Category Archives: Business

Coalition’s tax policies: How do these impact on businesses?

The Federal Election has come and gone. The Coalition has won and will be the next Federal Government.

The Coalition will have a majority of seats in the House of Representatives in their own right but not the Senate. This may make the passing of their tax and other proposals into law difficult.

Here we focus on the Coalition’s tax proposals highlighting the impact they may have on small and medium businesses and their owners.

Uncertainty around the Coalition’s tax policies and proposals

Many of the Coalition’s proposals were outlined in the Federal Budget on 2 April. Some proposals have already been passed into law – an example is the immediate tax write-off of the cost of buying plant and machinery.

Others like the tax offset for low-and middle-income earners that will only become available on the filing of the 2019 tax return, have not. It is highly unlikely that the Prime Minister will be able to call Parliament and pass the necessary law before 30 June.

In a perfect world, it is desirable that tax legislation should have a prospective start date to provide certainty, and time for the proposal to be properly considered. Unfortunately, this is not always the case.
If you believe that any of the proposals outlined here may apply to you or your business, please consult your tax adviser. ■

Tax breaks available to both small and medium businesses for the 2019 tax return

Instant asset write-off

Businesses can claim an immediate tax write-off and reduce their tax payable when buying new business assets, but cost caps apply.

Tip! Always discuss with your adviser whenever considering buying assets or businesses. The way these assets are described, documented and the timing of purchase are important and may impact the claiming of the immediate tax write-off.

Small businesses with a turnover of less than $10 million

If you are a small business with total turnover of less than $10 million, the instant asset write-off is available to you for all new or second-hand machinery, plant, cars and equipment (eg tools, display cabinets, freezers, delivery vehicles).

Cost caps apply depending on when the asset is first used or installed and ready for use.

If the time of first use or installation ready for use is between:

  • 1 July 2018 – 28 January 2019: assets must cost less than $20,000
  • 29 January 2019 – 2 April 2019: assets must cost less than $25,000
  • 3 April 2019 – 30 June 2020: assets must cost less than $30,000.

There is no limit to the number of assets that can be claimed.

For businesses claiming GST, the tax write-off cost excludes GST.

For businesses not claiming GST, the tax write-off cost includes GST.

Note! Registering for GST is optional if total sales are less than $75,000.

This tax break currently ends on 30 June 2020. There is an expectation that the Government may extend this provision.

What about assets that are more than $30,000?

For assets costing more than $30,000 or the cost caps of $20,000 or $25,000, for the relevant periods, businesses can use the simplified tax depreciation pooling provisions and depreciate those assets at 15% in the first year and 30% each year thereafter.

If on 30 June 2019 the simplified tax depreciation pool balance is less than $30,000, then this amount can be immediately written off for tax purposes.

Case study: How the instant asset write-off works

Here is a case study of how the instant asset-write-off works:

Early Bird Café is a business registered for GST with a turnover of $5m.

  • On 12 December 2018, Early Bird Café paid $16,500 (and was entitled to a GST credit of $1,500) for a counter top for the new café extension which opened for business after all construction was completed on 17 January.

An immediate tax write-off of $15,000, as the counter was first used before 28 January.

  • On 27 January 2019, Early Bird Café took delivery of a walk-in refrigerator, but it was not installed and ready for use until 6 February 2019. Payment of $25,300 including GST was made on 27 April 2019.

An immediate tax write-off of $23,000 as the walk-in refrigerator was installed and ready for use before 2 April 2019. Delivery and payment dates are not taken into account. The write-off is the GST exclusive value. The GST of $2,300 is claimable in the BAS return. 

If the café business was not registered for GST (total sales being below $75,000) there would be no immediate tax write-off because the cost to the business is $25,300 and is more than the cost cap of $25,000. 

  • On 30 June 2019, the balance in the simplified tax depreciation pool was $28,500.

An immediate tax write-off of $28,500 as the balance in the simplified tax depreciation pool is less than the cost cap of $30,000.

  • On 20 July 2019, Early Bird Café took delivery of a van costing $44,000 including GST funded by a bank loan.

No immediate tax write-off as the cost of $40,000 is more than the cost cap of $30,000. Annual depreciation rules will apply to the $40,000 cost of the van. GST of $4,000 is claimable in the BAS return.\

What other measures are available to small businesses?

Easier for businesses to use their losses

A new similar business test has been introduced, making it easier for a loss business to transfer its losses to a profit business where the businesses are similar.

The similar business test now means same assets, same activities, same identity with differences only coming from natural growth.

New GST withholding obligations on the purchase of new residential premises

From 1 July 2018, purchasers of new residential premises must pay vendors a GST exclusive amount and send the GST direct to the ATO.

No tax deductibility of employer payments to employees if PAYG obligations not met

From 1 July 2019, an employer will be allowed a tax deduction for payments to an employee only when the PAYG withholding obligations have been met. These are: the withholding of the tax when the employee is paid and the reporting of that amount to the ATO.

Cheaper, quicker and less intimidating resolution of ATO disputes

For small businesses, a new process has been introduced making the resolution of ATO disputes arising from minor technical matters identified in the tax return or an audit, cheaper, quicker and less intimidating.

Applications will be considered by a small business division of the Administrative Appeals Tribunal to commence from 1 July 2019 and be generally conducted without lawyers.

If for any reason, the ATO engages external lawyers, they will be obliged to pay the business’ cost of equivalent support. Decisions need to be given within 28 days of the hearing.

Tip! Your adviser will be able to advise if in your circumstance this approach is in the best interest of your business or yourself.

Medium businesses with a turnover of more than $10 million but less than $50 million

If you are a medium business with total turnover of more than $10 million but less than $50 million, you can claim an immediate tax write-off for assets costing less than $30,000 if they were purchased after 2 April 2019 and first used or installed and ready for use by 30 June 2020.

These businesses are not able to claim the immediate tax write-off for purchases before 2 April, as the immediate tax write-off provision did not apply to them before that date.

For assets costing more than $30,000, the annual depreciation rules will apply. There is also no immediate tax write-off for depreciation account balances below $30,000.

Tax breaks that may be available for the 2019 tax return: Law not yet passed

Prior to the Election, the Coalition Government had proposed various tax measures. These have yet to be passed into law. We are not sure which will be passed into law or when. If they are of interest discuss this with your adviser.

Still waiting for personal tax cuts…

Not yet law:

  • The tax offset that reduces the tax payable for low and middle- income earners. This becomes available when the 2019 tax return is filed with the ATO.
  • The marginal tax rate change for the 1 July 2019 – 30 June 2020 tax year. This will reduce the tax payable from 1 July 2019.

The new Coalition Government wants these and the proposed changes so that will result in a flatter tax rate structure by 2025, passed into law as quickly as possible. Labor has said it will support the 2019 and 2020 tax year changes but not those resulting in the flatter tax rate by 2025. We will wait and see.

Small tax discount rate to increase from 1 July 2020

For unincorporated businesses, the current small tax discount rate of 8% would increase to 13% for 1 July 2020 to 30 June 2021 and become 16% after 1 July 2021.

For companies with a turnover under $50m, a cut in corporate tax rate from 1 July 2021

It is proposed for companies with a total turnover of less than $50m that from 1 July 2021, the current company tax rate of 27.5% would be decreased to 25%.

Available now cash payments for training and new apprenticeships in some trades

A cash incentive payment of $8,000 per placement is available to those businesses offering apprenticeships in the following trades: carpenters and joiners; bricklayers and stonemasons; plasterers; wall and floor tilers; plumbers; vehicle painters; hairdressers; air-conditioning and refrigeration mechanics; arborists.

The employers will be given $3,500 after 12 months and $4,500 at the end of the apprenticeship.

The new apprentices receive $1,000 after 12 months and $1,000 on completion.

Selling overseas: Export market development grants

If your business operates as a self-employed, partnership, company or trust and has undertaken export promotion activities during the year, it may qualify for the Export Development Grant.

Specific rules exist as to the countries and categories of promotional expenditure that the Grant applies to. A detailed application process exists.

In general, a business must:

  • have total sales of less than $50m
  • have incurred at least $15,000 of promotional expenditure on (indicative only):
    • overseas representatives
    • overseas marketing visits
    • buyer visits
    • providing free samples
  • be selling or promoting overseas:
    • export of goods, know-how and most services
    • inbound tourism and conferences
  • be developing export markets in countries other than:
    • North Korea
    • Iran
    • New Zealand 

The cash benefit is a reimbursement of up to 50% of the promotional expenditure over a must-spend base of $15,000. The minimum grant is $5,000 and the maximum $150,000.

Tip! If either of these incentives are of interest or applies to you or your business, consult with your adviser. The paperwork required to set these up may require their assistance. ■

Labor tax policies that are not going forward

With Labor losing the Election, the tax policies it planned to introduce will no longer go ahead. These policies are:

  • Additional 30% deduction for wages paid to new workers under the age of 25 and over 55 who had previously been unemployed and carers returning to work.
  • From 1 July 2021, an immediate 20% tax write-off of the cost of new eligible asset purchases. Usual depreciation would continue to apply in the first and subsequent years. No cost caps applied.
  • CGT discount of 25% not 50% on the sale of passive investments held for over 12 months.
  • A minimum tax of 30% on discretionary trust distributions to beneficiaries over the age of 18.
  • Negative gearing – restricting deductions for interest on loans to purchase new passive investments.  
  • Franking credit – denying cash refunds.
  • Limiting to $3,000 the deduction for the cost of tax affairs management.
  • Various superannuation changes.

The ATO is watching…

The new Government can be expected to continue funding the ATO to put in place mechanisms that will improve the integrity of the tax system and chase down those that want to operate outside it or who are understating income or overstating expenses.

The ATO is actively monitoring businesses by using up-to-date third-party information and risk analysis to find businesses who might not be correctly meeting their tax obligations.

How this may work is best shown in the below case study.

Case study

A hairdresser paid cash to a decorator to refurbish three salons.

The decorator buys paint and furnishings from a local supplier paying in cash and asks for them to be delivered to the salons.

As part of its normal data collecting, the ATO asks the supplier for a schedule of names and addresses of recent sales. The ATO are unable to find the decorator in their system. No tax return has been filed for the last 10 years. By visiting the delivery address the ATO identifies the decorator and commences an extensive investigation.

The ATO then focuses on the hairdresser. They are not able to see in the accounts the payment to the decorator. The ATO complete a living expense analysis and conclude that the amounts required by the hairdresser for day to day living is not supported by the income declared on the tax return. Not all hairdressing income has been included.

Tip!Living expenditure worksheets that allow business owners to undertake in-depth analysis of their household annual incomings and outgoings to show that the income declared on the tax return supports their actual life style are available. If you are interested in completing such worksheets, discuss this with your tax adviser.

Jail time for labour hire operator

On 15 May, the County Court of Victoria sentenced a director of a labour hire company to six months jail for failing to pay to the ATO more than $664,000 in PAYGW from 49 employees; filing 136 false tax returns with refunds of $187,994 for workers (many who had left Australia) and the non-filing of Business Activity Statements (BAS). Monetary penalties were also imposed.

This case shows the extent that information and data analysis are available and used by the ATO to identify those outside the tax system or who understate income or overstate expenses.

Jail time and substantial penalties may result. If you have concerns that your business has made a mistake or left something out, you should discuss this immediately with your adviser.

Key tax dates

Date Obligation
21 Jun 2019 May monthly BAS due
25 Jun 2019 Lodge 2019 FBT annual return for agents if lodging electronically
30 June 2019 Super guarantee contributions must be paid by this date to qualify for a tax deduction in the 2018-19 financial year
15 Jul 2019 Issue PAYG withholding payment summaries
22 Jul 2019 June monthly BAS due
29 Jul 2019
  • June quarter SG due
  • June quarter BAS due

June quarter PAYG instalment due

1 Aug 2019 August fuel tax credit rates change
14 Aug 2019 PAYG withholding annual report due
21 Aug 2019 July monthly BAS due
28 Aug 2019
  • Taxable payments annual report due

June quarter SG charge statement due

 

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.

Focus on small business

What the ATO is seeing in the small business market

On 2 November 2018, the Deputy Commissioner of Small Business, Deborah Jenkins, delivered a keynote address at a conference run by a national accounting body outlining the main tax issues the ATO is seeing in small businesses. These are:

  • claiming private expenses through the business;
  • how to attribute business and private use to an asset;
  • how tax applies to different tax structures used for small business that may be complex and varied;
  • not always including all taxable income.

Other easily avoidable errors were also identified.

Other areas of focus include:

  • cracking down on the ‘Black Economy’;
  • assisting small businesses to manage their cash flow and tax debt; and
  • Single Touch Payroll (STP).

Here is a linkif you would like to read the Deputy Commissioner’s speech in detail.

To do!
Always seek advice from your tax agent or tax adviser to ensure you are getting all your tax obligations right.
Motor vehicle expenses – how to get them right

The ATO has published a new factsheeton motor vehicle expenses to help small businesses get this right.

The small business motor vehicle expenses fact sheet will help you answer common questions about: 

  • types of motor vehicle expenses you can claim;
  • methods you can use to calculate your claim;
  • private use of a business car;
  • whether your vehicle is considered to be a car, and how this affects your claim; and
  • records you need to keep. 

If you use motor vehicles in your business, this fact sheet is for you.

Disqualifying directors of phoenix companies

In November 2018, the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, supported the proposal made by the Shadow Assistant Treasurer, Andrew Leigh, to allow the Commissioner of Taxation to apply to ASIC to have directors who don’t meet their tax obligations disqualified in egregious cases.

The ALP would also put in place ‘name and shame’ powers.

Directors involved in phoenix activity deliberately shut down companies to avoid their obligations to small businesses, employees and the Government (including the ATO).

In response, Ms Carnell stated: “This is another approach that could help deal in part with the problem of company phoenixing, which destroys small businesses”.

To read more of Ms Carnell’s response, go here.

Supporting Indigenous small business

The ATO is committed to supporting small businesses run by Indigenous Australians.

They have dedicated staff on the Indigenous Helpline who specialise in helping Aboriginal and Torres Strait Islander people understand their tax and superannuation obligations in their small business.

The Helpline number is 13 10 30 (8.00am to 6.00pm, Monday to Friday, except public holidays).

Tip!
If you are starting a small business, your tax adviser will be able to assist you with working out the best structure for your business, understanding your tax and superannuation obligations and meeting those obligations on time.

Don’t forget about the small business income tax offset

If you run your business as a sole trader, or receive a share of small business income from a trust or partnership, don’t forget you may be able to save up to $1,000 on your tax bill by claiming the small business income tax offset.

The offset is worked out based on the proportion of income tax payable on your business income.

Your business aggregated turnover must be less than the relevant threshold – see the following table:

Income Year (s)

Aggregated turnover threshold

% Rate of offset

Maximum offset amount

2016

$2,000,000

5%

$1,000

2017 – 2020

$5,000,000

8%

$1,000

2021

$5,000,000

13%

$1,000

2022

$5,000,000

16%

$1,000

Note!
You cannot claim the small business income tax offset if you run your business through a company. Talk to your tax agent about what other small business tax concessions you may be eligible for.

Instant asset write-off for small businesses extended and increased

Small businesses will get an extra tax break following the recent announcement by the Government that the instant asset write-off scheme will be extended to 30 June 2020 for assets purchased under $25,000 in value.

Small businesses will be able to immediately deduct assets costing less than $25,000 instead of claiming deductions over a number of years. The new increased threshold of $25,000 applies from 29 January 2019 (instead of $20,000). There is no limit on how many assets can be claimed.

Tip!
A helpful tip from the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell: “Small and family businesses need to remember that this is a tax deduction, not a rebate. So you need to have sufficient profit to write off the new asset against.”

Taxable payments reporting system expanding

The Taxable payments reporting system (TPRS) is slowly being expanded to cover more and more industries. It first started with the building and construction industry and from 1 July 2018 also includes contractors that provide courier and cleaning services. Businesses that make payments to contractors in these industries will need to lodge their first annual report by 28 August 2019.

