here, and here.
      ATO warns about phony tax debt scam
      The ATO is again warning the public to be aware of an aggressive phone scam circulating where fraudsters are intimidating people into paying a fake tax debt over the phone by threatening jail or arrest: ATO media release (6 July 2015).
      Second Commissioner Geoff Leeper has said that the ATO is very concerned about taxpayer privacy and is reminding people of the key differences between a scam of this nature and a genuine call from the ATO.
      “We make thousands of outbound calls to taxpayers a week, but there are some key differences to a legitimate call from the ATO and a call from a potential scammer" said Mr Leeper.
      “We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on
      13 28 69," said Mr Leeper.

      Important information taxpayers should remember:

      • The ATO would never cold call you about a debt. If you have a debt you will receive a letter or SMS to remind you that a payment is due in the first instance.
      • The ATO would never threaten jail or arrest.
      • If you receive a call from the ATO and are concerned about its legitimacy, ask for the caller’s name and phone them back through the ATO’s switchboard on 13 28 69.

      Mr Leeper also said that scammers pretending to be from the ATO are generally more common during tax time and encouraged people to be vigilant and to protect their personal information.

      If people think they may have fallen victim to a phone scam, they should contact the ATO on 13 28 69.

      For more information and examples of recent scams visit the ATO website or SCAMwatch.

      Note!

      If you are unsure about any contact you have received that is purportedly from the ATO, always contact your tax agent to see if the contact is legitimate, especially if your tax agent is your primary point of contact with the ATO and not your personal contact information.

      In this issue

      • Medicare Levy Surcharge and Private Health Insurance Rebate
      • Net Medical Expenses Tax Offset
      • Superannuation guarantee rate
      • Super contributions caps
      • Changes to superannuation excess concessional contribution cap
      • Are you paying super fund fees unnecessarily?
      • Time limits for Family Assistance lump sum payments
      • Dabbling in Bitcoin? What’s the ‘tax’ story?
      • What’s the ATO’s view of GST and crowdfunding?
      • Are you in a partnership?
      • Correcting arrangements involving private companies and shareholders and their associates
      • Nil activity statements must be lodged
      • If you work in the building and construction industry
      • Do you own a rental property?
      • Selling or closing down a business
      • ATO Updates
      • The Privacy Commissioner and the Tax File Number privacy rule

      MEDICARE LEVY SURCHARGE AND PRIVATE HEALTH INSURANCE REBATE

      INCOME THRESHOLDS
      Legislation was passed in October 2014 to pause for three years the income thresholds which determine the tiers for the Medicare levy surcharge and government rebate on private health insurance from the 2015-16 financial year. Usually the income amounts would be increased by an indexed amount, but this is not going to happen for the next three years. The tables below set out the income levels for singles and families and confirm the income amounts will remain the same from the 2015 to the 2018 income years:
      Singles

      Income Year

      Base Tier

      Tier 1

      Tier 2

      Tier 3

      2013-14

      $88,000 or less

      $88,001 – $102,000

      $102,001 – $136,000

      $136,001 or more

      2014-15

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2015-16

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2016-17

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2017-18

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      Family

      Income Year

      Base Tier

      Tier 1

      Tier 2

      Tier 3

      2013-14

      $88,000 or less

      $88,001 – $102,000

      $102,001 – $136,000

      $136,001 or more

      2014-15

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2015-16

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2016-17

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      2017-18

      $90,000 or less

      $90,001 – $105,000

      $105,001 – $140,000

      $140,001 or more

      It is anticipated indexation to increase the income amounts will begin again from the 2018-19 income year.

      PRIVATE HEALTH INSURANCE REBATE PERCENTAGE

      From 1 April each year, the private health insurance rebate percentages for premiums paid will be subject to an annual adjustment. The rebate adjustment factor is based on a formula that uses the Consumer Price Index and the average annual increase in premiums. The first annual adjustment occurred on 1 April 2014.

      This means there will be two different rebates to enter in your tax return for each tax year:

      • from 1 July 2014 to 31 March 2015, and
      • from 1 April 2015 to 30 June 2015.

      These different rebates appear on your private health insurance statement as two separate lines. Both must be entered on your tax return.

      The rebate amount for the period 1 July 2014 to 31 March 2015 is:

      Age range

      Base Tier

      Tier 1

      Tier 2

      Tier 3

      Under 65 years

      29.04%

      19.36%

      9.68%

      0%

      65 – 69 years

      33.88%

      24.20%

      14.52%

      0%

      70 years and over

      38.72%

      29.04%

      19.36%

      0%

      Please note:  These figures became available April 2015.

      PRIVATE HEALTH INSURANCE REBATE – REVERSAL OF AMENDMENTS
      The ATO has advised that it regularly matches data with health insurers to identify taxpayers who received the private health insurance (PHI) rebate through reduced premiums and have also claimed them in their income tax return. When this double claim occurs, the ATO automatically amends the taxpayer’s assessment to remove the rebate.
      The ATO has reviewed amendments to reverse double claims for the PHI rebate and has identified some that have been made outside the taxpayer’s period of review.
      The ATO says that in limited circumstances an assessment may be amended at any time to give effect to the provisions that relate to the PHI rebate.
      The ATO has advised that if there are taxpayers affected, the ATO will write to the taxpayer’s registered contact (this could be your tax agent) about this decision and tell them a notice of amended assessment will issue soon. If you have been affected by this, you may have already received a notice of amended assessment, in which case, you should talk to your tax agent about it.

      MEDICARE LEVY SURCHARGE AMOUNTS

      The following Medicare Levy surcharge amounts apply for the 2014-15 Income Year depending on which income tier you fall into (refer to the income tables above):

      Income Tier

      Base Tier

      Tier 1

      Tier 2

      Tier 3

      Surcharge amount

      0%

      1%

      1.25%

      1.5%

      TO DO!
      Completing your private health insurance rebate information in your tax return has become a little tricky with the introduction of an annual adjustment on 1 April for the private health insurance rebate percentages as now you have double the information to include in your return. See your tax agent for help in completing this part of return.

      NET MEDICAL EXPENSES TAX OFFSET

      As we’ve noted in previous editions of TaxWise, the phase-out of Net Medical Expenses Tax Offset (NMETO) began on 1 July 2013. To be eligible to claim the NMETO in the 2014-15 income year, you need to have been able to claim the offset and received it in your 2013-14 return. The NMETO is no longer available after 30 June 2015 unless the medical expenses you are claiming relate to specific medical items, such as disability aids, attendant care or aged care. However, only these expenses will be able to be claimed up to the 2018-19 income year.

      NOTE!
      The Net Medical Expenses Tax Offset is being phased out. You should check with your tax agent if you are still eligible to claim it.

