IN THIS ISSUE
The end of the financial year is coming and it is time to start thinking about your 2017 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 2017.
It is also a good time to review things that you usually just think about at the time you put them in place but don’t otherwise turn your mind to – eg, do you have the right mix of debt and equity funding for your business to carry you through the next financial year.
Your tax agent or adviser is the best person to help you with these decisions. As they know your business and have 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 2017-18 financial year.
Access to the small business CGT concessions will be tightened from 1 July 2017 to deny eligibility for assets which are unrelated to the small business.
Small business CGT concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business.
However, some taxpayers have been able to access these concessions for assets which are unrelated to their small business by, for example, arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets of less than $6 million.
To improve cash flow for small businesses and provide a boost to small business activity and investment, the Government is extending the $20,000 instant asset write-off for small business by 12 months to 30 June 2018. Businesses with an aggregated annual turnover of less than $10 million will be eligible for this concession.
Small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 provided they are first used, or installed ready for use, by 30 June 2018. Only a few assets are ineligible (such as horticultural plants and in-house software).
Depreciating assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year, and 30% for each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The current “lock out” laws from the simplified depreciation rules will also continue to be suspended until 30 June 2018. These rules prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out.
From 1 July 2018, the immediate deductibility threshold, and the balance at which the pool can be immediately deducted, will revert back to $1,000.
Discuss with your tax adviser how these changes might affect your small business.
From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of the settlement.
Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers have been failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. The new measure is an integrity measure to strengthen compliance with the GST law and will ensure the relevant GST amounts will be remitted.
Starting on 1 July 2017, the GST treatment of digital currency (such as Bitcoin) will be aligned with the GST treatment of money. This measure will ensure purchases of digital currency are no longer subject to GST.
Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency as it is currently treated as subject to GST, and again on its use in exchange for other goods and services that are subject to GST.
Removing double taxation on digital currencies will remove an obstacle for the financial technology (fintech) sector to grow in Australia.
On 10 May 2017, the Chair of the Black Economy Taskforce, Mr Michael Andrew AO, welcomed the Government’s release of the Black Economy Taskforce Interim Report and acceptance of early recommendations identified for action.
The black economy refers to people who operate entirely outside the tax and regulatory system or who are known to the authorities but do not correctly report their tax obligations.
The report recommends an initial policy package to tackle the black economy, including 35 early ideas for further public consultation. The report is the result of an important partnership between government agencies and the private sector and is the first step in building a 21st century black economy strategy to halt this growing threat.
The Government is cracking down on the black economy. If you become aware of this kind of activity and it is impacting your business, talk to your tax adviser about what steps you could take next.
As announced in the 2016-17 Federal Budget, the company tax rate will be progressively reduced to 25% over the next 10 years. However, the measure was amended by Parliament. The amended measure will apply as follows:
From 1 July 2024 onwards, the corporate tax rate will progressively decrease every financial year, eventually falling to 25% in the 2026-27 financial year. If the amendments are approved by the House of Representatives, then the following rates will apply:
The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.
The changes to the company tax rate and turnover threshold are contained in the table below:
Annual aggregated turnover threshold
Rate for entities under the threshold
Other corporate tax entities
On 11 May 2017, the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 was introduced into the House of Representatives. This Bill proposes to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023-24 income year, as was originally intended in the 2016-17 Budget measure. The corporate tax rate will then be cut, for all corporate tax entities, to:
The intention is the progressive extension of the lower 27.5% corporate tax rate to corporate tax entities with aggregated turnover of $50 million or more will commence from the 2019-20 income year.
At the time of writing, this Bill was before Parliament.
Uber BV v Commissioner of Taxation  FCA 110
The Federal Court has held that services provided by an Uber driver providing uberX services constituted a supply of "taxi travel" within the meaning of s 144-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). The Uber driver was therefore required to be registered for GST.