The ATO has issued some guidance (LCR 2018/8) on how these rules will apply. Your tax agent or tax adviser will, of course, be able to assist you to meet your reporting obligations.

In late November 2018, legislation was passed to further expand the TPRS to contractor payments in the following industries:

  • security providers and investigation services;
  • road freight transport; and
  • computer system design and related services.

Businesses will be required to lodge their first annual report for payments in these industries by 28 August 2020.

The ATO has issued some digital resources, fact sheets and webinar recordings to assist taxpayers to understand their reporting obligations. However, your primary resource for assistance is your tax agent or adviser. 

Digital economy

The digital economy and Australia’s corporate tax system 

The Government is working with other countries, through the G20 and the OECD, to develop sustainable, multilateral responses to address the challenges to our tax system arising from digitalisation. A discussion paper was issued by Treasury for comment by 30 November 2018 to explore options to move towards a fairer and more sustainable tax system for the digitalised economy. 

E-commerce and digital economy outcomes for the Tax Avoidance Taskforce

The rapidly evolving nature of the e-commerce and digital economy industry has significantly transformed the way multinational enterprises conduct their operations. This has resulted in complex arrangements being used as well as new, emerging business models. Consequently, highly complex and often unique business and financial structures are used by these enterprises, usually aiming to minimise tax obligations.

As a result of the proliferation of these artificial structures aimed at tax minimisation, this industry was chosen by the ATO as a focus area in the ATO’s ongoing efforts to ensure an even playing field for all taxpayers. 

As part of the work undertaken by the Tax Avoidance Taskforce, the ATO has done substantial compliance work focusing on the e-commerce and digital economy industry. 

Multinational enterprises operating in this industry have significantly increased the profits declared and the tax they pay in Australia as result of the ATO’s efforts. The playing field is starting to level out.

Single Touch Payroll

Smaller employers – when to use Single Touch Payroll

If you are an employer with 19 or less employees, you should consider switching to reporting through Single Touch Payroll (STP). 

Though you are not yet required to report through STP, you will be from 1 July 2019. If you use online or cloud-based payroll software, you may be able to start reporting now.

You will need to report payments such as salary and wages, Pay As You Go (PAYG) withholding and super information when you pay your employees.

Low-cost Single Touch Payroll solutions for micro businesses

A range of simple, low-cost Single Touch Payroll solutions are expected to be available in the market from early 2019. These solutions will best suit micro employers (with one to four employees) who need to report through STP, but do not currently have payroll software.

There is a list of software companies on the ATO website that intend to develop solutions for micro businesses.

Tip!
Your tax agent will be able to assist you in meeting your STP obligations. This may save you the expense of obtaining your own STP software. Talk to your tax agent before 1 July 2019 to help you decide what to do about meeting your upcoming STP obligations.

GST and small business

GST and property transactions

When will you get credits?

To ensure you can receive GST input tax credits on time, as part of the property settlement process, you should ensure that the supplier details you provide to the purchaser in your notification are correct. If you get the details right at the time of settlement, this will help avoid delays in the processing of your credits by the ATO.

Providing details to the ATO that are not quite correct can delay you accessing your credits and may require the ATO to validate your details.

To ensure timely processing, the ATO has detailed the following 6 steps to follow:

Step 1: provide correct Supplier details to the purchaser
Step 2: purchaser to enter Supplier details into Form 1 GST Property Settlement Withholding notification
Step 3: purchaser to pay the withholding amount and lodge Form 2 GST Property Settlement Date confirmation
Step 4: ATO to allocate a credit to the Supplier GST property credits account if this matches the details provided in Form 1
Step 5: Supplier to lodge a BAS declaring the property transaction
Step 6: ATO to process BAS and transfer credits to Supplier Activity Statement account.

Changes to GST settlement for residential property – can you apply the margin scheme?

New legislation affecting GST on purchases of new residential premises and potential residential land started to apply from 1 July 2018. The new legislation requires purchasers of certain land to withhold an amount from the purchase price and instead remit this amount to the ATO.

If you are in business and registered for GST and you are selling new residential premises or potential residential land, you may be able to apply the GST margin scheme to your sale. 

If the margin scheme applies to your sale, you must notify the purchaser of the withholding amount to ensure the purchaser withholds the correct amount. The withholding amount is 7% of the contract price (cents are not included). 

The new legislation has not changed the way the margin scheme applies or operates, including business activity statement (BAS) reporting. All property sales continue to be reported at label G1 and the GST on sales reported at label 1A on your BAS. 

Do you make any GST-free sales?

Do you sell food? Do you supply education? Do you provide medical services? Do you sell any of the products and services in the list below?

  • Most basic food
  • Some education courses, course materials and related excursions or field trips
  • Some medical, health and care services
  • Some menstrual products (from 1 January 2019)
  • Some medical aids and appliances
  • Some medicines
  • Some childcare services
  • Some religious services and charitable activities
  • Supplies of accommodation and meals to residents of retirement villages by certain operators
  • Cars for disabled people to use, as long as certain requirements are met
  • Precious metals
  • Farmland
  • Exports.

If so, some of the products and services you sell may be GST-free. This means, you don’t need to charge GST on them and you can still claim any input tax credits you may be entitled to.

To do!
If you are not sure whether you should be charging GST on the goods and services you sell, check with your tax adviser.

Fringe benefits tax

Did you throw a party for your employees to celebrate the festive season?

If so, you need to consider whether you have any FBT obligations associated with the party. If you also gave your employees a gift, there may be an FBT implication too.

It also makes a difference whether the party was held on your business premises or somewhere else.

If the cost of everything per person is less than $300, you may have provided a ‘minor benefit’ which may be exempt from FBT.

Your tax adviser will be able to tell you whether there are any FBT implications for your business for the party and the gifts.

Private use of cars and FBT

A car fringe benefit may arise when your business owns or leases a car and makes it available for an employee to use for private travel. It is the availability of the car for private use by an employee that is the ‘fringe benefit’.

A car is ‘available for private use’ if it is garaged or kept at or near the employee’s residence at any time on a day. Generally speaking, using the car to travel to and from work is ‘private use’ of the car.

If your business has recently acquired a car, you may have received a letter from the ATO to help you understand what your FBT obligations might be. If you are not sure what your FBT obligations are, you should speak with your tax adviser.

Note!
An ‘employee’ also includes a director.

The FBT rules are being reviewed

Board of Taxation FBT Compliance Review

The Board of Taxation is conducting a review into the compliance costs associated with fringe benefits tax. They recently ran a survey which employers could complete to provide information to the Board about their own experience with FBT compliance costs.

Shortly the Board will make recommendations to the Government about whether any changes to FBT compliance are required. However, as is typical of government reviews, it may be a while before any changes are made.

Productivity Commission review into the Zone Tax Offset, Fringe Benefit Tax remote area concessions and Remote Area Allowance

In February 2019, the Productivity Commission intends to begin a review into ‘remote tax assistance’ – the Zone Tax Offset, Fringe Benefits Tax remote area concessions and Remote Area Allowance – which provide financial support to people living in remote areas of Australia.

Eligibility for assistance is determined by geographical location divided into zones.  The zones have been largely unchanged since 1945. The main concern from this is that the current financial support doesn’t reflect the current status of demography, infrastructure and the cost of living.

The Productivity Commission is not due to report for 12 months following commencement of the review. So, any change in this area may not occur for a long time.


Does your business own a rental property?

If you own residential rental property, you are only able to claim deductions for travel expenses relating to inspecting, maintaining, or collecting rent from the property if you are carrying on a rental property business or the property is owned by an excluded entity (eg a company). 

The law changed on 1 July 2017 to restrict when travel expenses associated with rental properties could be claimed. If you haven’t yet lodged your 2018 income tax return for your business, check with your tax adviser whether you are eligible to claim these travel expenses.

Ride sourcing

If you are running or are about to start running a ride-sourcing enterprise, you will need to get an Australian Business Number (ABN) and register for GST. Fares you receive are subject to GST and the money you receive from ride-sourcing is subject to income tax.

You can register for an ABN and GST at the same time online via www.abr.gov.au. Your tax agent can also apply for an ABN and GST registration for you.

Your GST registration will need to start from the date you start your ride-sourcing enterprise.

If you are already registered for GST as an individual for another industry, you can use the same GST registration. Though, if you have a company, the company must have its own separate GST registration.

Your tax agent or tax adviser will be able to help you understand what your tax obligations are for running a ride-sourcing enterprise.

Superannuation

Proposed superannuation guarantee amnesty

There is a proposal to provide employers with a 12-month amnesty to self-correct past superannuation guarantee non-compliance without penalty.

If the Treasury Laws Amendment (2018 Superannuation Measures) No.1 Bill 2018 (Amnesty Bill) is passed by Parliament, the amnesty will be available from 24 May 2018 to 23 May 2019.

Given the time period it covers, the ATO will apply the new law retrospectively to voluntary disclosures made within the time period.

Until the new law is passed, the current rules apply, which includes a ‘$20 per employee per period’ mandatory administration component to SG charge statements lodged by employers.

If you are concerned that you may have super guarantee corrections to make, please speak with your tax adviser.

Event-based reporting for SMSFs

On 1 July 2018, the event-based reporting framework for self-managed superannuation funds (SMSF) began to apply.

The new framework helps the ATO to administer the transfer balance cap. Once the first member in the fund starts to receive a retirement phase income stream, the SMSF will have to report to the ATO.

The report about the transfer balance cap (‘transfer balance account report’ (TBAR)) is a separate reporting obligation to the Annual Return for the SMSF. The TBAR enables the ATO to record and track an individual’s balance for both their transfer balance cap and their total superannuation balance. However, it is important that SMSF trustees and members monitor their own account balances.

To do!
If you have your own SMSF, you should speak with your tax adviser about monitoring members’ account balances and the fund’s reporting obligations.
A TBAR was due to the ATO on 29 January 2019 if a fund member had a total superannuation balance of more than $1 million or a member had a transfer balance account event occur between 1 October 2018 and 31 December 2018.

Are the details of your SMSF up to date on the Australian Business Register?

If you make changes to the details of your SMSF, the Australian Business Register (ABR) needs to be updated within 28 days of those details changing. Changes to the following details must be updated on the ABR:

  • trustees
  • directors of the corporate trustee
  • members
  • contact details
  • address
  • fund status.

Your tax agent can check the ABR for you and confirm with you whether the details of your SMSF are up to date or make any changes for you.

The Small Business Superannuation Clearing House: updated communication

The ATO has updated the way it notifies users of the Small Business Superannuation Clearing House (SBSCH) of changes to the SBSCH. The terms and conditions of the SBSCH have also be updated to provide small business users with a better understanding of:

  • when a payment is ‘accepted’ by the SBSCH for an employer’s superannuation guarantee contributions;
  • what happens when a fund doesn’t accept a payment (due to missing or incorrect payment instruction details); and
  • when the superannuation guarantee charge applies.

Removing tax deductibility of non-compliant PAYG payments

From 1 July 2019, an employer can only claim deductions for payments made to employees or contractors where an employer has complied with the Pay As You Go (PAYG) withholding and reporting obligations for that payment. 

If the PAYG withholding rules require an employer to withhold an amount from a payment they make to an employee or contractor, they must withhold the amount from the payment before they pay it and report the amount to the ATO.

Any payments made where the PAYG amount has not been withheld or reported are called ‘non-compliant payments’. Non-compliant payments are not eligible for a deduction. If a mistake is made and the employer has withheld or reported an incorrect amount, the employer will not lose their entitlement to a deduction.

 Key tax dates

Date

Obligation

21 Feb 2019

Lodge and pay January 2019 monthly BAS

28 Feb 2019

 

 

Lodge and pay SMSF Annual Return for new SMSFs (unless otherwise advised)
Lodge and pay December 2018 Quarterly BAS (paper & electronic)
Lodge and pay December 2018 Quarterly instalment notice
Lodge Annual GST Return (if no tax return due)
Lodge and pay December 2018 Quarterly SGC (if required)

21 Mar 2019

Lodge and pay February 2019 Monthly BAS

31 Mar 2019*

Lodge and pay tax return for companies and super funds with income >$2M (unless due earlier)
Lodge return for trust whose latest return has a tax liability ≥$20,000

21 Apr 2019*

Lodge and pay March 2019 Monthly BAS

28 Apr 2019*

Lodge and pay March 2019 Quarterly BAS (paper)
Pay March 2019 Quarterly instalment notice
Employer super guarantee contributions due

15 May 2019

Lodge 2018 income tax returns not due earlier

21 May 2019

Lodge and pay April 2019 Monthly BAS

26 May 2019*

Lodge and pay March 2019 Quarterly BAS (electronic)

28 May 2019

Pay FBT return (if your business lodges one)
Lodge and pay March 2019 Quarterly SGC (if required)

*Next business day applies instead.
Note!
Talk to your tax agent to confirm the correct due dates for your own tax obligations.

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 advice. Readers should consult their tax adviser for advice on specific matters.

Borrowing from your business? Find out how you might be triggering the Division 7A rules

Are you a shareholder or associate of a private company?

Does your company have a distributable surplus at the end of the income year?

Do you borrow or use business assets for your personal use and enjoyment?

If you answered yes to any of these questions, then the legislative provisions of Division 7A of the Income Tax Assessment Act 1936 could potentially affect you.

What is Division 7A?

Division 7A is essentially designed to prevent shareholders and their associates from using private company profits without paying tax at their marginal tax rates.

With the highest individual marginal rate sitting at 45%, opportunistic tax planners might attempt to structure their tax affairs to access the lower company tax rate of either 30% or 27.5%. However, the anti-avoidance provisions of Division 7A operate to prevent this kind of activity.

Division 7A rules determine what kinds of benefits to shareholders and their associates are treated like unfranked dividends and therefore subject to personal income tax without any credit for company tax paid.

Does Division 7A apply to me?

You may potentially be affected by Division 7A if you are a:

  • private company
  • non-resident private company
  • closely-held corporate limited partnership
  • trust
  • interposed entity
  • shareholder or associates of a shareholder.

Note! The term ‘associate’ in this case extends to a shareholder’s spouse, child, relative or trustee of a trust under which the shareholder benefits.

What transactions does Division 7A apply to?

Division 7A can apply to a broad range of transactions, including:

  • loans
  • payments
  • debt forgiveness
  • payments or loans where a trust has an unpaid present entitlement (UPE)
  • payments and loans through interposed entities
  • private use of company assets
  • transfer of company assets
  • gifts
  • guarantees.

Note! An unpaid present entitlement (UPE) is a payment or distribution that you are entitled to but have not been paid.

When does Division 7A not apply?

Division 7A does not apply to:

  • payments to a shareholder or associate in his or her capacity as an employee. In such situations, fringe benefits tax (FBT) may apply rather than Division 7A.
  • amounts that are assessable to the shareholder or their associate under other parts of the income tax law, such as normal dividends or director’s fees.
  • a payment or benefit that is potentially subject to Division 7A if it is repaid or converted into a Division 7A complying loan by the company’s lodgment day for the income year in which the payment or benefit occurs.

What is a complying loan?

A loan is a complying loan if the loan has satisfied the minimum interest charge and maximum term requirement and is made or put under a written agreement before the private company’s lodgment day (currently 7 or 25 years depending on the terms).  

Note!

  • Complying loans will have tax implications for the company and shareholder (eg the taxation of interest will need to be considered).

When is Division 7A triggered?

Division 7A can be triggered if:

  • a private company provides a payment or benefit to a shareholder or associate; or
  • a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company’s shareholder or their associate.

Note!

  • A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A even if the participants treat it as some other form of transaction such as a loan, advance, gift or writing off a debt.
  • Division 7A can also apply when a private company provides a payment or benefit to a shareholder or associate through another entity, or if a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company’s shareholder or their associate.