      SUPERANNUATION GUARANTEE RATE

      Previous editions of TaxWise have noted the change in the superannuation guarantee rate amounts. The rates have been included again as, if you are an employee, you should make sure your employer is contributing the right amount into your superannuation account:

      Year

      Superannuation guarantee rate percentage

      From 1 July 2013

      9.25%

      From 1 July 2014

      9.5%

      From 1 July 2015

      9.5%

      From 1 July 2016

      9.5%

      From 1 July 2017

      9.5%

      From 1 July 2018

      9.5%

      From 1 July 2019

      9.5%

      From 1 July 2020

      9.5%

      From 1 July 2021

      10%

      From 1 July 2022

      10.5%

      From 1 July 2023

      11%

      From 1 July 2024

      11.5%

      From 1 July 2025

      12%

      NOTE!
      Check you are getting the right amount of super being paid into your super fund.

      SUPER CONTRIBUTIONS CAPS

      With the super guarantee rate having changed, it is worth remembering what the contributions caps are as well.

      The concessional contributions general cap includes:

      • employer contributions (including contributions made under a salary sacrifice arrangement);
      • personal contributions claimed as a tax deduction by a self-employed person.

      The non-concessional contributions cap includes personal contributions for which you do not claim an income tax deduction.

      Both of these are noted in the table below.

      Income year

      Concessional contributions general cap

      Non-concessional contributions cap

      2014-15

      $30,000**

      $180,000

      2015-16

      $30,000

      $180,000

      **If you are 49 years old or over on 30 June 2014, the concessional contributions cap is temporarily increased for the 2014-15 income year to $35,000. This cap is not indexed and will cease to apply when the indexed cap that otherwise applies reaches $35,000.

      CHANGES TO SUPERANNUATION EXCESS CONCESSIONAL CONTRIBUTION CAP

      From 1 July 2013, if you exceed your concessional contributions cap, the excess amount will be included in your assessable income and taxed at your marginal rate. An interest charge also applies.

      You can choose to release out of your super fund up to 85% of the excess contribution made if you complete an election form. If you do elect to release an amount, the ATO will issue your super fund with an ‘excess concessional contributions release authority’. Your super fund must pay the amount to be released to the ATO (as well as return the release authority statement) within 7 days.

      The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

      TO DO!
      It is worth checking your super fund account to ensure no excess contributions have gone in, or if they have, considering whether you want to withdraw them. Talk to your tax agent if you are unsure whether the right amount of super has been paid into your account.

      AMENDMENT TO TAXING EXCESS SUPER CONTRIBUTIONS

      Following on from the above, the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 amends some provisions that relate to the taxation of excess super contributions to:

      • provide individuals with an option to be taxed on the earnings associated with their excess superannuation non-concessional contribution at their marginal tax rate;
      • ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan are not disadvantaged through the transfer; and
      • remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred, and allow taxation officers to record or disclose personal information in certain circumstances.

      If you are concerned you have made excess contributions to your super fund, speak to your tax agent about whether you are likely to be affected by any of these recent changes.

      The Bill received Royal Assent on 19 March 2015.

      ARE YOU PAYING SUPER FUND FEES UNNECESSARILY?

      The ATO noted in a recent media release that Australians with multiple superannuation accounts could be paying thousands of dollars in unnecessary fees every year. According to new figures released by the ATO, 45% of working Australians have more than one superannuation account.

      The ATO is encouraging taxpayers with multiple accounts to consider consolidating their superannuation into one preferred account. Australian Prudential and Regulation Authority (APRA) figures show the median figure for fees and charges paid by Australians for a low cost superannuation account is $532 per year.

      TO DO!
      Do you have multiple super fund accounts and are wasting money on unnecessarily paying fees in all the funds? If so, it is time to combine all your super into one account. Your tax agent can help you to do this.

      TIME LIMITS FOR FAMILY ASSISTANCE LUMP SUM PAYMENTS

      If you want to claim any of the following family assistance payments for the 2014 financial year, you must lodge your claim with the Department of Human Services (Centrelink) by 30 June 2015 to be eligible:

      • Family Tax Benefit
      • Child Care Benefit
      • Single Income Family Supplement (SIFS).

      Your tax agent will be able to help you make this claim.

      DABBLING IN BITCOIN? WHAT’S THE ‘TAX’ STORY?

      On 17 December 2014, the ATO issued its position on how it will treat Bitcoin, a digital currency, for tax purposes. The ATO’s views are:
      Income Tax

      • Bitcoin is not a ‘foreign currency’ for the purposes of the income tax law because the ATO does not view Bitcoin as currency or foreign currency in the context in which those terms operate for the purpose of the Australian tax law (TD 2014/25).
      • Bitcoin is a ‘CGT asset’ for the purposes of the income tax law as it is regarded as ‘property’ for the purpose of the tax law (TD 2014/26).
      • Bitcoin is trading stock when held for the purpose of sale or exchange in the ordinary course of a business because it is regarded as property for tax purposes (TD 2014/27).

      FBT

      • The provision of Bitcoin by an employer to an employee in respect of their employment is a property fringe benefit (TD 2014/28).

      GST

      • A transfer of Bitcoin from one entity to another is a ‘supply’ for GST purposes. The exclusion from the definition of supply for supplies of money does not apply to Bitcoin because Bitcoin is not ‘money’ for the purposes of the GST Act.
      • The supply of bitcoin is not a ‘financial supply’ nor an input taxed supply.
      • A supply of bitcoin is a taxable supply if the requirements under the GST Act are met.
      • A supply of bitcoin in exchange for goods or services will be treated as a barter transaction.
      • Bitcoin is not goods and cannot be the subject of a taxable importation. However, an offshore supply of Bitcoin can be a taxable supply under the ‘reverse charge’ rules.
      • An acquisition of Bitcoin will not give rise to input tax credits under the provisions of the GST Act which allow input tax credits for certain acquisitions of second-hand goods.
      • A supply of Bitcoin is not a supply of a voucher.

      (See GSTR 2014/3)

      The reasoning behind the ATO’s positions is very technical. If you are interested to understand more about it, your tax adviser will be able to tell you more.

      NOTE!
      If you are dabbling in Bitcoin, beware the possible tax implications for you.
      Also, at the time of writing, there is a Senate committee conducting an inquiry into how Australia should regulate digital currency, including how the tax system should treat digital currency, such as Bitcoin. The tax treatment for Bitcoin could potentially change pending the outcome of the inquiry due to report in August this year.

      WHAT’S THE ATO’S VIEW OF GST AND CROWDFUNDING?

      Crowdfunding involves using the internet and social media to raise funds for specific projects or particular business ventures. For ATO information about the GST treatment of crowdfunding, go to the ATO’s website.