At the heart of this proceeding is the question of whether persons who are Uber drivers are required to be registered for GST purposes.
Enterprises with a turnover of less than A$75,000 do not need to register for GST, but there is a special rule or exemption, created by s 144-5 in Pt 4–5(1) of the GST Act, which has the effect that taxi and limousine operators are required to be registered, regardless of turnover. That provision requires a person who is carrying on an enterprise to be registered for GST purposes “if, in carrying on your enterprise, you supply taxi travel" (s 144-5(1)).
The phrase “taxi travel" is defined in s 195-1 of the GST Act as meaning “travel that involves transporting passengers, by taxi or limousine, for fares".
The court said that the core issue is whether, in carrying on the enterprise of providing uberX services to passengers (who are known as “uberX riders"), uberX drivers (who are known as “uberX partners") supply “taxi travel" as defined. If so, they must register for GST purposes.
The parties to the proceedings ultimately agreed that the core issue is encapsulated in the more specific question of whether the applicant is entitled to a declaratory order that he did not supply taxi travel within the meaning of section 144-5(1) of the GST Act.
The applicant submitted that the terms “taxi" and “limousine" should take on their ordinary meaning, supporting a “trade or non-legal technical meaning". However, the Commissioner submitted that the applicant’s reliance on what it claims are 15 characteristics of a taxi as supporting a “trade or non-legal technical meaning" of “taxi" was misdirected because the States and Territories do not adopt consistent nomenclature and impose requirements and restrictions that differ from jurisdiction to jurisdiction. For example, there are certain taxis where taximeters are not mandated, such as Pt VII of the Transport (Country Taxi-car) Regulations 1982 (WA) and reg 5 of the Country Taxi-Cars (Fares and Charges) Regulations 1991 (WA).
The Commissioner submitted that the applicant’s reliance on a regulatory concept of “taxi" was also misguided because in applying s 144-5 there is no basis for concluding that the Parliament intended the Court to embark on an analysis of the operation of, and difficulties in, the “taxi industry" and the perceived need for “regulatory intervention" in that channel.
The court rejected the applicant’s contention that the meaning of the phrase “taxi travel" was influenced by the “regulatory concept" of taxi. As such, the court declared the uberX services supplied by the driver constituted supply “taxi travel" within the meaning of s 144-5(1) (as defined in s 195-1) of the GST Act. The court also considered that the word “taxi" is sufficiently broad in its ordinary meaning to encompass the uberX service supplied by the applicant.
If you earn income as an Uber driver, you should discuss with your tax agent or adviser your GST obligations, if any, that might arise as a result of this case.
In previous editions of TaxWise Business, the impending application of GST to low value goods has been mentioned.
It is intended that from 1 July 2017, the changes to the GST rules will:
If you are registered for GST and buy low value imported goods for your business from overseas, you will need to supply your ABN at the time of purchase so you won’t be charged GST.
If your business is not registered for GST, you will be treated as a consumer and unable to recover the GST charged by the overseas business.
At the time of writing, the Bill containing these changes had not yet passed Parliament, though it is anticipated the Bill will pass shortly. A Senate Committee had also recommended the implementation date be deferred until 1 July 2018.
In previous editions of TaxWise Business, the impending rules to impose GST on cross-border supplies of digital products and other services by Australian consumers has been mentioned.
Products affected include digital products such as streaming or downloading of movies, music, apps, games and e-books and services such as architectural or legal services.
Non-resident businesses who supply these services and meet the A$75,000 annual turnover threshold will need to register for Australian GST.
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.
There are five simplified accounting methods available to help work out the amount of GST food retailers are liable to pay at the end of each tax period.
If you are a food retailer, you can find out more about the simplified accounting methods for food retailers to determine which one best suits your business.
The Government has changed the way fringe benefits will be treated for the calculation of several tax offsets from 1 July 2017.