What is considered a payment by a private company?

A payment may include:

  • the provision of an asset for use by a shareholder or their associate (other than a transfer of property)
  • when a company asset is available for use by a shareholder or their associate to the exclusion of the company, but not where there is a general entitlement to use the company’s assets
  • a right to use assets under a licence or lease, but which does not involve a transfer of property. It does not matter when the right to use the asset is granted.

Note! An asset may also be available for use by a shareholder or their associate without a formal agreement or where there is no actual use.

When is a payment treated as a dividend?

A private company may be taken to pay a dividend to an entity at the end of the company’s income year if it pays an amount to the entity during the year:

  • when the entity is a shareholder or an associate of a shareholder of the company; or
  • a reasonable person would conclude that the payment was made because the entity was a shareholder or an associate of a shareholder at some time.

Note!

  • However, the total of all dividends a private company is taken to pay under Division 7A is limited to its distributable surplus for that income year.
  • Division 7A applies even if the participants treat the payment or benefit as some other form of transaction such as a loan, advance, gift or writing off a debt.

What is considered a loan by a private company?

A loan may include:

  • an advance of money
  • a provision of credit or any other form of financial accommodation
  • a payment for a shareholder or their associate, on their account, on their behalf, or at their request if they have an obligation to repay the amount
  • a transaction (whatever its terms or form) that is the same as a loan of money.

When is a loan treated as a dividend?

A private company may be taken to pay a dividend to an entity at the end of the company’s income year, if it loans an amount to an entity during the year:

  • when the entity is a shareholder or an associate of a shareholder of the company; or
  • a reasonable person would conclude that the payment was made because the entity was a shareholder or an associate of a shareholder at some time.

Note!

  • However, the total of all dividends a private company is taken to pay under Division 7A is limited to its distributable surplus for that income year.

Transactions that will create deemed dividends

Certain transactions between a private company and shareholder or associate are deemed to create an unfranked dividend assessable to the shareholder or associate.

Note!

  • The shareholder or associate need not be a shareholder or associate at the time the transaction occurred, as long as a reasonable person would conclude that the transaction occurred because the person was a shareholder or associate at some time.

Payments treated as deemed dividends

These include:

  • an amount paid or credited to the shareholder or associate
  • an amount paid or credited on behalf of, or for the benefit of, the shareholder or associate
  • a transfer of property to the shareholder or associate.

Case study 1

Matt owns shares in a private company, ABC Pty Ltd. On 30 June 2017, ABC Pty Ltd makes a payment of $5,000 to Matt’s mother, Norma.

Norma is not an employee of ABC Pty Ltd and she is not an associate of an employee of the company. However, she is an associate of Matt.

The payment will be taken to be an unfranked dividend paid to Norma and she must include the $5,000 as assessable income on her 2016-17 tax return.

Loans treated as deemed dividends

These include:

  • loans made to a shareholder or an associate of a shareholder
  • loans that are not fully repaid before the private company’s lodgment day for the year when the loan is made. A private company’s lodgment day is the earlier of the due date for lodgment, or the actual date of lodgment of the private company’s income tax return for the income year
  • loans that are not excluded specifically by other sections of Division 7A.

Case study 2

Charlotte is a shareholder in a private company, XYZ Pty Ltd. Charlotte’s credit card bills, totalling $10,000, are paid with company cheques throughout the income year and debited to her loan account. Interest is not payable on the balance of the loan account.

If Charlotte repays the $10,000 to XYZ Pty Ltd by the end of the company’s income year, no amount should be treated as a deemed dividend under Division 7A. If she does not repay all of the $10,000, an unfranked dividend may arise.

There may be other tax implications for Charlotte and the company.

Consequences of triggering Division 7A

Generally, if Division 7A has been triggered, the shareholder would be deemed to have received a dividend equal to the amount of the payment, loan or benefit received.

What if I borrow an asset from my company for personal use?

Case study 3

Bruce is a shareholder of a private company that owns a luxury yacht. Bruce does not have a formal agreement with the company in relation to the yacht, however, he borrows the yacht and takes it out every second weekend. Bruce keeps the yacht at the company’s business premises, but takes the key home. Bruce stores his personal items on the yacht.

Bruce’s fortnightly use of the yacht is effectively treated like a payment under Division 7A. The availability of the yacht for Bruce’s use is also subject to Division 7A because the yacht is not readily available for use by the company.

The company would need to arrange with Bruce to get the key and for the removal of his personal items before using the yacht. The asset is available for Bruce’s use to the exclusion of the company.

Case study 4

Nicole is a shareholder of a private company that owns a city apartment. The apartment is generally available for rent. However, Nicole asks the company not to rent the apartment out for a week so that she and her family can borrow it over a long weekend. Nicole’s use of the apartment may be a payment for the purposes of Division 7A.

What if my company provides a loan to a shareholder?

Case study 5

Conway Pty Ltd loans $20,000 to Angie, a shareholder of Conway Pty Ltd. The money is loaned to Angie on the basis that she pays it back when she can. The $20,000 is a loan from Conway Pty Ltd to Angie because it is an advance of money. Consequently, Division 7A may apply.

Case study 6

Wayne Pty Ltd provides $10,000 to Bob, a shareholder of Wayne Pty Ltd, by way of a promissory note. The note places no obligation on Bob to repay the amount. The $10,000 is a loan from Wayne Pty Ltd to Bob because it is a form of financial accommodation. Consequently, Division 7A may apply.

What if my company provides a car for use by a shareholder?

Case study 7

Carla is a shareholder of a private company that owns five cars for company use. Shareholders and their associates have general permission to use the cars on weekends if they are not being used for company business. Carla regularly takes one of the cars home.

Carla’s use of the car that she takes home will be subject to Division 7A. This will include driving the car (actual use) and the availability of the car for her use to the exclusion of the company, such as when it is parked at home, or at a restaurant that Carla is visiting.

Although Carla may have general permission to use all five of the cars, she does not use all of them for the purposes of Division 7A. The four cars that Carla leaves at the company premises are available for the company to loan to another shareholder, employee, customer, or other party. That is, these cars are not available to Carla to the exclusion of the company.

Note! Providing cars or other residual benefits (eg a holiday house) to shareholders may be caught by FBT instead of Division 7A. Speak to your tax adviser to find out more.

Government’s proposed changes to Division 7A

The Government recently released for public consultation a paper proposing changes to Division 7A.

The proposed changes to the legislation are intended to apply from 1 July 2019 and may impact you if you are a company owner, a shareholder of a private company or an associate of a shareholder.

What do the changes mean?

The proposed changes are intended to make it easier for businesses to comply with Division 7A. The amendments will comprise:

  • a self-correction mechanism to assist taxpayers to promptly rectify breaches of Division 7A;
  • clarification that unpaid present entitlements (UPEs) come within the scope of Division 7A;
  • simplified loan rules. As mentioned above, complying loans are not treated as dividends under Div 7A.  Under the current law, there are 2 types of complying loans (7 years for an unsecured loan or 25 years for a secured loan). Under the proposed changes, there will be one single 10-year model.

What next?

Division 7A is always on the ATO’s radar. Speak to your tax adviser if you have been involved in transactions that you think may trigger Division 7A.

Is your business car available for private use?

A car fringe benefit occurs when your business owns or leases a car and makes it available for your employees’ private travel. In this case, directors might also be employees.

Note! Generally, travel to and from work is private use of a vehicle.

For fringe benefits tax (FBT) purposes, a car is any of the following:

  • a sedan or station wagon
  • any other goods-carrying vehicle with a carrying capacity of less than one tonne – eg a panel van or utility (including four-wheel drive vehicles)
  • any other passenger-carrying vehicle designed to carry fewer than nine passengers.

If the vehicle provided does not meet the definition of a car, and your employee has private use of the vehicle, the right to use the vehicle may be a residual fringe benefit.

Providing car fringe benefits

Some examples of providing a car fringe benefit include:

  • employees using the car for private travel, such as travel between work and home;
  • garaging the car at or near your employees’ home, which makes it available for private use – even if it is not used privately.

Note!

  • If a car is garaged at or near your employee’s home, even if only for security reasons, it is taken to be available for their private use regardless of whether or not they have permission to use the car privately.
  • Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.

Working out the taxable value of a car fringe benefit

To calculate a car fringe benefit, as an employer, you must work out the taxable value of the benefit using either:

  • the statutory formula method (based on the car’s cost price)
  • the operating cost method (based on the costs of operating the car).

You can choose whichever method yields the lowest taxable value, regardless of which method you used in a previous year.

Note! If you have not kept the required documentation for the operating cost method (eg log books), you must use the statutory formula method. ■

Do you import goods and services?

GST applies to most imports over $1,000. GST is 10% of the value of the goods you have imported. You generally need to pay this to the Department of Home Affairs before you can receive the goods.

There is a scheme where you can pay your GST later. This is called the deferred GST scheme (DGST), and there are eligibility requirements.

If you are registered for the deferred GST scheme, you don’t need to pay GST until after the goods are imported and you lodge your next activity statement.

If you’re registered for GST, you may be able to claim a credit for any GST paid on goods you import for your business.

What is the deferred GST scheme?

If you import goods and services, the deferred GST (DGST) scheme allows you to defer payment of GST on all taxable importations into Australia. This is subject to eligibility requirements.

Note!

  • You need approval to participate in the DGST scheme, which you can get by applying to the ATO.

Am I eligible to participate in the deferred GST scheme?

To be eligible to participate in the deferred GST scheme, you must:

  • have an ABN
  • be registered for GST (you can register for GST and apply for an ABN on the one form if you don’t already have an ABN)
  • lodge your activity statements online
  • lodge your activity statements monthly (if you are lodging quarterly, you can elect to lodge monthly)
  • make your activity statement payments electronically.

When am I not eligible?

You may not be eligible if:

  • you are not up to date with your tax returns or payments – this includes members of GST groups, branches and joint ventures (see GST group members and representatives)
  • you or anyone relevant to the application has, in the past three years, been convicted or penalised by a court for specific offences.

Imported goods under $1,000

Recently there were some changes so that GST now also applies to low value (under $1,000) imported goods, digital products or services.

If you’re registered for GST and you import low value goods for your business, you shouldn’t have to pay GST on these purchases.

Tip!

  • You need to remember to provide your supplier with your ABN and a statement that you’re registered for GST.
  • If you’re charged GST incorrectly, seek a refund from your supplier. However, if the GST is less than $82.50, you can claim a GST credit on your next BAS without needing a tax invoice. ■

4 ways to avoid simple mistakes with GST reporting

Businesses can make simple mistakes reporting their GST. To avoid errors, keep an eye out for the following common errors and ensure you report correctly.

  • Transposition and calculation errors

Transposition errors can occur when an amount is manually input. These errors can be easily eliminated by double checking all figures and calculations before submitting your BAS.

  • No tax invoices

You need to keep tax invoices to claim GST credits you have claimed on business related purchases.

  • Transaction classification

Make sure you check what’s GST applicable. Transactions involving food may be GST applicable.

  • Accounting systems

Check your systems as one coding error can classify several transactions incorrectly.

If you find you’ve made a mistake on a previous return, you can:

  • correct the error on a later activity statement – if you meet certain requirements;
  • lodge an amendment; or
  • contact your tax adviser or the ATO for advice.

Do you hold vacant land? Your expenses may no longer be deductible

Are you a property owner sitting on vacant land? The Government has recently released draft legislation to deny deductions for certain expenses associated with holding vacant land.

The current law

The current law allows you to claim the costs of holding vacant land if it is held for the purpose of gaining or producing assessable income or carrying on a business for the purpose of gaining such income.

The proposed law

From 1 July 2019, the proposed law will limit deductions for expenses associated with holding vacant land.

The proposed rules do not apply to expenses associated with holding vacant land that is used by the owner or a related entity to carry on a business. For example, the measure will not apply to a business of primary production or to a property developer that is carrying on a business and is holding land for the purpose of that business.

The proposed rules also do not apply to corporate tax entities, managed investment trusts, public unit trusts and unit trusts.

Why the changes?

This proposed measure was announced in the 2018-19 Federal Budget, and addresses concerns that deductions are being improperly claimed for holding vacant land where the land is not genuinely held for the purpose of earning assessable income.

What is vacant land?

Land is vacant if there is no building or other structure on the land that is substantial and permanent in nature and in use or ready for use.

In this context, land does not have to refer to the whole of the land on a property title but could refer to part of the land on a property title. For example, if a property title includes two areas of land, one containing a factory and the other undeveloped, the part of the property title containing the factory has ceased to be vacant land, while the undeveloped area remains vacant land.

What does ‘substantive’ in nature mean?

To be substantive, a building or structure needs to be:

  • substantial in size; and
  • have an independent purpose or function (not ancillary in nature to other structures or proposed structures on the land such as is the case for retaining walls or fences).

Case study

Deborah owns a block of land. She intends to eventually build a rental property on the land. However, while the block of land is fenced and has a large retaining wall, it currently does not contain any substantial or permanent building or other structure.

As the property does not have a substantial permanent building or structure on it, it is vacant land and Deborah cannot deduct any holding costs she may incur in relation to the land.

What if land does not have a substantive permanent building or structure?

There are many genuine commercial reasons land may not have a substantive permanent building or structure (eg holding yards for goods that are awaiting transport or customs clearance, parking areas for trucks/buses for a logistics company) as not all business operations require structures and buildings.

If the owner of land used for these purposes is a private trust or individual who does not have the requisite connection to the business being carried on (especially where there is a genuine commercial lease to an unrelated third party), all deductions will be denied even though the “vacant land” is an essential part of the business activities.

Tip! Speak to your tax adviser to find out more about how these proposed changes may affect you or your business.

Did you incorrectly claim deductions for travel to your residential rental property?

This tax time, the ATO has identified 26,000 taxpayers who have incorrectly claimed deductions for travel to their residential rental properties, despite recent changes to tax laws.

From 1 July 2017, you are no long able to claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions unless you are carrying on a business of letting rental properties or are an excluded entity.

As with prior years, the travel expenditure cannot be included in the cost base for calculating your capital gain or capital loss when you sell the property.

Note! The new changes only apply to residential rental property. You may still be able to claim deductions in relation to your commercial property.
‘In the business of letting rental properties’

Generally, owning one or several rental properties will not be considered being in the business of letting rental properties.

The receipt of income by an individual from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business of letting rental properties.

This means that as their activities are generally considered a form of investment rather than a business, deductions for travel expenses are not allowed.

Excluded entities

An excluded entity is a:

  • corporate tax entity
  • superannuation plan that is not a self-managed superannuation fund (SMSF)
  • public unit trust
  • managed investment trust
  • unit trust or a partnership, all of the members of which are entities of a type listed above.

Case study

Tara’s Tyres Pty Ltd incurred travel expenses in 2017-18 when the property manager was tasked with inspecting a residential property investment that is currently tenanted. Tara’s Tyres Pty Ltd is a corporate tax entity (a company) and can claim a deduction for rental travel expenses.

ATO and data analytics

The ATO has announced that it will be using sophisticated data analytics to assess a range of other deductions and work-related expenses.

Remember that when making a claim, you must follow the 4 golden rules:

  • 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).

Made a mistake?

Rental property investors: you should check if you fall into one of these exceptions before you lodge and claim for rental travel.

If you have already lodged and made a mistake, you can lodge an amendment. Speak to your tax adviser for more information.

New tax reporting requirements for couriers and cleaners

If you own a business that provides cleaning or courier services (even if it’s only part of the services provided), you now need to lodge a taxable payments annual report (TPAR) each year to tell the ATO about your payments to contractors.

What is a TPAR?

The TPAR tells the ATO about payments that are made to contractors for providing services.

Contractors can include subcontractors, consultants and independent contractors.
The details you need to report about each contractor are generally found on the invoice you should have received from them. This includes:

  • their Australian business number (ABN), where known
  • their name and address
  • gross amount you paid to them for the financial year (including any GST).