      ARE YOU IN A PARTNERSHIP?

      In November last year, the ATO issued an addendum to Taxation Ruling TR 2005/7:

      • TR 2005/7A1 – Income tax: the taxation implications of ‘partnership salary’ agreements

      The addendum amends the ruling to include the taxation consequences of a partner’s salary where the partnership is a corporate limited partnership.

      As a result, ATO ID 2002/564 (Income Tax Partner Salary in A Corporate Limited Partnership) has been withdrawn.

      If you are in a partnership, this change might affect you. Talk to your tax adviser to see if you are affected in any way.

      CORRECTING ARRANGEMENTS INVOLVING PRIVATE COMPANIES AND SHAREHOLDERS AND THEIR ASSOCIATES
      Recently, the ATO published on its website information about what to do if a private company has, for example, made a loan to a shareholder that is a ‘deemed dividend’ for tax purposes. A taxpayer can take corrective action by, for example, putting the right loan documentation in place, to ensure that the amount is not captured by the ‘deemed dividend’ rules (colloquially known as “Division 7A”).

      Your tax agent will be able to assist you if you have any concerns about loans or other arrangements you may have in place with a private company, so it is always best to consult your tax professional for help with these sorts of things.

      NOTE!
      If you have a loan from a private company, check with your tax adviser to see if you need to take any corrective action.

      NIL ACTIVITY STATEMENTS MUST BE LODGED

      If you have Activity Statements to lodge, even if your Activity Statement is nil for a particular period, the Activity Statement still needs to be lodged. Failure to lodge an activity statement, even one with zero obligations, may delay processing and result in penalties.

      It is good to stay on top of these obligations and obtain the assistance of your tax agent to ensure you lodge your Activity Statement on time, every time.

      TIP!
      The ATO has published some tips for getting your Activity Statement right which you can find on the ATO website

      IF YOU WORK IN THE BUILDING AND CONSTRUCTION INDUSTRY

      The ATO has published the following information about the taxable payments reporting obligations of persons in the building and construction industry:

      • Taxable payments reporting – building and construction industry
      • Do you work as a contractor in the building and construction industry?

      DO YOU OWN A RENTAL PROPERTY?

      The ATO has advised that it has redeveloped the letters it is sending to agents and taxpayers regarding reviews of rental legal and/or borrowing expense claims to make the letter clearer. In feedback, the ATO was asked to provide information on the specific area of the expense claims it is reviewing. The re-drafted letters now identify:

      • return label and amounts in question;
      • the proposed adjustments;
      • what to do in the event of a disagreement; and
      • where to find relevant information on ato.gov.au about what can be claimed, including QR reader codes to scan for smart phones or tablets.

      TO DO!
      You should see your tax adviser if you have a rental property and receive one of these letters.

      SELLING OR CLOSING DOWN A BUSINESS

      If you are selling or closing down a business, there are some important tax obligations for the business that you should attend to, such as:

      • ensuring all outstanding Activity Statements and returns (income tax, FBT) have been lodged;
      • put in all requests for any refunds owed to your business;
      • cancel any PAYG withholding registrations for the business; and
      • cancel the business’ ABN (which should also result in the cancellation of other registrations such as GST).

      More information can be found on the ATO’s website.

      ATO UPDATES

      • Are you a director of a company?

      The ATO advises that it has created a new page on its website with information about the director penalty regime, which is all about what happens when a company deducts PAYG withholding amounts from its employees’ salaries and wages, but fails to remit those amounts to the ATO. To access the page, go to the ATO website.

      The ATO advises that the requirement for people to obtain a Working with Children check will be introduced in NSW and exists in many other states.

      For information about when the cost of a working with children check is deductible, check the ATO website.

      For ATO advice about avoiding common errors that may occur when completing activity statements, accounting for GST and claiming GST credits, go to the ATO website.

      For ATO information about the farm management deposits scheme, go to the ATO website.

      THE PRIVACY COMMISSIONER AND THE TAX FILE NUMBER PRIVACY RULE

      The Privacy Commissioner has issued a new privacy rule under the privacy law about Tax File Numbers, to replace the previous Tax File Number Guidelines 2011. The new rule is the Privacy (Tax File Number) Rule 2015 (Legislative Instrument F2015L00249; registered 4 March 2015).

      The primary purpose of the rule is to regulate the collection, storage, use, disclosure, security and disposal of individuals’ Tax File Number (TFN) information. A breach of the rule is an interference with privacy under the Privacy Act. Individuals who consider that their TFN information has been mishandled may make a complaint to the Privacy Commissioner.

      The rule explicitly authorises the use and disclosure of TFN information by a TFN recipient (such as the Commissioner of Taxation and the trustees of a superannuation fund) for the purpose of giving an individual any TFN information that the TFN recipient holds about an individual. This ensures that the TFN Rule does not prevent an individual being given access to his or her information under Australian Privacy Principle 12 of the Privacy Act, or another Act that provides for access by persons to documents.

      IN THIS ISSUE

      • It’s time to do your Tax Return
      • ATO targeting work-related deduction claims
      • 2014-15 Federal Budget
      • Temporary Budget Repair Levy
      • Medicare Levy Low-Income Threshold
      • Tax Bonus For Working Australians – $900 Cheques
      • Repeal of measures to be funded by the MRRT
      • Individual Income Tax Rate Changes
      • Project DO IT
      • Dividend Washing
      • Superannuation
      • Private company transfers in matrimonial property proceedings
      • Simpler tax returns – MyTax – is it right for you?
      • Updates from the ATO

      IT’S TIME TO DO YOUR TAX RETURN

      It is that time of year again – it’s time to do your 2014 Income Tax Return. The financial year ended on 30 June 2014 so all individuals who earn income must now start to think about (and then do) their tax returns. Individuals generally should lodge their returns by 31 October 2014, however depending on your circumstances, you may be eligible to lodge your return at a later date if you lodge through a tax agent (ie in May or June 2015).

      TO DO!

      You should already be pulling out your financial statements and other information that you will need to prepare your tax return. It is highly recommended that you seek the assistance of your tax agent in preparing your tax return. They are highly experienced and know all the tips and tricks to getting your return right!

      ATO TARGETING WORK-RELATED DEDUCTION CLAIMS

      This year, the ATO is continuing to pay close attention to the $19.5 billion in work-related expenses individuals claim each year as deductions when they lodge their tax returns. Rather than focusing on particular occupations as it has done in the past, this year the ATO is focusing on particular types of work-related expense claims relating to:

      • overnight travel;
      • transporting bulky tools and equipment;  and
      • the work-related proportion of use for computers, phones or other electronic devices.