The meaning of “adjusted fringe benefits total” has been modified so that the gross rather than the adjusted net value of reportable fringe benefits is used. This change impacts the way a taxpayer’s entitlement for certain tax offsets is calculated. The low income superannuation tax offset, the seniors and pensioners tax offset, the net medical expenses tax offset and the dependent tax offsets are all affected.
Currently, the reportable fringe benefits amount is adjusted down for the purposes of calculating the adjusted taxable income for those benefits.
If you provide fringe benefits to your employees, talk to your tax agent to find out if this change impacts your business.
To help small business owners understand their fringe benefits tax (FBT) obligations, the ATO has produced the following videos that outline FBT obligations for employees who have been provided a business car or who have been given a reward beyond their usual salary:
The new superannuation tax laws substantially commence from 1 July 2017. Many of the measures require careful consideration for super fund members, trustees and their advisers. This includes a number matters that need to be considered prior to 1 July 2017, including:
You should seek advice from your tax agent or adviser regarding how these superannuation changes affect you. You should also consider if there are any impacts on the contributions you make to superannuation on behalf of your employees.
The ATO recognises the importance of the Superannuation Guarantee (SG) to the community and its vital role in providing for people’s retirement.
The ATO website has calculators and guidance to help employees determine whether they are being paid enough SG. When the ATO recovers outstanding superannuation amounts from employers, payments are then sent to the employee’s superannuation fund.
On 14 March 2017, the Senate Economics References Committee held a public hearing on the Committee’s inquiry into the impact of non-payment of the superannuation guarantee. The transcript was released on 22 March 2017 and can be found on the Parliament website.
If you have any concerns about whether you are meeting your superannuation guarantee requirements, you should discuss this with your tax adviser.
On Budget Night, the Government announced that from 1 July 2018 the non-arm’s length income (NALI) provisions applying to superannuation fund earnings will be amended to consider expenses associated with a transaction.
On Budget Night, the Government announced that limited recourse borrowing arrangements (LRBAs) entered into after 30 June 2017 will be treated differently to improve the integrity of the superannuation system.
The outstanding balance of a relevant LRBA will be included in a member’s Total Superannuation Balance (TSB).
Repayments of a relevant LRBA from a member’s accumulation account that result in an increase in the value of a retirement phase account will become credits for Transfer Balance Account purposes.
Trustees are reminded that it is now a requirement for all SMSFs to provide the ATO with your fund’s superannuation bank account details. In addition, if your SMSF has an electronic service address (ESA) alias, you should include this information in your annual return.
For more information, visit the ATO website.
There are a lot of changes affecting superannuation – both for individuals and for business-owners – that you need to be aware of. It is always a good idea to sit down with your tax agent or adviser and review all relevant aspects of superannuation.
Spence v Commissioner of Taxation  AATA 307
The Administrative Appeals Tribunal (AAT) has affirmed the Commissioner’s decision to disallow the taxpayer’s claim for share trading losses.
The taxpayer was issued notices of assessment for the 2007 to 2010 financial years as a consequence of the non-lodgment of returns for those years. The taxable income identified in those assessments arose from interest earned by the applicant in each year. The applicant lodged an objection to each of the notices of assessment and each of the notices of assessment of penalty.
The taxpayer also claimed that he had lodged his income tax return in 2006 and claimed $21,000 as a share trading loss, which should have been carried forward for offset in subsequent years.
The AAT held that the carried forward share trading losses from 2006 were not deductible as no tax return was lodged. The AAT also held that the taxpayer had adduced no concrete tangible evidence in support of his case. He had been asked to provide a summary of how the share trading losses were calculated. In response he provided the September 2013 spreadsheet which he used to support his position but that spreadsheet was not consistent with the records provided to the Commissioner by COMMSEC, CMC Markets and E*Trade as a result of the request for information arising from the exercise of the Respondent’s powers under s 353-10 of Schedule 1 to the TAA. The taxpayer also made some errors in the calculations and attributed the wrong dates to some of the transactions in question.