The ATO will use this information to make sure the contractors you pay are reporting all their income and meeting their tax obligations.

TPAR now extended to couriers and cleaners

New laws were recently passed in Parliament to extend the taxable payments reporting system to include businesses providing:

  • cleaning services – to report payments to contractors for cleaning services
  • courier services – to report payments to contractors for courier services.

What are courier services?

Courier services include:

  • activities where items or goods are collected from, and/or delivered to, any place in Australia using a variety of methods including by car, truck, station wagon, van, ute, motorcycle, motorised scooter, drones, bicycle or other non-powered means of transport, or on foot;
  • door-to-door services that are often used for specialty deliveries or for small parcels or packages. Goods commonly transported using courier services include parcels, packages, letters and food.

Note! If you sell goods and you provide the option of a delivery service, you are supplying a courier service unless the customer doesn’t have the option to obtain the goods from you any other way.

Courier services don’t include:

  • delivery of goods your business provides where delivery is the only method your clients or customers have of receiving the goods
  • passenger transport services – for example, buses and taxis
  • freight transport – the transportation of bulk or large quantities of items, goods or commodities via rail, sea, air, or road (usually heavy vehicle trucks or larger vehicles) from one location to another.

What are cleaning services?

Cleaning services include (but are not limited to) any of the following activities undertaken on a building, residence, structure, place, surface, transport/vehicle, industrial machinery or equipment and for events:

  • interior cleaning
  • exterior cleaning (except sandblasting)
  • carpet cleaning
  • chimney cleaning
  • gutter cleaning
  • road sweeping and street cleaning
  • swimming pool cleaning
  • park and park facilities cleaning.

Note! If your business provides mixed services, not just courier or cleaning services, you may need to lodge a TPAR if the payments you receive for either courier or cleaning services make up 10% or more of your total GST turnover.

When do you need to lodge a TPAR?

If your business needs to lodge a TPAR, you will need to lodge it by 28 August 2019 for payments made to contractors between 1 July 2018 and 30 June 2019.

Key tax dates

 

Date

 

Obligation

21 Nov 2018

Oct monthly BAS due

28 Nov 2018

Sep quarter SG charge statement due

21 Jan 2019

Dec monthly BAS due

28 Jan 2019

Dec quarter SG due

4 Feb 2019

Feb fuel tax credit rates change

21 Feb 2019

Jan monthly BAS due

28 Feb 2019

  • Dec quarterly BAS due
  • Dec quarter SGC statement due
  • Dec quarter PAYG instalment due

 

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 advice. Readers should consult their tax adviser for advice on specific matters.

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.

What’s new for small business?

Several new tax time-related changes have happened since last year that may affect you. Here are a few of them to be aware of.

From 1 July 2017, companies that are base rate entities will apply the 27.5% corporate tax rate.

A company is a base rate entity for 2017-18 if it has an aggregated turnover of less than $25 million and is carrying on a business for all or part of the income year.

The company tax rate will remain at 30% for other companies that are not base rate entities.

The lower 27.5% company tax rate will progressively apply to base rate entities with a turnover less than $50 million by the 2018-19 income year. From 2024-25, the lower company tax rate will reduce each year until it is 25% by 2026-27.

Note!

  • A company may be a base rate entity to access the lower company tax rate and also be a small business entity to access the small business concessions.
  • The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies, in line with the company tax rate.
  • $20,000 instant asset write-off threshold extended

The $20,000 instant asset write-off threshold has been extended until 30 June 2018. This means that if you bought an asset before 30 June and it cost less than $20,000, you can write off the business portion in your 2018 tax return.

If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:

  • from 1 July 2016 to 30 June 2018, and your turnover is less than $10 million and the asset was first used or installed ready for use in the income year you are claiming it in;
  • from 7.30pm on 12 May 2015 to 30 June 2016, and your turnover is less than $2 million.

This deduction is used for each asset that costs less than $20,000, whether new or second-hand.

Note!

  • Assets that cost $20,000 or more can’t be immediately deducted. They will continue to be deducted over time using the general small business pool.
  • You write off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of an income year.

In the latest Federal Budget, there was a proposal to extend the $20,000 instant asset write-off threshold to 30 June 2019. This change is not law yet.

  • Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions.

A range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold) from 1 July 2016. The previous turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

  • Single touch payroll

Single touch payroll (STP) is a reporting change for employers. It started on 1 July 2018 for employers with 20 or more employees.

You will report payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information from your payroll solution each time you pay your employees.

You can do this through your existing payroll software (such as accounting software) as long as it is updated to offer STP reporting. Payroll software providers are updating their products now. Talk to your provider to find out how and when your product will be ready

  • If you have 20 or more employees you will need to report through STP from 1 July 2018. The first year will be a transition period and penalties may not apply.
  • If you have 19 or less employees, you will need to report through STP from 1 July 2019, subject to legislation being passed in parliament.
  • Sale of low value goods

If your small business is registered for GST and imports low value goods for business use in Australia, you may not need to pay GST. You simply need to tell your overseas supplier that you are registered for GST, and provide them with your ABN.

If you are not registered for GST, GST can apply to these purchases.

What business income do I need to declare?

When thinking about business income, start by including all of your gross earnings received through the ordinary course of your business. This includes any cash, EFTPOS, credit or debit card, and online sales.

There may be other sources of business income you need to declare, depending on your circumstances.

Some common examples include:

  • net capital gains made when disposing of business assets
  • rental income from property owned by your business
  • any assessable government industry payments such as fuel tax credits
  • foreign income from overseas business activities (if you’re an Australian resident)
  • distributions to your business from partnerships and trusts.

Note! If you are running a business and are paid mainly for your personal efforts, skills or expertise, you may be earning personal services income (PSI).

What can I claim for my business at tax time?

You can claim most expenses you incur in running your business. While different businesses will have different costs, here are common expenses:

  • Operating expenses: Most businesses have everyday operating expenses, including then costs of stationery, trading stock, advertising, bank fees and insurance. There are also operating expenses when your business is online such as registration, web hosting and licensing fees.
  • Business premises costs: You can claim business premises costs such as electricity, phone, water, rental or lease. If you run your business at your home or your business is based from home, you can claim the business portion of occupancy expenses and running expenses, like mortgage and electricity.
  • Travel for business: Do you or your employees travel for business? You can claim business travel expenses such as bus, plane, Uber or taxi trips. If you have a vehicle for your business, you can claim motor vehicle expenses associated with running and maintaining the vehicle such as petrol, rego and insurance.
  • Salaries and wages: If you’re an employer, you can claim the costs of employing people such as salaries and wages, and super contributions you make on their behalf.

4 golden rules for claiming work-related deductions

For all your business expenses, keep these four golden rules in mind:

  • 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).

Expenses and deductions checklist

  • Claim deductions for most costs you incur in running your business, such as staff wages and super, operating expenses and home-based business costs.
  • Apply the four golden rules for claiming work-related deductions and business expenses (see above).
  • If you or your employees travel for business, claim business travel expenses.
  • If you have a vehicle for your business, claim motor vehicle expenses associated with running and maintaining the vehicle such as petrol, rego and insurance.
  • If you run your business at your home, or your business is based from home, claim the business portion of some expenses, including mortgage interest and electricity. If you then sell your home, you may have to pay CGT on the business portion and declare it in your tax return.
  • Claim a deduction for donations made to an organisation if they are a deductible gift recipient (DGR).
  • Keep accurate records of all business transactions to support your claims and make it easier for you.
  • Don’t claim expenses that are non-deductible, including:
    • penalties and traffic fines
    • private or domestic expenses childcare fees and clothes for your family
    • expenses related to income that is not assessable, such as money you earn from a hobby.

What concessions can small businesses tap into this tax time?

There are a range of tax concessions that your small business might be eligible for. Here are a few you should consider for your 2018 tax return.

$20,000 instant asset write-off

If you bought and installed business assets by 30 June, you may be able to write them off in your 2018 tax return.
Tip! You need to pool depreciating assets that cost $20,000 or more in a small business asset pool. Your tax adviser will have more information on how to do this.

Pre-paid expenses

You can claim a deduction this year if you have prepaid an expense that ends in the 2019 financial year – eg the rent for your business premises or an insurance policy.

Prepaid expenditure incurred by a small business entity is immediately deductible under the 12-month rule if:

  • the eligible service period for the expenditure is 12 months or less
  • the period ends no later than the last day of the income year following the year in which the expenditure was incurred.

Note!

  • The 12-month rule applies to both deductible business expenditure and deductible non-business expenditure incurred by a small business entity that chooses to use this concession.
  • If a prepayment does not meet the 12-month rule, you cannot claim an immediate deduction. Small business entities must apportion the deduction over the eligible service period or 10 years, whichever is less.

Simplified trading stock rules

This concession allows you to estimate the value of your trading stock at the end of the financial year to report in your tax return.

Eligible small businesses can use these simplified rules if there is a difference of $5,000 or less between:

  • the value of your stock on hand at the start of the income year; and
  • a reasonable estimate of the value of your stock on hand at the end of that year.

If you estimate that the difference between your opening and closing trading stock is $5,000 or less, then under the simplified rules, you don’t need to do a stocktake. Instead, you can include the same amount for your opening and closing stock in this year’s tax return.

Tip!

  • If you did not have any trading stock in the previous year, the value of trading stock at the start of the year is zero. This might occur if you have just opened a new business or if this is the first year you have trading stock.

Small business income tax offset

The small business income tax offset (also known as the unincorporated small business tax discount) can reduce the tax you pay by up to $1,000 each year.

You can get an offset of up to $1,000 if you’re a sole trader or have a share of net small business income from a partnership or trust.

The offset, which is worked out on the proportion of tax payable on your business income, is:

  • 8% for the 2016-17 income year onwards;
  • 5% for the 2015-16 income year.

The offset increases to:

  • 10% in 2024-25;
  • 13% in 2025-26;
  • 16% in 2026-27.

Deductions for start-ups

Deduct the full cost of certain start-up costs for your new business, including professional advice in your tax return.

The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.

Accelerated depreciation for primary producers

Primary producers can:

  • immediately deduct the costs of fencing and water facilities
  • deduct the cost of fodder storage assets over three years.

Primary producers who are small businesses can also use the simplified depreciation rules including instant asset write-off.

Note!

  • The Government has proposed changes to allow primary producers to immediately deduct costs for fodder storage assets. This change is not yet law.

Superannuation concessions

As a small business, you may be eligible for super concessions. These include:

  • Superannuation clearing house: The Small Business Superannuation Clearing House helps you pay super guarantee contributions for all your employees in a single electronic payment. If you have 19 or fewer employees or a turnover under $10 million you can access this service.
  • Contributions of small business CGT concession amounts to your super fund: You may be able to contribute amounts from the CGT 15-year asset exemption and retirement exemption to your super fund without affecting your non-concessional contributions limits. The turnover threshold for this concession is $2 million as it relates to CGT concessions (this threshold has not changed).

How does my business compare to other businesses?

Small business benchmarks are a guide to help you compare your business’ performance against similar businesses in the same industry.

The easiest and quickest way to see how your business compares to competitors is by using the business performance check tool.

Tip!

  • You can find the business performance check tool by downloading the ATO app from Google Play, the Windows Phone Store or the Apple App Store. The personal information you enter isn’t recorded and will only be used for completing the tool.

Outside the benchmark?

Your benchmark might be above or below the range for your business turnover in your industry. There could be a number of reasons why this has happened, including:

  • you are only starting up or winding down your business
  • higher costs or lower selling prices than your competitors
  • incorrect entries on your tax return, for example salary and wages to directors or associates.
  • Note! It doesn’t necessarily mean you have done anything wrong if your business is significantly outside the key benchmark range for your industry. However, it does indicate something is unusual and may prompt the ATO to contact you for further information.

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.

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.

Paid any building and construction contractors?

Did you need to lodge a taxable payments annual report this year?

If your main business activity is in the building and construction industry and you paid contractors for building and construction services in the 2017-18 financial year, your report was due by 28 August 2018.

You can still lodge your report:

  • online if you have compatible software
  • through your tax or BAS agent
  • by mailing the ATO the completed form.

By reporting the payments you’ve made, you’re helping to increase fairness within your industry.

Lodge overdue reports!

Do you have any overdue reports from prior years? Lodge them as soon as possible.

If you’re no longer in the building and construction industry or you didn’t pay contractors for building and construction services in the 2017-18 financial year, submit the online taxable payments annual report – not required to lodge form.

Super guarantee payments and the self-employed

If you’re a sole trader or in a partnership, you generally don’t have to make superannuation guarantee (SG) payments for yourself. However, you may want to make personal contributions to super as a way of saving for your retirement.

From 1 July 2017, regardless of whether you’re self-employed or not, most people will be able to claim a full deduction for contributions they make to their super until they turn 75 years old. Those aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction. Keep in mind that contributions you make may attract extra tax if they exceed the contributions limit for that year.

Tip!

  • You may also be eligible for the super co-contribution payment. This helps eligible low-to-middle income earners save for their retirement. If you’re eligible and you make personal super contributions, the government will match your contribution up to certain limits, unless you have claimed your contribution as a tax deduction.

Casual employees may be entitled to super

Employing casual workers provides businesses with an increased level of flexibility. However, it’s important to remember that casual employees may be entitled to super.

Here are the basics:

  • You may need to pay super guarantee (SG) regardless of whether your employee is full-time, part-time or casual.
  • If you pay your employee $450 or more (before tax) in a calendar month, you have to pay SG on top of their wages.
  • If your employee is under 18 years old, they must also work for more than 30 hours per week to qualify for SG.

Super guarantee is currently calculated at 9.5% of a casual employee’s ordinary time earnings. This includes their wage plus any casual or shift loadings for ordinary hours of work. It also includes commissions and some allowances, but it doesn’t include overtime payments.

Tip! Speak to your tax adviser to work out if your casual workers are eligible for super and whether your workers are employees or contractors.

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.

New rate for car expenses

The rate for work-related car expenses has increased for the income year starting 1 July 2018. It is now 68 cents per kilometre.

This applies if you have chosen to use the cents per kilometre method for calculating work-related car expenses and will remain in place until the Commissioner decides it should be varied.

If you are paying your employees a car allowance in excess of 68 cents per kilometre, you need to withhold tax on the amount you pay over 68 cents.

Tip!

  • Remember, registered tax agents and BAS agents can help you with your tax.

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.

4 Federal Budget tax measures that impact your business

Small and medium sized businesses received a bit of attention from the Government in this year’s 2018-19 Budget.

Making it all the way to number 2 on the Government’s priority list of ‘must-do’s’, the Government stressed that it must “keep backing business to invest and create more jobs, especially small and medium sized businesses”.

With that said, a handful of measures were announced to support these businesses in Australia.

If you are a small or medium sized business owner, we’ve listed a few of the key Budget measures, tax breaks and outcomes that may directly impact you.

1. $20,000 instant asset write-off extended to 30 June 2019

Do you own a small business? Have you been planning any significant purchases?

If so, the great news is: you have another 12 months to take advantage of the $20,000 instant asset write-off scheme!

This tax break only applies to small businesses with an aggregated turnover of less than $10 million.

This Budget initiative means that as a small business owner, you get to improve your cash flow and boost your business activity and investment for another year.

Note: On 1 July 2019, the threshold will reduce to $1,000 so get shopping!

How does this work?

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return.

This deduction is used for each asset that costs less than $20,000.

You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Example:

Jane owns a plumbing business. She buys five new laptops for her employees. Jane can take advantage of the $20,000 instant asset write off for all of these items because each individual item costs less than $20,000.

Jane also buys five second-hand mobile phones for her employees. The mobile phones are 50% for personal use and 50% for business use. This means only half the full amount of the iPhone can be claimed.

Note!