      If you usually claim these types of deductions, or are planning to in your 2014 return, you should bear in mind that the ATO will be closely scrutinising these claims. 
      The ATO will also continue to review incorrect or excessive claims for all other work-related expenses.

      2014-15 FEDERAL BUDGET

      The 2014-15 Federal Budget was handed down on 13 May 2014. This Budget is intended to reduce the deficit from the current level of $49.9 billion to $29.8 billion. The Treasurer, the Hon. Joe Hockey MP, stated that the budget is about the “national interest” and that there is no easy way to repair the Budget.

      The main focus of the Budget is on the expenditure side, which is only half of the equation; the other half of the equation being about revenue. Some sectors of society will be affected by the measures proposed in the Budget more than others. The main measures likely to affect you are outlined below. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax adviser.

      Individuals and families

      • A three year temporary levy of 2% (the ‘Budget Repair Levy’) will be imposed on individuals’ taxable income in excess of $180,000 a year, from 1 July 2014 until 30 June 2017.
      • The dependent spouse tax offset (DSTO) will be abolished for all taxpayers from 1 July 2014.
      • The mature age worker tax offset will be abolished from 1 July 2014.
      • The Medicare levy low-income threshold for families will be increased from the 2013/14 income year.
      • The First Home Saver Accounts scheme will be abolished from 1 July 2015.
      • From 1 July 2014, taxpayers will receive a tax receipt showing how and where their tax dollars were used.
      • The income threshold at which students commence repayment of their Higher Education Loan Programme (HELP) debts will be reduced with effect from 1 July 2016.
      • Various reforms will be introduced to the pension system including increasing the qualifying age for the Age Pension to 70 by 1 July 2035.
      • The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years from 1 January 2015.
      • Various reforms to the Family Tax Benefit (FTB) Part A and Part B payments will be introduced, including reducing the FTB Part B primary earner income limit to $100,000 pa and changing certain eligibility requirements. A new $750 allowance will be introduced for single parents on the maximum FTB Part A rate, but who will no longer receive FTB Part B payments due to eligibility changes. These measures largely commence on 1 July 2015, with some transitional arrangements.
      • Changes will be made to the Medicare system relating to patient contributions, indexation of fees and thresholds, and Medicare safety net arrangements.

      Superannuation

      • Individuals will be given the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate.
      • The schedule for increasing the superannuation guarantee rate to 12% will be changed.

      TEMPORARY BUDGET REPAIR LEVY

      The law introducing the 2% Temporary Budget Repair Levy payable by high income earners (individuals earning over $180,000 a year), passed into law in June this year. The levy is payable at a rate of 2% of each dollar of an individual’s annual taxable income over $180,000. No levy is payable where the taxpayer has a taxable income of $180,000 or less except in cases where a tax law integrity rule applies the top personal marginal tax rate as a flat rate to certain types of income.

      The levy only applies to the income years in the period 1 July 2014 to 30 June 2017 (ie the 2015, 2016 and 2017 years).

      NOTE!

      If you think you might have to pay the Temporary Budget Repair Levy, and are not sure, speak to your tax agent.

      MEDICARE LEVY LOW–INCOME THRESHOLD

      Following the announcement in the 2014-15 Federal Budget, the family income threshold for the 2013-14 income year has been $34,367 (from $33, 693 in 2012-13). The child-student component of the family income threshold for the 2013-14 income year has been increased to $3,156 (from $3,094 in 2012-13).

      These amendments apply to assessments for the 2013-14 income year and later income years.

      TAX BONUS FOR WORKING AUSTRALIANS – $900 CHEQUES

      The legislation that was introduced in 2009 to allow the Government to pay tax bonus payments (the $900 stimulus cheques) was repealed in May this year. No further stimulus cheques will be issued.
      The previous edition of TaxWise alerted readers to this change which has now come into law.

      REPEAL OF MEASURES TO BE FUNDED BY THE MRRT

      Several tax measures introduced when the Minerals Resource Rent Tax (MRRT) was introduced in 2012 are set to be repealed when the MRRT is repealed. The measures directly relevant to individual taxpayers that will be affected are:

      • low income superannuation contribution;
      • the income support bonus; and
      • Schoolkids bonus.

      Two attempts have been made to repeal the MRRT and the other measures affected. However, at the time of writing, the Bill to repeal these measures had not yet been passed.

      The scaled increase to the superannuation guarantee rate will also be affected by the Bill that repeals the MRRT. Per the announcement made in the 2014-15 Federal Budget, it was planned to increase the rate to 9.5% from 1 July 2014, pause at this level until 30 June 2018 and then start to raise it by 0.5% each year, reaching 12% in the 2022-23 income year, one year later than previously proposed.

      However, this has not been included in the current Bill before Parliament. Instead what is currently before Parliament is that the rate will remain at 9.25% until 1 July 2016 where it will increase to 9.5% and then gradually rise in 0.5% increments each year to 12% over the following 5 years. 12% will be reached by 1 July 2021.

      See the following table:

      Year

      Superannuation Guarantee  Rate

      From 1 July 2013

      9.25%

      From 1 July 2014

      9.25%

      From 1 July 2015

      9.25%

      From 1 July 2016

      9.5%

      From 1 July 2017

      10%

      From 1 July 2018

      10.5%

      From 1 July 2019

      11%

      From 1 July 2020

      11.5%

      From 1 July 2021

      12%

      However, at the time of writing, this was not yet law so it is not yet certain how the superannuation guarantee rates will change over the next few years.

      TIP!

      However, at the time of writing, this was not yet law so it is not yet certain how the superannuation guarantee rates will change over the next few years.

      INDIVIDUAL INCOME TAX RATE CHANGES

      Built into the current law are some changes to the individual income tax rates that are set to take effect from 1 July 2015. They are:

      • the tax-free threshold to increase to $19,400;
      • the second personal marginal tax rate to increase to 33%;
      • the maximum value of the Low Income Tax Offset (LITO) to fall to $300;
      • the withdrawal rate of the LITO to fall to 1%; and
      • the threshold below which a person may receive LITO to increase to a taxable income of $67,000.

      The current Government is seeking to ensure these changes do not go ahead. The tax cuts were intended to compensate for the cost of the carbon tax. However, the carbon tax was repealed in July this year. Currently, there is a Bill before Parliament to repeal these changes. Should this Bill pass through Parliament, this will mean that:

      • the tax-free threshold will remain at $18,200 rather than increase to $19,400;
      • the second personal marginal tax rate will remain at 32.5% rather than increase to 33%;
      • the maximum value of the LITO will remain at $445 rather than fall to $300;
      • the withdrawal rate of the LITO will remain at 1.5% rather than fall to 1%; and
      • the threshold below which a person may receive LITO will remain at a taxable income of $66,667 rather than increase to a taxable income of $67,000.