Illegal phoenix activity – protect yourself and your business
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. You can avoid phoenix companies by knowing who you’re going into business with. Information on how to protect your business can be found on the ATO website.
The ATO has released a short video highlighting some of the warning signs of phoenix activity. The ATO webpage has also been updated with tips on where you can go for help.
The ATO is working with other government agencies through the Phoenix Taskforce to stamp out illegal phoenix activity. This will maintain a level playing field for businesses and ensure fairness for all.
Single Touch Payroll starts 1 July 2017
Single Touch Payroll is a government initiative to streamline how employers report their tax and superannuation information to the ATO. Employers will be able to report salary or wages, PAYG withholding and super information directly to the ATO at the same time as they pay their employees.
Single Touch Payroll will become available for a small number of employers from 1 July 2017 and some of these employers may be your clients.
For more information on what you need to know, visit the ATO website or refer to the previous edition of TaxWise Business.
Improving the transparency of tax debts
The Government has announced that from 1 July 2017 it will allow the ATO to disclose debt information to credit reporting bureaus of taxpayers that are not effectively engaged with the ATO to manage their debts.
Taxpayers are encouraged to pay taxation debts in a timely manner to avoid it affecting their credit rating.
Providing transparency of tax debts owed by disengaged taxpayers aims to influence taxpayer behaviour and reduce the unfair financial advantage gained by taxpayers that do not pay their tax on time. It will also help to provide visibility of tax debt information to other businesses (such as suppliers) and credit providers.
Taxpayers who effectively engage with the ATO to resolve their debt will not have it reported.
In conjunction with Treasury, the ATO is consulting with the community, including business, industry groups and associations (including the Australian Small Business and Family Enterprise Ombudsman), to ensure that the measure is implemented and administered effectively.
Please note that this measure is not yet law and is subject to the normal parliamentary process.
For more information, visit the ATO website.
If you are concerned about debts you may owe the Australian Taxation Office, talk to your tax agent to discuss whether this proposed measure will impact you.
CGT withholding and indirect Australian real property interests
If you purchase indirect Australian real property interests from a relevant foreign resident vendor, you will need to withhold from the purchase price. This applies to contracts entered into from 1 July 2016.
Indirect Australian real property (IARP) interests are membership interests in an entity that, subject to exclusions, satisfies two tests:
Membership interests include shares and units in taxable Australian real property rich (over 50%) trusts or companies.
The ATO is focusing on businesses that rely heavily on cash transactions. The ATO will be working closely with industry associations, tax practitioners and businesses to understand any issues they may have. The ATO will use up-to-date third-party data and sophisticated risk-analysis to identify who may not be doing the right thing or may need a bit more help.
Detailed information on the following topics can be found on the ATO website:
If you use social media for your business, you may be a target for scammers. Learn what you can do to help keep you and your business safe.
You can also check your online security practices by completing the ATO’s online security self-assessment questionnaire.
The ATO has updated their small business benchmarks with information from the 2014-15 financial year. The benchmarks are available for more than 100 industries.
If you are a sole trader, the ATO app’s myDeductions tool can help you with record-keeping.
Small business support in one place
There are a range of government measures designed to help small businesses. You can find out what’s available in one place using the filter at business.gov.au/smallbusiness.
Help for start-ups and budding Australian entrepreneurs
On 28 February 2017, the Minister for Small Business, the Hon Michael McCormack MP, released a statement regarding the new products that are now available to help Australians who are starting a business for the first time.
Government agencies, including the ATO, Australian Securities and Investments Commission (ASIC) and the Department of Industry, Innovation and Science, recently partnered with young small business owners to form a fix-it squad.
If you are starting a business, you can download ASIC’s First Business App or visit the Plan & Start page on business.gov.au for valuable information including:
Your tax agent or adviser is also able to assist you with what you need to do when starting a business, including ensuring you have all the right registrations in place and in particular, your tax registrations.
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.