  • You can use the $20,000 instant asset write-off multiple times. However, each one must cost less than $20,000.
  • Don’t forget that purchases will only qualify if they total $19,999.99 or less, including GST!

2. Personal tax relief for low and middle-income earners

If you earn less than $90,000, you can expect some tax relief in the form of a new low and middle income tax offset and changes to personal income tax brackets.

Low and middle-income tax offset

  • This offset will provide tax relief of up to $530 to low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
  • This offset means around 4.4 million people will receive the full $530 benefit for 2018-19.

Note! The benefit is in addition to the existing low income tax offset and will be available on assessment after a you lodge your tax return.

What are your savings per year?

If you earn…

Your savings per year

 

$37,000 or less

 

Up to $200

 

$37,001 – $47,999

 

Between $200 – $530

 

$48,000 – $90,000

 

Up to $530

 

$90,001 – $125,333

 

Up to $530, gradually reducing to $0

Changes to personal tax brackets

  • From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.
  • When the low and middle-income tax offset concludes in 2021-22, the benefits will be locked in by increasing the top threshold of the 19% tax bracket from $37,000 to $41,000 and increasing the low income tax offset from $445 to $645 from 1 July 2022.
  • From 1 July 2022, the top threshold of the 32.5% tax bracket will be increased from $90,000 to $120,000, providing a tax cut of up to $1,350 per year.

How does this impact small and medium sized businesses?

The immediate relief for low and middle-income earners will be a significant benefit to the nearly 40% of small businesses that are unincorporated.

There will be some tax changes for your employees, so now is the time to review your payroll software, PAYG withholding tax and business processes.

Note!

  • Single Touch Payroll is coming on 1 July 2018! If your business has 20 or more employees, you’ll need to report payments such as salaries and wages, withholding and super information to the ATO directly from your payroll solution at the same time you pay your employees.

Tip!

  • Speak to your payroll software provider or your tax adviser to find out how you can be compliant.

3. New changes to the research and development (R&D) tax incentive

Do you currently claim research and development (R&D) on your tax? If so, here are some changes to the R&D tax incentive that may affect your business, depending on your business’ aggregated annual turnover.

If your aggregated business turnover is $20 million or over

From 1 July 2018, the Government will introduce a new R&D premium for companies which provide higher rates of R&D support for higher R&D intensity.

The R&D premium will provide multiple rates of non-refundable R&D tax offsets, increasing with the intensity of the claimant’s incremental R&D expenditure.

If your aggregated business turnover is under $20 million

The R&D tax incentive will be capped at $4 million on cash refunds.

Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.

This means that for small businesses, there will be a reduction in the offset available and may impact your decision as a small business owner in undertaking and relying on the R&D tax incentive.

Note! The ATO are cracking down on dodgy R&D claims. In particular, they are closely watching businesses that abuse the incentive by claiming ordinary business costs as R&D expenses.

Tip! If you are worried about your R&D spend, speak to your tax adviser to find out more. And don’t forget to keep all your records and documents!

4. Major crackdown on the cash economy

If you are in the habit of making cash payments when you conduct business, you may need to start considering using alternative methods of payment. The Government is seriously cracking down on cash payments over $10,000.

Three new key measures targeting cash economy (aka ‘Black Economy’) activities and illegal phoenixing are being introduced by the Government. These are:

  • Limiting cash payments within Australia to $10,000
  • Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
  • Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry. ■

Are you ready for tax time? Quick tips to help you this EOFY

The end of the financial year is looming – it really is that time of year again. Tax time is always busy so we’re sharing a few quick tips to help you sail through lodgment season.

Some tax time tips…

  • Gather and sort your business records now, including cash, online, EFTPOS, bank statements, credit or debit card transactions covering:
    • sales and other business income
    • expenses you can claim as a business deduction such as staff wages, contractor expenses, operating expenses and business travel expenses.
  • If you changed your record keeping software during the year, check that all your information has transferred over correctly.

Are you a sole trader?

  • Even if your income is below the tax-free threshold, you still need to lodge a tax return.
  • Do you pay PAYG instalments? Lodge your activity statements and pay all your PAYG instalments before you lodge your tax return so your income tax assessment takes into account the instalments you’ve paid throughout the year.

Are you a partnership?

If you operate your business in a partnership:

  • the partnership lodges a partnership tax return, reporting the partnership’s net income (assessable income less allowable expenses and deductions)

As an individual partner, you report on your individual tax return:

  • your share of any partnership net income or loss
  • any other assessable income, such as salary and wages (shown on a Payment Summary), dividends and rental income.

The partnership doesn’t pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

Are you a trust?

If you operate your business through a trust, the trust reports its net income or loss (this is the trust’s income less expenses and deductions) and the trustee is required to lodge a trust tax return.

As a trust beneficiary, you report on your individual tax return any income you receive from the trust.

Are you a company?

If you operate your business through a company, you need to lodge a company tax return.

The company reports its taxable income, tax offsets and credits, PAYG instalments and the amount of tax it is liable to pay on that income or the amount that is refundable.

The company’s income is separate from your personal income.

Tip!

  • Registered tax and BAS agents can help you with your tax.

What’s attracting the ATO’s attention this tax time?

Enhancements in technology and data matching mean the ATO is able to detect people and businesses operating outside the tax system this tax time.

The ATO are keeping a watchful eye and looking out for behaviours, characteristics and tax issues that may raise questions and attract their attention.

Behaviours that may attract the ATO’s attention

  • Tax or economic performance that 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.

Other areas of concern…

Research and development

  • Claiming R&D tax incentive on business as usual expenses that are not covered by eligible R&D activities
  • How entities apportion overheads between eligible R&D activities and other non-R&D activities
  • Payments to associates
  • Whether or not expenses have been incurred

Fringe benefits tax

  • Situations where an employer-provided motor vehicle is used for private travel of employees. This constitutes a fringe benefit and needs to be declared on your FBT return.

Note! There are circumstances where this benefit may be exempt, such as where the entity was tax exempt or the private use of the vehicle was exempt.

Self-managed super funds

  • Significant management and administration expenses
  • Incorrect calculation of exempt current pension income
  • Incorrect treatment of related party transactions
  • Personal services income diverted to SMSFs
  • Incorrect treatment of non-arm’s length income

Trusts

What attracts the ATO’s attention is a complying superannuation fund (generally an SMSF) that receives income distributions from a trust where the distributions result from:

  • the exercise of a discretion of the trustee
  • the fixed entitlement was not acquired on arm’s length terms
  • the fixed entitlement was acquired using a loan from a related lender and is not on arm’s length terms
  • there are loans between related parties which are not on arm’s length terms which have facilitated the acquisition of assets within the trust
  • the rate of return received by the superannuation fund from its investment is not consistent with an arm’s length return.

Lifestyle assets and private pursuits

The ATO is focusing on assets and private pursuits that generate deductions or are mischaracterised as business activities. Some of these include:

  • private aircraft ownership or activities
  • art ownership and dealings
  • car or motor bike racing activities
  • luxury and charter boat activities
  • enthusiast or luxury motor vehicles
  • grape growing and other farming pursuits
  • horse breeding, racing and training activities
  • holiday homes and luxury accommodation provision
  • sporting clubs and other activities involving participation of the principals or associates of principals of private groups.

Tip! If you’re concerned about your tax or super position, speak to your tax adviser or the ATO. You can correct a mistake by making a voluntary disclosure. ■

Are you making the most of your tax concessions?

There’s still time for you to take advantage of small business tax concessions before the end of the financial year.

If you act before 30 June, you can make the most of some concessions. For example:

Instant asset write-off

If you buy and install business assets by 30 June that cost less than $20,000 each, you can deduct the business portion in this year’s tax return.

Pre-paid expenses

You can claim a deduction this year if you prepay an expense that will end in the next financial year, for example, the rent for your business premises or an insurance policy.

Do you need to do a stocktake?

If you estimate that the difference between your opening and closing trading stock is $5,000 or less, you don’t need to do a stocktake. Instead, you can include the same amount for your opening and closing stock in this year’s tax return.

Not-so-small list of small business concessions…

Here is a list of the small business tax concessions that may be available to you.

Tip! Speak to your tax adviser to find out which concessions you can tap into.

Income tax

  • Lower company tax rate changes
  • Increased small business income tax offset
  • PAYG instalment concession

Deductions

  • Simplified depreciation rules – instant asset write-off
  • Accelerated depreciation for primary producers
  • Deductions for professional expenses for start-ups
  • Immediate deductions for prepaid expenses

Simplified record-keeping

  • Simplified trading stock rules
  • Two-year amendment period

GST, BAS and excise

  • Simpler BAS
  • Accounting for GST on a cash basis
  • Annual apportionment of GST input tax credits
  • Paying GST by instalments
  • Excise concession

Capital gains tax (CGT)

  • Small business restructure rollover
  • CGT 15-year asset exemption
  • CGT 50% active asset reduction
  • CGT Retirement exemption
  • CGT Rollover
  • Contributions of small business CGT concession amounts to your super fund

Fringe benefits tax (FBT)

  • FBT car parking exemption
  • FBT work-related devices exemption

Superannuation

  • Superannuation clearing house
  • Contributions of small business CGT concession amounts to your super fund.

Small business tax concessions under review

The Board of Taxation – an advisory body tasked with improving the design and operation of tax laws – will be conducting a review of Australia’s small business tax concessions.

The Board is encouraging small business owners and advisers to have their say in the review process.

The Board is undertaking a review to:

  • identify ways to improve small business tax concessions to ensure they remain effective, easily accessible, and well-targeted;
  • identify new concessions and ways to improve existing concessions; and
  • identify areas in which concessions that are less effective, or not well targeted, could be removed or scaled back to generate savings that can be redeployed in areas where they may have a greater impact.

The Board will make recommendations to the Government on how to efficiently target on the quality and effectiveness of tax laws and advise on the general integrity of the system.

Advice will be provided to the Government in October 2018.

Note!

  • If you’re interested in participating, visit the Board of Taxation website or get in touch with your tax adviser!
  • The deadline for your input is on Friday 20 July.
  • The consultation guide can be found on the Board of Taxation website.

Do you need to pay payroll tax?

If you are an employer you may have a payroll tax obligation.

Payroll tax is a state and territory tax on the wages you pay as an employer. Payroll tax is calculated on the amount of wages you pay each month and payable in the state or territory of Australia where the services were performed.

Wages liable for payroll tax include:

  • Employee wages
  • Contractor payments
  • Directors’ remuneration
  • Superannuation
  • Allowances
  • Fringe benefits
  • Bonuses and commissions
  • Termination payments

Not all businesses will have a payroll tax obligation. You only have to pay it if your taxable wages (or your group wages) exceed the threshold in your state or territory.

Note!

  • Each state or territory has a different tax threshold as well as registration process.
  • Find out what the threshold is in your state or territory, and if your taxable wages are approaching or have surpassed that threshold. Your tax adviser will be able to tell you if you need to register your business for payroll tax.

Payroll tax is generally lodged and paid to state and territory revenue offices monthly.

Tip! There are various employer-based exemptions for payroll tax. Check with your tax adviser to find out if your business qualifies for an exemption.

Changes to GST on property transactions

From 1 July 2018, if you are purchasing new residential premises or potential residential land you will have to pay the GST directly to the ATO as part of the settlement.

These changes will apply to contracts entered into on or after 1 July 2018.

The amount of GST hasn’t changed, just who is required to pay the GST to the ATO. You as the purchaser now pays the GST directly to the ATO instead of paying it to the developer as part of the purchase price.

You won’t have to register for GST to make this payment.

Property developers will need to give written notification to you when you need to withhold an amount for GST.

This does not affect sales of existing residential properties or the sales of new or existing commercial properties.

Key tax dates

 

Date

 

Obligation

21 June 2018

May monthly BAS due

16 July 2018

Issue PAYG withholding payment summaries

23 July 2018

June monthly BAS due

30 July 2018

• June quarter SG due
• June quarterly BAS due
• June quarter PAYG instalment due

1 August 2018

August fuel tax credit rates change

14 August 2018

PAYG withholding annual report due

21 August 2018

July monthly BAS due

28 August 2018

• Taxable payments annual report due
• June quarter SG charge statement due
 

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.

The small business $20,000 instant asset write-off extended… time to go shopping!

The small business write-off threshold of $20,000 has been extended to 30 June 2018 and is available to all small businesses with an aggregated turnover of less than $10 million. After 30 June this year, the threshold will reduce to $1,000.

If you have upcoming business expenses, now might be a good time to do some shopping so that you can claim the deduction in the current financial year!

The $20,000 instant asset write-off explained

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it.

Note!

  • There is no limit to how many assets you can claim the deduction for. However, each one must cost less than $20,000.
  • If you later sell the asset for which you claimed an instant asset write-off, you include the taxable purpose proportion of the amount you received for the asset in your assessable income.

What assets are included?

  • Assets that cost less than $20,000
  • Assets that are used for business purposes
  • ‘Physical’ assets – e.g. computers, phones, vehicles, tools etc
  • New or second-hand assets

Tip! You may be able to claim a deduction for business website costs using the simplified depreciation rules. Speak to us to find out more.

What assets are excluded?

  • Assets that cost more than $20,000
  • Assets that are used for personal purposes
  • Assets that are leased out (or expected to be leased out) for more than 50% of the time on a depreciating asset lease
  • Assets you already allocated to a low-value pool
  • Horticultural plants – e.g. grapevines
  • Software allocated to a software development pool
  • Capital works

Tip!
Capital works used to produce income, including buildings and structural improvements, are written off over a longer period than other depreciating assets. Speak to us to find out more.

How this works

You buy a new computer for $6,800 that you use 80% of the time for business purposes and 20% of the time for personal purposes.

You also buy a second-hand printer for $700 which you use 100% of the time for business purposes.

For the computer, you would calculate your instant asset write-off as 80% (the business use proportion) of $6,800, so you would claim $5,440.

For the printer, you would claim the entire cost of $700.

Are you registered for GST?

The threshold amount of $20,000 assumes that you are not registered for GST.

If you are registered for GST, you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is $20,000 exclusive of any GST).

If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is $20,000 inclusive of any GST).

Tip!For further information about GST impacts, speak to us.

Changes are coming to GST from 1 July 2018: is your business ready?

From 1 July 2018, Australian GST will apply to sales of low value goods (AUD $1,000 or less) that are imported by consumers into Australia.

Simply put, these GST changes mean that:

  • all goods imported by Australian consumers, even those worth less than $1,000, will be subject to 10% GST;
  • overseas retailers who sell goods to Australian consumers and make more than AUD $75,000 per year will be required to register and impose GST. Under the old GST laws, this only applied to retailers who were selling goods valued at over $1,000

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

To do!

If your business meets the $75,000 registration turnover threshold, you will need to act now to review your business systems to ensure that you are compliant from 1 July this year. You will also need to:

  • ensure you are registered for GST
  • charge GST to customers on low value imported goods
  • lodge a return to the ATO.

Why the GST reform?

The Government’s intention is to ensure that Australian businesses, particularly small retailers, are not unfairly disadvantaged by the current GST exemption that applies to imports of low value goods. The new GST laws ensure that low value goods imported by consumers in Australia are treated in the same manner as goods that are sourced domestically.

Which businesses are affected?

  • Suppliers of low value goods
  • Electronic distribution platforms (EDPs) – online marketplaces that assist in the importation of goods into Australia will essentially be treated as a supplier under these new measures, and be required to register for, collect and remit GST.
  • Re-deliverers – re-deliverers are used by Australian consumers in cases where the overseas retailers do not deliver to Australia (e.g. offshore mailbox services). The re-deliverer will charge GST on the goods and for their services in bringing the goods to you, if they are registered or required to be registered.

Sales of low value imported goods to Australian GST-registered businesses

GST only applies to sales of low value imported goods to consumers in Australia. Your customer is not a consumer if they are a GST-registered business who purchases the goods for use in their business in Australia.