      NOTE!

      Your tax agent will be able to keep you informed of the changes to the superannuation guarantee and if the proposed changes to the individual income tax rates are going to go ahead.

      PROJECT DO IT

      On 27 March 2014, the ATO announced the beginning of Project DO IT: Disclose Offshore Income Today. Through this initiative, the ATO is urging all taxpayers with offshore assets to declare their interests, ahead of a global crackdown on international tax havens.
      The ATO advises that if taxpayers have offshore income or assets, now is the time for them to review their overseas financial activities and make sure their tax is in order.
      This initiative provides taxpayers with an opportunity to make a voluntary disclosure in return for reduced penalties and other incentives, but is only available until 19 December 2014.

      Under Project DO IT, people disclosing their offshore assets will generally only be assessed for the last four years, be liable for a maximum shortfall penalty of just 10% and full shortfall interest charges, and will not be investigated by the ATO or referred for criminal investigation on the basis of their disclosures.

      In July this year, the ATO advised that it is mining data it has to identify individuals with undisclosed offshore income and assets. The new information will be used to encourage people to disclose under Project DO IT.

      The ATO will significantly increase its compliance focus by examining data including information from overseas tax authorities on Australians with offshore investments and bank accounts, information from Australian and foreign banks on fund flows, interest and account balances, information from informants about offshore accounts, and money transfers to and from offshore bank accounts.

      The ATO says that up to 30 June 2014, the Project DO IT initiative had received significant interest with 166 disclosures raising an additional $13 million in tax liabilities. There have been more than 250 expressions of interest, where taxpayers have identified themselves and said they will be making a disclosure. There have also been more than 600 general enquiries.

      TO DO!

      If you have offshore income and assets and are wondering if you are affected by Project DO IT, it is highly recommended you contact your tax adviser. Your tax adviser will be able to assist you if you have any concerns or believe you might have income or assets that you haven’t already declared to the ATO.

      DIVIDEND WASHING

      This year, the ATO has been cracking down on dividend washing arrangements. These arrangements involve taxpayers getting two lots of franking credits on the same number of shares (normally you are only entitled to one lot of franking credits).
      Dividend washing is a practice through which taxpayers seek to claim two sets of franking credits by selling shares held on the Australian Securities Exchange (ASX) and then effectively repurchasing the same parcel of shares on a special ASX trading market. The timing of this transaction occurs after the taxpayer becomes entitled to the dividend but before the official record date for dividend entitlements.
      A new integrity rule applying from 1 July 2013 has been introduced into the tax law to prevent dividend washing from occurring. Where a taxpayer receives a dividend as a result of dividend washing, they are:

      • not entitled to a tax offset for the franking credits associated with the dividend received on the equivalent parcel of shares purchased on the special ASX trading market;
      • not required to include the amount of the franking credits on those shares in their assessable income.

      Penalties can apply to taxpayers participating in these schemes.

      In March this year, the ATO began targeting taxpayers who they thought may have been caught up in dividend washing schemes. In mid-August, the ATO commenced the next phase of targeting taxpayers who the ATO think may have been involved in dividend washing schemes.

      More information about dividend washing can be found on the ATO website.

      SUPERANNUATION

      There is always activity in the superannuation space. Some of the main things to be aware of are noted below, particularly if you are in the process of separating or have unclaimed amounts of super.

      • Adjustment of superannuation entitlements of separated and divorced spouses and of separated de facto couples

      A legislative determination has been made which relates to the adjustment of superannuation entitlements of separated and divorced spouses, and of separated de facto couples (except in Western Australia). The entitlements are provided under certain orders or agreements that split particular kinds of future superannuation benefits made in property settlements under the Family Law Act 1975 (Cth). The determination relates to orders or agreements that provide for a base amount split of future superannuation benefits that are payable in respect of a defined benefit superannuation interest or an interest in a self-managed superannuation fund.

      b) Tax treatment of interest paid on unclaimed super amounts

      The ATO has advised that as a result of amendments made in 2013, interest on payments of unclaimed superannuation to Australian residents from 1 July 2013 will be free from income tax.

      Interest paid to previous temporary residents who are now current residents of Australia for unclaimed super will not be subject to ‘departing Australia superannuation payment’ (DASP) tax.

      Payments of super to temporary residents will be subject to DASP withholding tax. If the former temporary resident died before the payment is made, the DASP tax rate will still apply.

      c) SMSFs – timing of pension payments

      If you receive a pension payment from a self-managed super fund (SMSF), the payment must comply with the standards set for SMSFs. The ATO advises that to ensure that the pension standards for SMSFs are met, it is important that fund trustees consider the time that a member’s benefit is cashed (that is, ‘paid’). That is, the timing is affected by whether you receive the payment as cash, electronic transfer, cheque and so forth. As a general rule, a benefit is cashed when the member receives an amount and the member’s benefits in the SMSF are reduced. Guidance can be found on the ATO website.

      NOTE!

      If you want to make sure your SMSF is properly complying with the required standards when paying a pension to you, you should speak with your tax adviser.

      PRIVATE COMPANY TRANSFERS IN MATRIMONIALPROPERTY PROCEEDINGS

      On 30 July 2014, the ATO issued Taxation Ruling TR 2014/5 entitled "Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate)".

      The Ruling is concerned with the tax impact of transfers of money or property from private companies to separating spouses that comply with an order made s 79 of the Family Law Act 1975 (Cth). The Ruling considers that these can amount to a dividend and therefore are taxable in the hands of the individual who receives the money or property.

      TO DO!

      If you are in the midst of such proceedings and money and property sitting in a private company is involved, you should seek advice from your tax adviser about what this might mean for you and whether you could potentially have a tax liability arise.

      SIMPLER TAX RETURNS – MYTAX – IS IT RIGHT FOR YOU?

      From 1 July 2014, the ATO is offering new and simpler tax returns that will allow people to lodge their tax returns through a smartphone, tablet or computer using their web browser. This is an online and substantially pre-prepared tax return for people with very simple tax affairs and is intended to reduce the time needed to prepare and lodge an income tax return. However, MyTax is only suitable for individuals with very basic tax affairs (eg you earn a salary or wage and only have very minor deductions to claim). For example, taxpayers will not be eligible to use MyTax if they have:

      • business income or losses;
      • rental properties;
      • partnerships or trusts, including managed investment trusts;
      • capital gains or losses;
      • foreign income;
      • lump sum payments;
      • employee share schemes; and
      • superannuation income streams and superannuation lump sum payments.

      If your circumstances have any complexity in them at all, or you are simply unsure about deductions you might be entitled to, you should always seek the assistance of a tax agent.

      NOTE!

