IN THIS ISSUE
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 However, the second round of personal income tax cuts, scheduled to have begun on 1 July 2015, have recently been repealed.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:
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:
Medicare levy low-income thresholds
Phase-in limits
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:
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.
The Bill amends the tax legislation to:
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:
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:
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.
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.
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:
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:
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.
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.
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:
for the income year in which the deduction is claimed.
Immediate deductibility will be available for only two categories of expenditure:
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.
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.
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:
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:
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.
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:
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:
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:
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:
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:
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:
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.