If your business is the recipient of low value goods, you should notify suppliers of your GST registration to ensure you are not being charged GST twice.

Tip!

  • Make sure you are not charged GST twice by providing a copy of your receipt that shows GST has already been paid if you were charged GST when you bought the goods; and the goods are low value goods.
  • If you do not provide this receipt before GST is charged at the border, you will have to pay GST again and will need to seek a refund of GST from the supplier, by declaring or providing evidence that you paid GST when the goods were imported.

Note! Your business systems will need to be able to determine whether the sales are made to consumers in Australia or to businesses that are registered for Australian GST.

To do! If you are affected by these changes, speak to us to discuss process strategies and options to manage the impact of these new obligations on your business.

How to make your GST reporting easier

If you are a small business with a GST turnover of less than $10 million, Simpler BAS is now your GST reporting method. This means you only need to report total sales, GST on sales and GST on purchases, which will save you time and money.

If you use accounting software, you can keep your original detailed GST classifications, or choose the Simpler BAS bookkeeping settings with reduced codes. It is completely optional and the choice is yours.

Paper BAS forms have not changed, just leave the sections blank where information is no longer needed.

Note! The ATO has developed a Simpler BAS GST bookkeeping guide. This helps with the classification of sales and purchases, and explains common and also misunderstood GST transactions. You can find the guide on the ATO small business newsroom website.

Did you know that some fresh foods are subject to GST?

Some fresh foods, including salads, sushi and cooked pasta with sauce may be subject to GST.

Are you a GST-registered food business?

If you operate a GST-registered food business, you will need to include GST where your food is:

  • for consumption on the premises where it is sold (e.g. sold at a restaurant or cafe)
  • hot food for consumption away from the premises where it is sold (e.g. a takeaway meal with a hot component)
  • ‘food marketed as a prepared meal’ (which can include some salads).

‘Food marketed as a prepared meal’

You need to weigh up a number of factors to work out if your food is ‘food marketed as a prepared meal’. Ask these questions:

  • Does the packaging and labelling indicate it is a prepared meal (e.g. referred to as lunch)?
  • Does the menu or signage at the point of sale indicate the food is marketed as a prepared meal (e.g. ‘lunch to go’)?
  • Does it include all of the necessary ingredients for a complete meal?
  • Is it packaged for immediate consumption and cannot be resealed?
  • Is it supplied with cutlery and a napkin?
  • Is it priced similar to other comparable prepared meals?
  • Is it competing with other takeaway meals?

5 simplified accounting methods for food retailers

Five simplified accounting methods (SAMs) have been designed for food retailers who buy and sell a mixture of products, where some are taxable and some are GST-free.

You use a SAM to estimate your GST at the end of each tax period.

  • Business norms: Apply standard percentages to your sales and purchases. This is the simplest method but can only be used by specified business types.
  • Stock purchases: Apply the percentage of your GST-free purchases to your GST-free sales.
  • Snapshot: Take a snapshot of your trading and use this sample to estimate your GST-free sales and GST-free purchases.
  • Sales percentage: Work out what percentage of GST-free sales you made in a tax period and apply this to estimate your GST-free purchases.
  • Purchases snapshot: Take a snapshot of your purchases and use this sample to calculate your GST credits. Available to restaurants, cafés and caterers only.

Tip!

  • To use a SAM, make sure you are registered for GST and your turnover is not more than $2 million. You must also be a retailer who sells both taxable and GST-free food at the same premises (or, for the purchases snapshot method, you buy both taxable and GST-free food).

Do you provide cars, holidays or club membership to your employees?

Rewarding your employees beyond their usual salaries is a great way to show your appreciation for a job well done.

If you do provide your employees with benefits or lifestyle assets to use for their personal enjoyment, it is important to remember that these benefits and assets may have fringe benefit tax (FBT) implications for your business.

Ensure you are meeting your FBT obligations by keeping accurate records to determine any related income tax deductions you may be able to claim.

Note!
The FBT year runs from 1 April to 31 March.

What is FBT?

  • FBT is a tax employers pay on certain benefits they provide to their employees – including their employees’ family or other associates.
  • The benefit may be in addition to, or part of, their salary or wages package.
  • If you are a director of a company or trust, benefits you receive may be subject to FBT.
  • FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided

Types of fringe benefits

  • Car fringe benefits
  • Car parking fringe benefits
  • Entertainment and fringe benefits
  • Expense payment fringe benefits
  • Loan fringe benefits
  • Debt waiver fringe benefits
  • Housing fringe benefits
  • Board fringe benefits
  • Living away from home allowance fringe benefits
  • Property fringe benefits (including property, goods or shares)
  • Residual fringe benefits (benefits not covered by the above categories)

Private use of exempt motor vehicles for FBT

If a car you own or lease is made available for the private use of your employee, you may be providing a car fringe benefit. There are some circumstances where use of the car may be exempt from FBT.

Tip! Speak to us regarding FBT car-related exemptions where you make an eligible vehicle available to your employee for their minimal private use. ■

Superannuation: what employers need to know

Superannuation is money you pay for your workers to provide for their retirement.

Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages. The minimum you must pay is called the super guarantee (SG).

The SG is 9.5% of an employee’s ordinary time earnings.

Note! SG payments are due on 28 January 2018. Make sure you pay the SG on time to avoid paying the SG charge!

Employer super quick check

Here’s how to run a quick check of your super obligations to make sure you have everything sorted.

  • Check you are paying super to all eligible workers (some contractors may be entitled to super)
  • Check you are paying the right amount
  • Check you are paying on time
    • It is tax deductible against your business income
    • At a minimum, you can pay super quarterly
    • If you fail to pay on time, you may need to pay a SG charge, which is not tax deductible
  • Check you are paying to the right place (pay super into your worker’s fund of choice or your default fund)
  • Check you are paying the right way
    • Pay the SuperStream way – send both the payment and data electronically in a standard format
    • You may be able to use the free Small Business Super Clearing House to distribute payments to your employees’ super funds
  • Check you are keeping accurate records

Are you thinking of changing from sole trader to a company?

As your business develops you may need to adapt to changing needs. One common change is moving from a sole trader to a company business structure.

Company vs sole trader: what’s the difference?

Understanding the key differences between these two structures is important as it can affect how you run your business.
Tip! Speak to your us to discuss your options and tax obligations.

A list of did-you-knows…

  • Do you know as a company director you may also have potential personal liabilities for the tax withheld on employee wages and super payments?
  • Do you know that different tax rates apply for a sole trader compared to a company?
  • Do you know that as a company director you need to lodge two income tax returns – your individual tax return and a company tax return?
  • Do you know that you don’t have to become a company to employ people – you can employ staff under either structure?
  • Do you know that sole trader business structures have the fewest compliance costs and lowest volume of paperwork? Other structures, such as a company, have more paperwork and ongoing costs.
  • Do you know that as a company director, even if you are not hands-on (e.g. a silent director) and/or you later leave the company, you are still responsible and liable for the period you were a director?
  • As a company director, do you know what your obligations are to the company, its members (owners) and any creditors?
  • Do you know that a company must have at least one person who is over the age of 18 and resides in Australia to act as a director?
  • Do you know your legal obligations and the difference between being a company director and a company member?
  • If you are running a company, do you know what to do if things go wrong, such as getting into financial difficulties?
  • Do you know how to update ASIC when certain details regarding the running of your company change?
  • If you want to resign as a company director, do you know what you need to do?

Tip! The ASIC website provides a wealth of information about changing your business structure and what your responsibilities and potential liabilities might be.

Hiring new employees? TFN declaration forms can be downloaded

There is a lot of paperwork to complete when you hire new employees. The good news is: you no longer need to order the form and wait for it to be mailed to you.

The ATO has developed a fillable TFN declaration form which is available on their website. You can download it from ato.gov.au/TFNdec or even better, ask your new employee to download the form and fill it in on the screen.

Once it is filled in, print it off, get your employee’s signature then send the original copy to the ATO using the address on the form within 14 days.

Tip! Don’t forget to keep a copy for your files!
Key tax dates

Date

Obligation

21 February 2018

January monthly BAS due

28 February 2018

• December quarterly BAS due
• December quarter SG charge statement due
• December quarter PAYG instalment due

21 March 2018

February monthly BAS due

23 April 2018

March monthly BAS due

30 April 2018

• March quarterly BAS due
• March quarter SG due
• March quarter PAYG due

21 May 2018

2018 FBT return due

 

April monthly BAS due

28 May 2018

March quarter SG charge statement due

 

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.

IN THIS ISSUE

  • New rules for accessing the 27.5% corporate tax rate from 1 July 2017
  • When does a company carry on a business? ATO releases guidance
  • Small business tax concessions at a glance
  • Deductions for small business
  • Safe harbour reforms for company directors
  • Tax consequences of trust splitting
  • Government cracks down on illegal phoenixing
  • Streamlined reporting with Single Touch Payroll
  • Lump sum payments for healthcare practitioners
  • Superannuation guarantee – new measures announced
  • Understanding the sharing economy and tax
  • Industry assistance payments to taxi licence holders
  • FBT: Uber case: definition of ‘taxi’ – ATO Technical Discussion Paper
  • GST determination – Simplified accounting methods (SAM)
  • Reduction of wine equalisation tax (WET) rebate cap
  • Other legislation that may impact on you or your business

New rules for accessing the 27.5% company tax rate from 1 July 2017

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 was introduced into the House of Representatives on 18 October 2017.
This Bill amends the Income Tax Rates Act 1986 (Cth) (Rates Act) to ensure that, from the 2017-18 income year, a company will qualify for the lower company tax rate for an income year if:

  • no more than 80% of the company’s assessable income for that income year is ‘base rate entity passive income’; and
  • the company’s aggregated turnover for the income year is less than the aggregated turnover threshold for that income year (for the 2017-18 income year, the threshold is less than $25 million).

These amendments will modify the requirements that must be satisfied for a company to qualify as a ‘base rate entity’ by replacing the ‘carrying on a business’ test with a passive income test. Under the passive income test, companies that are generating predominantly passive income (eg rent, royalties etc) will not be eligible for the lower company tax rate.

The purpose of this legislation is to ensure that passive investment companies cannot access the lower company tax rate that is otherwise available small businesses. 

Currently, to qualify as a ‘base rate entity’ in order to apply the lower company tax rate, a company must be ‘carrying on a business’ as well as meet the relevant aggregated turnover threshold.

The Bill will apply prospectively from the 2017-18 income year.

An amount of assessable income is ‘base rate entity passive income’ includes items such as:

  • a distribution that is not a ‘non-portfolio dividend’;
  • franking credits attached to such a distribution;
  • interest income (as defined in the income tax legislation);
  • a royalty;
  • rent; and
  • a net capital gain.

When does a company carry on a business? ATO releases guidance

The ATO has released draft Taxation Ruling TR 2017/D7 Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? for consultation.

This draft Ruling provides guidance on when a company carries on a business within the meaning of section 23AA of the Rates Act.

A company will be a ‘base rate entity’ under section 23AA if it carries on a business and meets the aggregated turnover requirement. For the purposes of section 23AA, ‘business’ is defined in the income tax law to include ‘any profession, trade, employment, vocation or calling’, but excludes ‘occupation as an employee’. 

The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that ‘Limited’ and ‘No Liability’ companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit. 

The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company’s business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.
 
A variety of examples are included in the draft Ruling to assist a taxpayer to understand when a company may be ‘carrying on a business’.

Note!

The issue of whether a company is ‘carrying on a business’ is relevant under the current law. However, if the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 becomes law, the draft Ruling will not be relevant from 1 July 2017 going forward.

You should discuss with your tax agent or adviser whether your company may be eligible to access the lower company tax rate.

Small business tax concessions at a glance

The ATO has prepared a table that is available on their website which sets out at a glance all the tax concessions that may be available to small businesses. These include:

  • simplified depreciation rules (eg the instant asset write-off, accelerated depreciation for primary producers);
  • eligibility for the lower company tax rate;
  • PAYG instalment concessions;
  • simplified trading stock rules;
  • simpler BAS;
  • accounting for GST on a cash basis; and
  • the various small business CGT concessions.

Your tax agent or adviser will be able to assist you to work out which of these concessions your small business may be entitled to.

Deductions for small business

The ATO has published answers to the most common questions taxpayers have been asking about deductions for small business. Find out more on the ATO website.  

Safe harbour reforms for company directors

The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 (the Bill) passed both the House of Representatives and the Senate on 12 September 2017 and awaits Royal Assent. 

The Bill amends the Corporations Act 2001 (Cth) to: create a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency; and Corporations Act 2001 and Payment Systems and Netting Act 1998 (Cth) to make certain contractual rights unenforceable while a company is restructuring under certain formal insolvency processes. 

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said that the Government has delivered on its commitment under the National Innovation and Science Agenda (NISA) to improve Australia’s corporate insolvency system with the Bill receiving passage through Parliament. 

Ms O’Dwyer also said the Bill promotes a culture of entrepreneurship and innovation by providing a ‘safe harbour’ for company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency. It also makes ‘ipso facto’ clauses unenforceable during and after certain formal insolvency procedures. 

The safe harbour provisions will commence on Royal Assent. The stay on the operation of ipso facto clauses will commence from 1 July 2018 to provide time for businesses to adapt to the new settings.

The operation of the safe harbour will be subject to an independent review two years after commencement. 

The Government will shortly consult with key stakeholders on the Regulations to support the operation of the stay on ipso facto clauses. 

To do!

Are you a company director? If so, you should consult your tax adviser about whether this legislation impacts on you at all.

Tax consequences of trust splitting

The ATO is developing guidance in relation to the tax consequences of trust splitting arrangements.

A trust splitting arrangement occurs when separate trustees are appointed over different assets of an existing discretionary trust. Each trustee is typically controlled by a different party.

The intention of trust splitting is to produce a structure where each trustee is able to deal with the assets it holds independently of the other trustees. In particular, the trustee is able to deal with the assets largely for the benefit of the controlling party.

If you hold assets through trusts, this ATO guidance may be relevant to you.

Government cracks down on illegal phoenixing

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced on 12 September 2017 that the Government is taking action to crack down on illegal phoenixing activity to ensure those involved face tougher penalties. 

The Government’s package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity. 

The DIN will identify directors with a unique number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people. 

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers.  

The Government will consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including: 

  • a next-cab-off-the-rank system for appointing liquidators;
  • allowing the ATO to retain tax refunds; and
  • allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.

The Government put out a discussion paper in October containing numerous ideas for how to combat phoenixing behaviours.

Streamlined reporting with Single Touch Payroll

Previous editions of TaxWise Business have contained information about Single Touch Payroll, which is a reporting change for employers. It means employers will report payments such as salaries and wages, PAYG withholding and super information to the ATO directly from their payroll solution at the same time they pay their employees. 

For employers with 20 or more employees, Single Touch Payroll reporting starts from 1 July 2018. The first year will be a transition and penalties will not apply. 

The Government has also announced that it will expand Single Touch Payroll to include employers with 19 or less employees from 1 July 2019. This will be subject to legislation being passed in Parliament.

Therefore, if your business has 20 or more employees, Single Touch Payroll starts for you on 1 July 2018. If you have less than 20 employees, Single Touch Payroll will start for you on 1 July 2019 if the relevant legislation gets passed.

Lump sum payments for healthcare practitioners

If you are a healthcare practitioner, you may receive a lump sum payment when starting or amending an agreement with a healthcare centre operator. The ATO is concerned that some healthcare practitioners may be incorrectly treating these payments as proceeds from the disposal of a capital asset. This may result in underpayment of tax and expose you to later tax adjustments and penalties.

To do!

If you have received one of these payments, talk to your tax agent to make sure you treat it correctly for tax purposes.

Superannuation guarantee – new measures announced

The Government has announced a further package of reforms to give the ATO near real-time visibility over superannuation guarantee (SG) compliance by employers.