      Even if you think your tax affairs are simple, it is always better to seek the advice and assistance of a tax agent. Australia’s tax system is complex and you never know what you might be missing that could cause you to get your tax return wrong.

      UPDATES FROM THE ATO

      • Business Industry Codes

      The Business industry codes 2014  for use by individuals, partnerships, trusts and companies to assist with the completion of 2014 tax returns have been released.

      • 2014 PAYG withholding schedules made

      The 2014 PAYG withholding schedules have been made. They apply from 1 July 2014 and incorporate changes, such as the increase in the Medicare levy from 1.5% to 2% and the temporary Budget Repair Levy. Individuals wanting to know how much tax should be withheld from their pay can refer to the tables published on the ATO website to find out.

      • Changes to private health insurance policy labels

      Some changes to the private health insurance labels on the Individual Tax Return form have been made. From 1 April 2014, private health insurance rebate percentages are subject to an annual adjustment. This means that there will be two different rebates that will need to be shown on your income tax return for 2014 and in future years. There is further information about this on the ATO website, though it would be wise to see your tax agent for assistance in completing this part of your tax return form to make sure you get it right.

      • Tax receipts

      From 2014 onwards, taxpayers are going to receive a ‘tax receipt’ with their tax return that will show approximately how the tax paid by taxpayers contributes to government expenditure.

      IN THIS ISSUE

      • The end of the financial year is coming
      • Changes to measures that were to be funded by the mining tax
      • Rescheduling the increase in superannuation guarantee rate
      • Changes to tax administration from the Budget
      • Measures affecting companies and trusts from the Budget
      • Fringe Benefits Tax
      • Farm Management Deposits
      • Superannuation
      • Changes to guidance from the ATO about the CGT small business concessions
      • What’s new from the ATO 

      THE END OF THE FINANCIAL YEAR IS COMING!

      The end of the financial year is coming and it’s time to start thinking about your 2014 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2014 rolling around.

      • Are there any repairs and maintenance you should carry out prior to 30 June 2014 so you can claim the deduction in your 2014 return?
      • Are there any bad debts to write off out of your receivables?
      • Are there any recently announced measures in the May 2014-15 Budget you should talk to your tax adviser about?
      • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2014 (you will need to speak to your lender.)
      • Are there purchases or disposals of assets you should make prior to the next financial year starting?
      • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances.

      It is also a good time to review things that you think about at the time you put them in place but don’t otherwise turn your mind to – for example, see if you have the right mix of debt and equity funding for your business to carry you through to the next financial year.

      TO DO!

      Your tax adviser is the best person to help you with these decisions as your tax adviser knows your business and has experience with other businesses similar to yours, they are able to offer you sound advice about how to best prepare your business for the start of the 2014-15 financial year.

      CHANGES TO MEASURES THAT WERE TO BE FUNDED BY THE MINING TAX

      In previous editions of TaxWise, we mentioned that, as part of its pre-election promises, the Coalition would abolish the mining tax. The abolition of this tax also involves the wind-back of certain other measures including:

      • The instant asset write-off amount of $6,500 for small businesses – from 1 January 2014, the instant asset write-off will be reduced back to $1,000;
      • The accelerated deprecation for motor vehicles that is available to small businesses – from 1 January 2014, this will no longer be available; and
      • The loss carry-back measure – this measure will only apply for the 2013 income year.

      NOTE!

      The ATO has offered the following guidance for taxpayers who have relied on these measures:

      • The instant asset write-off amount of $6,500 for small businesses – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a tax return for the 2013-14 income year can self-assess under the existing law. Once the law is enacted, the taxpayer will need to seek an amendment to apply the new law. No tax shortfall penalties will apply and if the amendment is sought within a reasonable time, we will remit any shortfall interest attributable to the amendment to nil. Otherwise the shortfall interest will run from the date the change becomes law.
      • The accelerated deprecation for motor vehicles that is available to small businesses– as above for the instant asset write-off.

      The loss carry-back measure – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a company tax return for the 2013-14 income year can self-assess under the existing law.Once the law is enacted, the ATO will amend the company tax return to disallow the claim for the loss carry-back tax offset for the 2013-14 income year. This will result in an increase in the taxpayer’s tax liability. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil. There is further information on the ATO website.

      RESCHEDULING THE INCREASE IN SUPERANNUATION GUARANTEE RATE

      The scheduled increase to the superannuation guarantee rate is changing and will no longer be paused at 9.25% for another two years. Per the announcement made in the 2014-15 Budget, it will increase to 9.5% from 1 July 2014, will pause at this level until 30 June 2018 and will then start to rise by 0.5% reaching 12% in the 2022-23 income year, one year later than previously proposed. See the following table:

       

      Year

      Superannuation guarantee  rate

      From 1 July 2013

      9.25%

      From 1 July 2014

      9.5%

      From 1 July 2015

      9.5%

      From 1 July 2016

      9.5%

      From 1 July 2017

      9.5%

      From 1 July 2018

      10%

      From 1 July 2019

      10.5%

      From 1 July 2020

      11%

      From 1 July 2021

      11.5%

      From 1 July 2022

      12%

      However, at the time of writing, this was not yet law.

      CHANGES TO TAX ADMINISTRATION FROM THE BUDGET

      Tax compliance through third party reporting and data matching: start date deferred

      Last year’s Budget saw the introduction of an initiative to strengthen third party reporting and data matching to assist the ATO with its compliance work and revenue collection. Per this year’s Budget, the start date for the legislative elements of this initiative will be deferred from 1 July 2014 to 1 July 2016.

      The legislative elements of the measure that are being deferred involve the creation of new third party reporting regimes relating to:

      • taxable government grants and other specified government payment;
      • sales of real property, shares (including options and warrants) and units in managed funds; and
      • sales through merchant debit and credit services.

      MINOR AMENDMENTS TO TAX LAWS

      A series of minor amendments to the tax and superannuation laws will be made to correct technical defects, remove anomalies and address unintended outcomes which have recently been identified, including technical corrections to the uniform penalty rules that prevent certain penalties that are levied under the law from being collected, and a number of amendments to address issues raised by industry in relation to the consolidation regime.

      INSPECTOR-GENERAL OF TAXATION TO MANAGE CERTAIN TAX COMPLAINTS

      From 1 July 2014, the Commonwealth Ombudsman’s case management of tax complaints will be transferred to the Inspector-General of Taxation (IGT). This measure will enhance the IGT’s systematic review role, and provide taxpayers with more specialised and focused complaint handling of their tax matters.

      This initiative strengthens the IGT’s role as an independent reviewer of systemic tax administration and to report to the Government with recommendations to improve tax administration for the benefit of all taxpayers.  

      MEASURES AFFECTING COMPANIES AND TRUSTS FROM THE BUDGET

      There are a variety of measures that were included in the Budget that impact some companies and trusts, including:

      • Deferral of the start date for the MIT system – the start date for the new system for managed investment trusts will be deferred to 1 July 2015. The tax law will be amended to allow MITs and other trusts treated as MITs to continue to disregard the trust streaming provisions for the 2014-15 income year, ensuring these interim arrangements for MITs continue to apply until the commencement of the new tax system for MITs.
      • R&D tax incentive – from 1 July 2014, the rates of the refundable and non-refundable offsets for the Research and Development (R&D) Tax Incentive will be reduced by 1.5%.
      • Modified consolidation integrity measures – from Budget night, certain modifications to the consolidation integrity package that was announced in the 2013-14 Budget will take effect.
      • Foreign resident CGT regime: modification of integrity measure – modification will be made to the measure announced in the 2013-14 Budget to amend the principal asset test so that the measure now applies to interests held by foreign residents in unconsolidated groups.

      FRINGE BENEFITS TAX

      Lodgement of FBT Returns

      • The 2014 FBT year ended on 31 March 2014. The due date for lodgement of your FBT return is 25 June 2014 if you are lodging your FBT return electronically through your tax agent. If you are not using your tax agent to lodge your FBT return or you are and are lodging using the paper form, the due date for your return was 21 May 2014.
      • To be able to lodge your return by 25 June 2014, you must have appointed your tax agent to lodge your FBT return on your behalf by 21 May 2014. (This was previously 4 June 2014.)
      • Regardless of whether you are lodging your FBT return by paper or electronically, the due date for payment has not changed, and remains as 28 May 2014.
      • Self-assessed deferral requests for FBT returns are no longer available. However your tax agent can lodge a request for additional time to lodge where there are exceptional or unforeseen circumstances that prevent lodgement by the due date. Be sure to include sufficient information for the request to be considered.

      TO DO!

      If you have missed out on being able to access the later lodgement date available if you lodge your FBT return electronically through a tax agent, be sure to appoint your tax agent to look after your FBT matters for 2015.

      CAR PARKING THRESHOLD FOR FBT YEAR COMMENCING 1 APRIL 2014 – TD 2014/11

      On 14 May 2014 the ATO released the car parking threshold for the fringe benefits tax year commencing on 1 April 2014. The threshold is $8.26. This replaces the amount of $8.03 that applied in the previous year commencing 1 April 2013: TD 2014/11 "Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2014?"

      FBT: REASONABLE AMOUNTS FOR LAFHA FOOD AND DRINK EXPENSES – TD 2014/9

      On 16 April 2014, the ATO issued Taxation Determination TD 2014/9 entitled "Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2014."

      NOTE!

      If you provide either of these types of benefits to your employees, make sure you are aware of the new amounts that apply to the 2015 FBT year.

      FARM MANAGEMENT DEPOSITS

      Some changes are being made to the farm management deposits (FMD) scheme that taxpayers who rely on the scheme should be aware of. These include:

      • allowing taxpayers to consolidate multiple FMDs that they might hold with different providers;
      • raising the non-primary production income threshold; and
      • limiting the rules in the Banking Act for unclaimed moneys to prevent them applying to FMDs.

       

      The increase in the non-primary income threshold and the changes to allow taxpayers to consolidate FMDs apply to income years commencing on or after 1 July 2014.

      SUPERANNUATION

      ATO reviews approach to SMSFs as industry takes off

      In media release No 2014/06, issued 19 February 2014, it is noted that nearly one million Australia have chosen to take control of their superannuation future as the popularity of self-managed super funds (SMSFs) continues to grow.

      ATO Deputy Commissioner Superannuation, Alison Lendon, said in light of the sector’s growth, the ATO is committed to improving the services it provides to SMSF fund managers and trustees.

      “With the popularity of SMSFs continuing to grow, we want to work with trustees and their advisors to improve compliance and make sure they are prepared for several regulatory changes that will be rolled out over the next year."

      If the legislation is adopted, administrative penalties will apply to breaches of super law from 1 July 2014. This means SMSF trustees will be personally liable for penalties between $850 and $10,200 depending on the provision contravened.

      “SMSF trustees should rectify any contraventions as soon as possible or they may face a penalty. In some cases these changes will impact the way SMSFs operate so for the ATO our focus will continue to be on education and support to ensure trustees understand the rules,” Deputy Commissioner Lendon said.
      If you have an SMSF, be mindful of the ATO’s focus on these entities. If you have any concerns with your SMSF, speak to your tax adviser.

      If you have an SMSF, be mindful of the ATO’s focus on these entities. If you have any concerns with your SMSF, speak to your tax adviser.

      SUPERSTREAM CHANGES FOR SMSFS

      If you are an employer and deposit superannuation contributions for your employees into their SMSFs, you should note the following.

      In media article No 2014/03, issued 19 February 2014, the ATO said it is calling on self-managed superannuation fund (SMSF) trustees to be aware of changes to the way they receive super contributions.

      Starting from 1 July 2014, SMSFs will be required to receive contributions electronically from employers. Employers with less than 20 employees have another year to make this change so SMSFs should check with their employers about their start date.

      To assist employers, SMSF trustees will need to obtain an electronic service address for the delivery of contribution messages. SMSFs will then need to provide their ABN, bank account details and electronic service addresses to their employer by 31 May 2014.

      CHANGES TO GUIDANCE FROM THE ATO ABOUT THE CGT SMALL BUSINESS CONCESSIONS

      Tax Determination TD 2007/14 contains guidance around what liabilities are included when calculating the ‘net value of CGT assets’ for the purpose of the small business concessions. In April this year, some amendments were made to the TD picking up some changes made to the law in 2007 that:

      • allow a negative net value of the CGT assets of an entity to be calculated; and
      • allow the following provisions to be taken into account in determining the net value of the CGT assets of an entity:
        • provisions for long service leave;
        • provisions for annual leave;
        • provisions for unearned income; and
        • provisions for tax liabilities.

      These changes apply to CGT events happening in the 2006-07 income year or later income years.
      A separate amendment to TD 2007/14 picks up some other changes made in 2007 that affect Division 152 that:

      • increased the maximum net asset value test threshold in s 152-15 of ITAA 1997 from $5 million to $6 million;
      • replaced the term ‘small business CGT affiliate’ with ‘affiliate’, moved its definition from s 152-25 of ITAA 1997 to s 328-130 of ITAA 1997 and changed its meaning in some respects; and
      • enacted the small business entity ($2 million turnover) test as an alternative to the maximum net asset value test as a means of qualifying for the small business capital gains tax concessions.