The Government will provide the ATO with additional funding for a Superannuation Guarantee Taskforce to crackdown on employer non-compliance. The package builds on legislation already announced to close a legal loophole used by unscrupulous employers to short-change employees who make salary-sacrifice contributions to their superannuation.

The package includes measures to:

  • require superannuation funds to report contributions received more frequently, at least monthly, to the ATO. This will enable the ATO to identify non-compliance and take prompt action;
  • update payroll reporting through the rollout of Single Touch Payroll (STP). This will reduce the regulatory burden on business and transform compliance by aligning payroll functions with regular reporting of taxation and superannuation obligations;
  • improve the effectiveness of the ATO’s recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees’ super accounts; and
  • give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay superannuation guarantee liabilities.

Understanding the sharing economy and tax

The ATO has updated their sharing economy and tax web page to help you understand your clients’ income tax and GST obligations, and how to avoid tax debts. Information includes: 

Tip!

If you participate in the sharing economy, you need to understand your tax obligations. Talk to your tax agent or adviser if you are unsure about what your tax obligations are or whether you are meeting them.

Industry assistance payments to taxi licence holders

The ATO is providing assistance to taxpayers who hold a taxi licence (including a car hire licence). 

If you hold a taxi licence (including a hire car licence) and you receive an industry assistance payment from your State Government in relation to the licence (excluding a licence surrender payment), it is probably not a capital receipt. It’s more likely to be ordinary income. There are no GST consequences.  More guidance can be found on the ATO website.

FBT: Uber case: definition of ‘taxi’ – ATO Technical Discussion Paper

In light of a recent Federal Court decision in the matter of Uber B.V. v. Commissioner of Taxation [2017] FCA 110 (Uber), and certain proposed changes to licensing regulations in a number of states and territories, the ATO has released Technical Discussion Paper TDP 2017/2 ‘Fringe Benefits Tax – Definition of Taxi’

TDP 2017/2 considers the definition of ‘taxi’ contained in the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) and the exemption from fringe benefits tax (FBT) for taxi travel undertaken to or from work or due to illness. 

The purpose of this paper is to facilitate consultation between the ATO and the community as part of the process of developing advice on the application of the FBT law. The ATO advises that all views in this paper are preliminary in nature and should not be taken as representing either an ATO view or that the ATO will take a particular view. 

GST determination – Simplified accounting methods (SAM)

The Goods and Services Tax: Simplified Accounting Methods Determination 2017 for Retailers who sell Food – Business Norms, Stock Purchases and Snapshot Methods (F2017L01274) commenced on 28 September 2017. This determination repealed and replaced Simplified GST Accounting Methods Legislative Instrument (No 1) 2007

The determination provides eligible food retailers with a choice of using a simplified accounting method (SAM) to help them to work out their net amount. It does so by allowing them to estimate their GST-free trading sales and GST-free trading stock acquisitions for a tax period. The three SAMs are: 

  • Business norms method;
  • Stock purchases method; and
  • Snapshot method.

The determination is substantially the same as the previous determination that it replaced. If you were eligible to use a particular SAM specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

Reduction of wine equalisation tax (WET) rebate cap

In the 2016-17 Budget, the Government announced that it will address integrity concerns with the wine equalisation tax (WET) rebate by reducing the WET rebate cap and tightening eligibility criteria. 

The scheduled changes include:

  • strengthening the associated producer provisions, so that from 1 October 2017 the associated producer test applies at any time during the financial year;
  • reducing the WET rebate cap from $500,000 to $350,000 on 1 July 2018;
  • introducing tightened eligibility criteria for the producer rebate from 1 July 2018 with some transitional arrangements from 1 January 2018; and
  • creating a stronger link between rebate claims and the payment of WET by limiting entitlements to WET credits and changes to the quoting rules from 1 July 2018.

The changes were passed into legislation in August 2017.

Other legislation that may impact on you or your business

The Bill extends the crowd-sourced funding (CSF) regime to proprietary companies, making a new funding source available for small businesses, while maintaining adequate investor protections through additional obligations on companies. The measure extends upon the Corporations Amendment (Crowd-sourced Funding) Act 2017 to enable proprietary companies to access CSF without transitioning to public company status. 

Choice of fund for workplace determinations and enterprise agreements

  • The Bill amends the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) to ensure employees under workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions. 

Salary sacrifice integrity 

  • The Bill also amends the SGAA to improve the integrity of the superannuation system by ensuring that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contributions. 

Further to the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, this Bill amends the Rates Act to:

  • progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023-24 financial year; and
  • further reduce the corporate tax rate in stages so that by the 2026-27 financial year, the corporate tax rate for all entities will be 25%.

To do!

Talk to your tax agent or adviser to see if any of these Bills will impact on you or your business.

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.

IN THIS ISSUE

  • It’s Tax Time 2017! What you need to know about the key changes
  • What’s new for small businesses
  • Taking care of business
  • ATO protecting honest business
  • GST
  • Tax incentives for early stage investors
  • Changes for employers of working holiday makers
  • Superannuation
  • Streamlined reporting with Single Touch Payroll
  • Changes to tax withholding amounts
  • Changes to PAYG instalment conditions
  • Taxable payments annual report was due
  • ATO

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. 

What’s new for small businesses

  • Tax Concessions

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return. 

Find out about:

Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

Increased small business income tax offset

You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

  • increased to 8%, with a limit of $1,000 each year
  • applies to small businesses with turnover less than $5 million.

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

  • Company tax rate cut for small businesses

For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

If you lodged your 2016–17 company tax return early:

    • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
    • If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.
 
Tax rate cuts – “not meant to apply to passive investment companies”

On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O’Dwyer MP, issued a statement on the tax rate cuts for small companies.

Minister O’Dwyer said, “Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Minister O’Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.

  • Instant asset write-off extension

Australia’s 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off immediately thanks to legislation passed by the Senate on 15 June 2017, advised Small Business Minister Michael McCormack recently. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

The Small Business Minister said recent tax cuts for small business – which delivered a 27.5% tax rate – also redefined ‘small business’, meaning more Australian businesses are now eligible for the instant asset write-off. 

More businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately after this legislation passed the Senate. Multiple claims can be made under the program. 

‘Small business’ has also been redefined for tax purposes as having a turnover less than $10 million, up from $2 million. 

For more information on support for small business, please visit the Small business website.

To do!

If you are not clear about how the recent changes for small businesses apply to you or your business, you should speak with your tax agent or adviser.

Taking care of business

The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO’s tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

ATO protecting honest business

The ATO acknowledges that most business owners are honest, but that there are some businesses that operate in the cash and hidden economy, gaining an unfair advantage over those who declare their income and do the right thing. 

The ATO has been running information sessions on this. More information about the ATO’s work focusing on ‘cash-only’ businesses, including visiting these businesses and what the ATO will be doing where these businesses are not compliant can be found on the ATO’s website.

GST

    • Simpler BAS

 

From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. 

The ATO automatically transitioned eligible small business’ GST reporting methods to Simpler BAS from 1 July 2017.

    • 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 A$75,000 registration threshold 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.

Treasurer’s press release on GST low value goods

The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017. 

The Treasurer said, “Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018." 

Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia. 

    • Buy services or digital products from overseas?

From 1 July 2017, GST will apply to imported services and digital products. 
Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST. 

Reminder from the ATO re Applying GST to imported services and digital products

The ATO has issued a reminder that if overseas suppliers sell imported services or digital products to Australian consumers and they meet the GST registration turnover threshold, they need to register for GST. They will meet the registration turnover threshold if their taxable sales to Australian consumers in a 12-month period are A$75,000 or more. Once registered, they will need to report and pay GST on sales to the ATO.

    • GST – Simplified Accounting Methods determination for food retailers

The Goods and Services Tax: Simplified Accounting Methods Determination for Food Retailers – Business Norms, Stock Purchases and Snapshot Methods determination will repeal and replace Simplified GST Accounting Methods Legislative Instrument (No 1) 2007 – F2007L02577, registered on 14 August 2007.

This draft determination is substantially the same as the previous determination that it replaces. If you were eligible to use a particular simplified accounting method (SAM) specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

    • GST input tax credits disallowed – tax invoices not enough

Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer, evidence from various sources, including third parties, showed that all relevant development works were completed prior to the dates of the purported invoices, and the taxpayer had already claimed the input tax credits in its BASs for previous tax periods.

The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.

The Tribunal observed that the mere existence of a “tax invoice" is not, by itself, sufficient to establish that a “taxable supply" (under s 9-5 of the GST Act) and corresponding “creditable acquisition" (under s 11-5 of the GST Act), had, in fact, occurred.

    • GST – removing the double taxation of digital currency

On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money

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 and again on its use in exchange for other goods and services subject to GST. 

This measure will ensure purchases of digital currency are no longer subject to the GST. 

No changes to the income tax treatment of digital currency are proposed.  

Note!

There are a number of changes to GST which may have an impact on your business. You should sit down with your tax agent or adviser to discuss if any of these changes affect you or your business.

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.

Changes for employers of working holiday makers

On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO. 
Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register. 

Superannuation

  • Key super 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.

  • SuperStream roadmap

The SuperStream roadmap provides a picture of the changes for the next 18 months. The information on this web page details the changes impacting the superannuation industry up until the end of 2018. The ATO will update the information on this page every quarter. If your business has transitioned to SuperStream, it is worth keeping an eye on this web page for the latest information. You can always talk to your tax agent or adviser about this too.

Streamlined reporting with Single Touch Payroll

Previous editions of TaxWise Business contained details of Single Touch Payroll. Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018. The ATO will help and support you to transition during the first year of reporting.

More information can be found on the ATO website.

Changes to tax withholding amounts

  • Withholding on salary and wages

The way tax is calculated on salary and wages has changed.

From 1 July 2017, the:

  • temporary budget repair levy has been removed
  • Medicare levy low-income threshold increased.
  • TFN withholding for closely held trusts

Beneficiaries need to quote their tax file number (TFN) to the trustee to avoid having amounts withheld from their payments or unpaid entitlements.

If a beneficiary doesn’t quote their TFN before a payment or entitlement occurs, the trustee must withhold from the payment or entitlement, pay the withheld amount to the ATO, and lodge an annual report with details of all withheld amounts.

  • Withholding in business transactions

Any business or organisation carrying on an enterprise should quote their Australian business number (ABN) when supplying goods or services to another enterprise. If the supplier does not quote their ABN, the general rule is that the payer must withhold 47% (from 1 July 2017) from their payment and send the withheld amount to the ATO.

  • Withholding from unused leave payments on termination of employment

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments. Information on how to work out the amount to withhold from payments of unused annual and unused long service leave when an employee leaves can be found on the ATO website.

  • Withholding from dividends paid to foreign residents

If you pay dividends to a foreign resident, the unfranked component of each of those payments is subject to a final withholding tax. Information on when and how much to withhold from dividends you pay to foreign residents can be found on the ATO website.

Tip!

Businesses need to get their withholding obligations right. If you are unsure if your business is meeting its withholding requirements or are unsure how any of these changes may affect your business meeting its withholding obligations, you should speak with your tax agent or adviser.

The ATO’s compliance approach to employers

The ATO has provided details of its approach to compliance by employers with their obligations.
The ATO says that its compliance approach supports employers who engage with the ATO and want to get things right. The ATO takes firmer action against those unwilling to meet their obligations. The approach is based on the relevant facts and circumstances of each case.

For more information, see the ATO website

Changes to PAYG instalment conditions

From 1 July 2017, changes to administrative rules about who needs to pay PAYG instalments may affect your clients. 

The ATO will automatically remove companies, superannuation funds, and self-managed superannuation funds from the PAYG instalment system if their notional tax is less than $500. This will apply even if their instalment rate is greater than zero percent, and includes those registered for GST. 

Taxable payments annual report was due

If you are in the building and construction industry and you paid contractors during 2016-17, your Taxable Payments Annual Report was due by 28 August 2017.

ATO

    • 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.

    • Affected by recent company payroll issues?

If you have used the services of payroll company Plutus Payroll Australia Pty Ltd and associated entities, the ATO has applied a range of support measures to help you meet your tax and super obligations. 

The ATO has developed some scenarios that they are aware of for Plutus payroll and associated companies. Whether your situation falls within a particular scenario will depend on your circumstances.  For more information, go to the ATO website.

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.

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. 

What’s new for small businesses

  • Tax Concessions

 

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return. 

Find out about:

 

Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

 

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

Increased small business income tax offset

 

You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

  • increased to 8%, with a limit of $1,000 each year
  • applies to small businesses with turnover less than $5 million.

 

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

  • Company tax rate cut for small businesses

 

For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

 

If you lodged your 2016–17 company tax return early:

 

    • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
    • If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

 

A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.
 
Tax rate cuts – “not meant to apply to passive investment companies”

On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O’Dwyer MP, issued a statement on the tax rate cuts for small companies.

Minister O’Dwyer said, “Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Minister O’Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.

  • Instant asset write-off extension

 

Australia’s 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off immediately thanks to legislation passed by the Senate on 15 June 2017, advised Small Business Minister Michael McCormack recently. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

The Small Business Minister said recent tax cuts for small business – which delivered a 27.5% tax rate – also redefined ‘small business’, meaning more Australian businesses are now eligible for the instant asset write-off. 

More businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately after this legislation passed the Senate. Multiple claims can be made under the program. 

‘Small business’ has also been redefined for tax purposes as having a turnover less than $10 million, up from $2 million. 

For more information on support for small business, please visit the Small business website.

 

 

To do!

If you are not clear about how the recent changes for small businesses apply to you or your business, you should speak with your tax agent or adviser.

Taking care of business

The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO’s tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

ATO protecting honest business

The ATO acknowledges that most business owners are honest, but that there are some businesses that operate in the cash and hidden economy, gaining an unfair advantage over those who declare their income and do the right thing. 

The ATO has been running information sessions on this. More information about the ATO’s work focusing on ‘cash-only’ businesses, including visiting these businesses and what the ATO will be doing where these businesses are not compliant can be found on the ATO’s website.

GST

    • Simpler BAS

 

From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. 

The ATO automatically transitioned eligible small business’ GST reporting methods to Simpler BAS from 1 July 2017.

    • 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 A$75,000 registration threshold 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.

Treasurer’s press release on GST low value goods

The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017. 

The Treasurer said, “Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018." 

Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia. 

    • Buy services or digital products from overseas?

 

From 1 July 2017, GST will apply to imported services and digital products. 
Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST. 

Reminder from the ATO re Applying GST to imported services and digital products

The ATO has issued a reminder that if overseas suppliers sell imported services or digital products to Australian consumers and they meet the GST registration turnover threshold, they need to register for GST. They will meet the registration turnover threshold if their taxable sales to Australian consumers in a 12-month period are A$75,000 or more. Once registered, they will need to report and pay GST on sales to the ATO.

    • GST – Simplified Accounting Methods determination for food retailers

 

The Goods and Services Tax: Simplified Accounting Methods Determination for Food Retailers – Business Norms, Stock Purchases and Snapshot Methods determination will repeal and replace Simplified GST Accounting Methods Legislative Instrument (No 1) 2007 – F2007L02577, registered on 14 August 2007.

This draft determination is substantially the same as the previous determination that it replaces. If you were eligible to use a particular simplified accounting method (SAM) specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

    • GST input tax credits disallowed – tax invoices not enough

 

Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer, evidence from various sources, including third parties, showed that all relevant development works were completed prior to the dates of the purported invoices, and the taxpayer had already claimed the input tax credits in its BASs for previous tax periods.

The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.

The Tribunal observed that the mere existence of a “tax invoice" is not, by itself, sufficient to establish that a “taxable supply" (under s 9-5 of the GST Act) and corresponding “creditable acquisition" (under s 11-5 of the GST Act), had, in fact, occurred.

 

 

    • GST – removing the double taxation of digital currency

 

On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money

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 and again on its use in exchange for other goods and services subject to GST. 