      These changes apply to CGT events happening in the 2007-08 income year or later income years.
      A further amendment has also been made to TD 2007/14 to include the Commissioner’s view of the implications of the Full Federal Court decision of FCT v Byrne Hotels Qld Pty Ltd [2011] FCAFC 127 in relation to ‘contingent liabilities’ for the purpose of calculating ‘net value of CGT assets’  and in particular, that contingent liabilities are generally within the meaning of ‘liabilities’.

      TIP!

      If you are trying to see if you are eligible for any of the small business CGT concessions and are wondering whether these changes affect you, seek advice from your professional tax adviser who is best able to assist you with this as the rules are complex and they will be able to help you navigate them.

      WHAT’S NEW FROM THE ATO

      There is lots of news from the ATO that small business taxpayers should be aware of – see below for what might be relevant to you and your business.

      1. Standard Business Reporting

      The ATO says that Standard Business Reporting (SBR) is a quicker and simpler way to prepare and lodge reports to government – including the ATO – directly from business software. The ATO sees this whole-of-government approach using common computer language as the future of electronic service delivery. So businesses will start to need to prepare themselves for this new system.
      For more information and to access an ATO video on SBR, go to the ATO website.

      2. Business Communicator

      The April 2014 edition of the ATO’s Business Communicator contains news and updates for businesses with an annual turnover between $2 million and $250 million. These include articles on the offshore voluntary disclosure initiative; common R&D mistakes; payments of refunds of overpaid GST; new rules about communicating with the ATO; the ATO and social media; streamlining superannuation contributions; and updating your business registration details.

      3. PROJECT DO IT: ATO SAYS "DISCLOSE OFFSHORE INCOME AND ASSETS NOW"

      There is a new ATO initiative that all taxpayers with offshore income should be aware of: Project DO IT. This initiative is about the ATO urging all taxpayers with offshore assets to declare their interests, ahead of a global crackdown on international tax havens.

      The ATO says that if clients of tax agents have offshore income or assets, now is the time for them to review their overseas financial activities and make sure their tax is in order.

      The recently announced "Project DO IT: disclose offshore income today" initiative provides clients with an opportunity to make a voluntary disclosure in return for reduced penalties and other incentives, but is only available until 19 December 2014.

      Under Project DO IT, people disclosing their offshore assets will generally only be assessed for the last four years, be liable for a maximum shortfall penalty of just 10% and full shortfall interest charges, and will not be investigated by the ATO or referred for criminal investigation on the basis of their disclosures.

      4. ATO CONTACTING BUSINESSES WITH OVERDUE 2012-13 TAXABLE PAYMENTS ANNUAL REPORTS

      The ATO has been contacting businesses in the building and construction industry who have not yet lodged their 2012-13 Taxable payments annual reports. Businesses may have been contacted by phone or letter.  To ensure your compliance obligations are met, see your tax adviser to check whether you should have prepared one of these reports for your 2013 return.

      5. REMINDER TO BUSINESSES IN THE BUILDING AND CONSTRUCTION INDUSTRY FOR 2013-14 REPORTS

      In May 2014, the ATO sent letters to businesses in the building and construction industry that may be paying contractors, to remind them to lodge their 2013–14 Taxable payments annual report by 21 July 2014. The letter was generally be sent to their business addresses.

      The ATO should have also alerted tax agents if their clients were going to be sent the letter.
      If you did receive one of these letters, it is best to first contact your tax agent to work out whether you need to prepare one of these reports.

      6. STOPPING PAPER ACTIVITY STATEMENTS

      The ATO says it understands that many businesses use electronic channels to manage their day to day interactions and record keeping.

      From 1 July 2014, the ATO advises that it will no longer send paper activity statements out for the majority of taxpayers whose activity statements are lodged electronically. The ATO will continue to send paper activity statements for certain form types only that cannot currently be sent electronically.

      Transitioning activity statements to be fully electronic is one of the steps the ATO is taking to keep pace with community expectations as more and more business is done electronically.

      7. RECEIVING YOUR PAYMENT INSTALMENT BY EMAIL

      The ATO is running a pilot to issue emails when tax agents or their clients phone the ATO to make a payment plan. The ATO will soon offer the option to receive the first instalment amount and due date by email.

      The email pilot will consist of approximately 1,000 participants including individuals, businesses and tax practitioners.

      Should you become involved in this pilot, it is best to let your tax agent know so that they can keep an eye on things.

      8. ATO’S FACILITATION PROCESS

      The ATO is looking for ways to improve the way it resolves disputes with taxpayers.
      In 2013, the ATO conducted a trial of a new dispute resolution process, “facilitation”, in smaller and less complex indirect tax objections. The process used ATO officers as facilitators in meetings between taxpayers /their agents and ATO case officers responsible for the dispute. The ATO facilitators who assisted the parties to identify and review options to resolve disputes had not been involved in the dispute.

      After a review of the results of the pilot, the use of facilitation has now been extended to a range of disputes including less complex disputes arising from indirect tax, small business and individual audits and objections. If you find yourself being audited by the ATO, know that this facilitation process might well be available to you to help quickly resolve the matter.

      9. LODGING A PAYG WITHHOLDING VARIATION

      The PAYG withholding variation application (e-variation) for 2014-15 is now available to use. The ATO says that lodging an e-variation via the internet will allow faster processing, and most e-variations are processed within 14 days.

      More information about varying the rate or amount of PAYG tax withheld from payments to taxpayers for the year ending 30 June 2015, and lodging PAYG withholding variation applications can be found on the ATO website. However, if you do wish to vary your PAYG withholding amount, it is best to consult your tax adviser first to help you work out the right amount for you.

      10. RECORDS THAT ARE NEEDED TO CLAIM CGT CONCESSIONS FOR SMALL BUSINESS

      If you are planning on claiming any of the capital gains tax (CGT) concessions for small business, you must keep relevant records including:

      • the market value of relevant assets just before the CGT event (to show eligibility for the $6 million maximum net asset value test);
      • carrying on a business, including calculation of turnover (to show eligibility for the small business entity test);
      • how any capital losses have been calculated and carried forward to later years;
      • relevant trust deeds, trust minutes, company constitution and any other relevant documents.

      To make sure you have kept the right information for this and any other concessions you claim, see your tax adviser.

      11. INFORMATION FOR PRIMARY PRODUCERS

      The ATO has published the following documents relevant to primary producers:

      • Abnormal income and primary production trusts;
      • Landcare operations; and
      • Water facilities.

      If you have a primary production business, this information might be relevant for you.

      12. THE ATO APP FOR SMALL BUSINESSES

      The ATO has developed an app for small businesses. This app might be useful to assist you with your interactions with the ATO. If you are interested in finding out more about the app, more information can be found on the ATO website.

       


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