This measure will ensure purchases of digital currency are no longer subject to the GST. 

No changes to the income tax treatment of digital currency are proposed.  

Note!

There are a number of changes to GST which may have an impact on your business. You should sit down with your tax agent or adviser to discuss if any of these changes affect you or your business.


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.

Changes for employers of working holiday makers

On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO. 
Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register. 

Superannuation

  • Key super 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.

  • SuperStream roadmap

 

The SuperStream roadmap provides a picture of the changes for the next 18 months. The information on this web page details the changes impacting the superannuation industry up until the end of 2018. The ATO will update the information on this page every quarter. If your business has transitioned to SuperStream, it is worth keeping an eye on this web page for the latest information. You can always talk to your tax agent or adviser about this too.

Streamlined reporting with Single Touch Payroll

Previous editions of TaxWise Business contained details of Single Touch Payroll. Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018. The ATO will help and support you to transition during the first year of reporting.

More information can be found on the ATO website.

Changes to tax withholding amounts

  • Withholding on salary and wages

 

The way tax is calculated on salary and wages has changed.

From 1 July 2017, the:

  • temporary budget repair levy has been removed
  • Medicare levy low-income threshold increased.

 

  • TFN withholding for closely held trusts

Beneficiaries need to quote their tax file number (TFN) to the trustee to avoid having amounts withheld from their payments or unpaid entitlements.

If a beneficiary doesn’t quote their TFN before a payment or entitlement occurs, the trustee must withhold from the payment or entitlement, pay the withheld amount to the ATO, and lodge an annual report with details of all withheld amounts.

  • Withholding in business transactions

 

Any business or organisation carrying on an enterprise should quote their Australian business number (ABN) when supplying goods or services to another enterprise. If the supplier does not quote their ABN, the general rule is that the payer must withhold 47% (from 1 July 2017) from their payment and send the withheld amount to the ATO.

  • Withholding from unused leave payments on termination of employment

 

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments. Information on how to work out the amount to withhold from payments of unused annual and unused long service leave when an employee leaves can be found on the ATO website.

  • Withholding from dividends paid to foreign residents

 

If you pay dividends to a foreign resident, the unfranked component of each of those payments is subject to a final withholding tax. Information on when and how much to withhold from dividends you pay to foreign residents can be found on the ATO website.

Tip!

Businesses need to get their withholding obligations right. If you are unsure if your business is meeting its withholding requirements or are unsure how any of these changes may affect your business meeting its withholding obligations, you should speak with your tax agent or adviser.

 

 

The ATO’s compliance approach to employers

The ATO has provided details of its approach to compliance by employers with their obligations.
The ATO says that its compliance approach supports employers who engage with the ATO and want to get things right. The ATO takes firmer action against those unwilling to meet their obligations. The approach is based on the relevant facts and circumstances of each case.

For more information, see the ATO website

Changes to PAYG instalment conditions

From 1 July 2017, changes to administrative rules about who needs to pay PAYG instalments may affect your clients. 

The ATO will automatically remove companies, superannuation funds, and self-managed superannuation funds from the PAYG instalment system if their notional tax is less than $500. This will apply even if their instalment rate is greater than zero percent, and includes those registered for GST. 

Taxable payments annual report was due

If you are in the building and construction industry and you paid contractors during 2016-17, your Taxable Payments Annual Report was due by 28 August 2017.

ATO

    • 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.

    • Affected by recent company payroll issues?

 

If you have used the services of payroll company Plutus Payroll Australia Pty Ltd and associated entities, the ATO has applied a range of support measures to help you meet your tax and super obligations. 

The ATO has developed some scenarios that they are aware of for Plutus payroll and associated companies. Whether your situation falls within a particular scenario will depend on your circumstances.  For more information, go to the ATO website.

 

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.

IN THIS ISSUE

  • The end of the financial year is coming!
  • 2017-18 Federal Budget small business measures
  • 2017-18 Federal Budget GST measures
  • Tax integrity in the Black Economy
  • Reduction in the company tax rate
  • GST
  • FBT
  • Superannuation
  • AAT disallows taxpayer’s claim for share trading losses
  • Illegal phoenix activity – protect yourself and your business
  • Single Touch Payroll starts 1 July 2017
  • Improving the transparency of tax debts
  • CGT withholding and indirect Australian real property interests
  • ATO matters
  • Small business support in one place
  • Help for start-ups and budding Australian entrepreneurs

The end of the financial year is coming!

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.

  • Is there any income you are due to derive that you may not have to recognise until next financial year?
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2017 (you will need to speak to your lender).
  • Are there any bad debts to write-off out of your receivables?
  • Are there any recently announced measures in the May 2017-18 Federal Budget you should talk to your tax adviser about? Further information about these may be found below.
  • 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 (desks and chairs) and kitchen appliances.
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Are there any repairs and maintenance on assets you should carry out prior to 30 June 2017 so you can claim the deduction in your 2017 return?

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.

To do!

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.

2017-18 Federal Budget small business measures

Small business CGT breaks to be tightened

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.

Instant asset write-off and other depreciation measures from 2015-16 Budget extended

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.

To do!

Discuss with your tax adviser how these changes might affect your small business.

2017-18 Federal Budget GST measures

Purchasers of new residential properties to remit GST

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.

Double taxation of digital currency removed

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.

Tax integrity in the Black Economy

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 announced the introduction of the following measures in the 2017-18 Federal Budget to bring integrity into the black economy:

  • From 1 July 2018, the taxable payment reporting system (TPRS) will be extended to two high-risk industries — cleaning and couriers — to ensure payments made to contractors in these sectors are reported to the ATO. The first report will be due in August 2019
  • Additional funding of $32 million will be provided to the ATO for ATO audit and lodgment activities to better target Black Economy risks. This measure is estimated to have a net gain to the budget of $447.2 million over the forward estimates period. The revenue includes an additional GST component of $109.8 million which will be paid to the States and Territories
  • The manufacture, distribution, possession, use or sale of sales suppression technology will be banned. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system.

Note!

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.

Reduction in the company tax rate

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:

  • 2016-17 financial year: 27.5% for small businesses with an aggregated turnover of less than $10 million;
  • 2017-18 financial year: 27.5% for small businesses with an aggregated turnover of less than $25 million;
  • 2018-19 financial year: 27.5% for small businesses with an aggregated turnover of less than $50 million. 

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: 

  • Commencing 1 July 2024: 27%
  • Commencing 1 July 2025: 26%
  • Commencing 1 July 2026: 25%. 

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:

Income Year

Annual aggregated turnover threshold

Rate for entities under the threshold

Other corporate tax entities

2016-17

$10 million

27.5%

30%

2017-18

$25 million

27.5%

30%

2018-19

$50 million

27.5%

30%

2019-20

$50 million

27.5%

30%

2020-21

$50 million

27.5%

30%

2021-22

$50 million

27.5%

30%

2022-23

$50 million

27.5%

30%

2023-24

$50 million

27.5%

30%

2024-25

$50 million

27%

30%

2025-26

$50 million

26%

30%

2026-27

$50 million

25%

30%

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:

  • for the 2024-25 income year: 27%;
  • for the 2025-26 income year: 26%; and
  • for the 2026-27 income year and later income years: 25% (per the table above). 

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.

GST

Uber BV v Commissioner of Taxation [2017] 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 45(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.

Note!

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:

  • 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 and therefore subject to GST; 
  • 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.

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.

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.

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.

FBT

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. 

Note!

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: 

Superannuation

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:

  • Transfer balance cap for members who will have more than $1.6 million in pension accounts in retirement phase (including defined benefit pensions) – action will need to be taken before 1 July 2017 under the transfer balance cap measure to commute such pensions back to accumulation phase so that pension accounts do not exceed $1.6 million to ensure they do not incur excess transfer balance tax: LCG 2016/9.
  • Death benefit pensions – will be subject to the $1.6 million transfer balance cap (with a modified cap for child pensions) with any excess being required to be cashed out of the superannuation system. From 1 July 2017, whether a pension is auto-reversionary on death, has more significance: LCG 2017/D3.
  • Transition to Retirement Income Streams (TRIS) – consider the ongoing appropriateness of transition to retirement income streams and whether they should be continued or commuted post 30 June 2017. Some members may be in a position to convert their TRIS to a pension account in retirement phase if they have retired or satisfied a condition of release with a nil cashing restriction: LCG 2016/8.
  • Elections for transitional CGT relief (cost base reset) – there are different applications of the relief depending on whether the fund has used the segregated method or the proportionate method – this will need to be considered. Availability for funds that have used the segregated method will require action prior to 1 July 2017. However, a decision for funds that have applied the proportionate method may be deferred up to the date of the lodgment of the fund’s FY2017 tax return: LCG 2016/8.
  • Valuations – consider whether it is prudent to obtain new or updated valuations to support any CGT relief elections (cost base reset) and the balance of any transfer balance accounts.
  • Defined benefit pensions – will generally be counted for the purposes of the transfer balance by the application of a special value for a lifetime pension, life expectancy and marked linked pension to the annualised first retirement phase pension payment following 30 June 2017, and generally 50% of a member’s annual defined benefit pensions that exceed $100,000 will be taxed at marginal tax rates: LCG 2016/11.
  • Non-concessional contributions cap of nil for members with more than $1.6 million in total superannuation benefits across all funds (including defined benefits) – applies for each financial year commencing on 1 July 2017 with the total superannuation benefits measured at 30 June of the immediately preceding year. Considering liquidity issues for self-managed superannuation funds affected by a member’s inability to make further non-concessional contributions from 1 July 2017 will be important.
  • Non-concessional contributions cap for members with less than $1.6 million in benefits – the non-concessional contributions cap will reduce from 1 July 2017 to $100,000 ($300,000 bring-forward rule). However, the current cap of $180,000 or $540,000 under the bring-forward rule remains available until 30 June 2017.
  • The concessional contributions cap – the concessional contributions cap will reduce to $25,000 from 1 July 2017. However, the current cap of $30,000 (or $35,000 for members aged 49+ at the end of the previous financial year) will be available until 30 June 2017.
  • Tax deductibility available for contributions made by employees – from 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary-sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
  • Different measurements – the $1.6 million transfer balance cap (relevant for determining an excess transfer balance of pensions in retirement phase) is measured differently from the $1.6 million total superannuation balance measure (which is relevant for the non-concessional contributions cap): LCG 2016/12.

To do!

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. 

Note!

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

Tip!

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.

AAT disallows taxpayer’s claim for share trading losses

Spence v Commissioner of Taxation [2017] 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.

To do!

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.

ATO matters

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: 

  • checklists to help with setting up a business
  • ideas for developing business networks, and
  • advice about planning and setting goals. 

Tip!

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.

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.

IN THIS ISSUE

  • Housing affordability measures
  • Individuals
  • Small business
  • Superannuation
  • GST
  • Tax integrity measures
  • Other tax changes

The 2017-18 Federal Budget

The 2017-18 Federal Budget (the Budget) was handed down on 9 May 2017.

The Budget focuses on boosting the economy and households so that “we live within our means and are able to return the Budget to balance in 2020/21”.

The housing affordability crisis is being addressed with a package of tax, superannuation and other measures as the centrepiece of the Budget. The Budget introduces a new tax – the levy on banks. The Budget also includes a range of integrity measures to enhance the integrity of the tax and superannuation system.

The main measures that are likely to affect you are outlined below, together with information about other measures that may be of interest to you. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax adviser.

Housing affordability measures

Support through the superannuation system

For first home buyers – first home super saver scheme

Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to subsequently be withdrawn and used for a first home deposit. The contributions can be made from 1 July 2017 and must be made within an individual’s existing contribution caps.
From 1 July 2018 onwards, the individual will be able to withdraw these contributions and their associated deemed earnings for a first home deposit. The withdrawals will be taxed at an individual’s marginal tax rate, less a 30% tax offset.
Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation.

  • For retirees – superannuation contributions from downsizing

From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence. They must have owned their principal residence for at least 10 years. Both members of a couple will each be able to make a $300,000 contribution for the same home.
These contributions are in addition to existing rules and caps and are exempt from the age test, work test and the $1.6 million total superannuation balance test for making non-concessional contributions.

Changes for owners of residential rental properties

Travel expenses related to residential rental properties disallowed

Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.
This is an integrity measure to address concerns that many taxpayers have been claiming deductions for travel costs without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.
This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

  • Depreciation deductions limited for residential rental properties

From 1 July 2017, depreciation for plant and equipment costs will be limited to outlays actually incurred by investors in residential real estate properties.
This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax (CGT) purposes for subsequent investors.
Plant and equipment items usually include mechanical fixtures or items which can be “easily” removed from a property, such as dishwashers and ceiling fans.
These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of Budget night (including contracts already entered into at 7:30pm (AEST) on 9 May 2017) will continue to give rise to deductions for the asset, or the asset reaches the end of its effective life.
Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.

Encouraging investment in affordable housing

Managed investment trusts being encouraged to invest in affordable housing

Managed investment trusts (MITs) will now be able to invest in affordable housing and are being incentivised to do so by allowing investors to receive concessional tax treatment.
MITs allow investors to pool funds to invest in primarily passive investments and cannot carry on or control an active trading business. Non-resident investors are generally subject to a 15% final withholding tax rate on fund payments from an MIT where they are resident of a country with which Australia has an effective exchange of information treaty. Resident investors are taxed at marginal rates and their capital gains are eligible for the CGT discount.
From 1 July 2017, MITs will be able to acquire, construct or redevelop property for the purpose of providing affordable housing, but must satisfy the following conditions:

  • the MIT must derive at least 80% of its assessable income from affordable housing in an income year. Up to 20% of income may be derived from other eligible investment activities permitted under the existing MIT rules. If either of these requirements are not satisfied, non-resident investors will be liable to pay withholding tax at a rate of 30% of investment returns for that income year;
  • qualifying housing must be provided to low to moderate income tenants;
  • rent is to be charged at a discount below the private market rental rate; and
  • the affordable housing must be available for rent for at least 10 years. If a property is not held for rent as affordable housing for at least 10 years, net capital gains arising on its disposal will attract a 30% withholding tax rate.

This measure will apply to income years starting on or after 1 July 2017 and is intended to increase private investment in affordable housing. It is estimated to have an unquantifiable cost to revenue over the forward estimates period and the ATO will be provided $1.5 million to implement the measure.

  • Australian resident individuals being encouraged to invest in affordable housing with an increased CGT discount

The CGT discount will be increased from 50% to 60% for Australian resident individuals investing in qualifying affordable housing.
The conditions to access the 60% discount are:

  • the housing must be provided to low to moderate income tenants;
  • rent must be charged at a discount below the private rental market rate;
  • the affordable housing must be managed through a registered community housing provider; and
  • the investment must be held for a minimum period of three years.

This measure will apply from 1 January 2018.
The higher discount will flow through to resident individuals investing in affordable housing via MITs as part of the tax measure enabling such trusts to invest in affordable housing (see above).

CGT main residence exemption removed for foreign and temporary residents

Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm (AEST) on 9 May 2017.
Existing properties held before this date will be grandfathered until 30 June 2019.

Measures applying to foreign investors

  • Expansion of foreign resident CGT withholding regime

The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July 2017.
Currently, the foreign resident CGT withholding obligation applies to Australian real property and related interests valued at $2 million or more. This threshold will be reduced to $750,000 from 1 July 2017, increasing the range of properties and interests that will come within this obligation.

  • Annual levy for foreign-owned vacant residential properties

Foreign owners of vacant residential property, or property that is not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5,000. The annual levy will be equivalent to the relevant foreign investment application fee imposed on the property when it was acquired.
The measure will apply to persons who make a foreign investment application for residential property from Budget night.

  • Foreign ownership in new developments restricted to 50%

A 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates. The cap will be included as a condition on new dwelling exemption certificates where the application was made from 7:30pm (AEST) on 9 May 2017.
New dwelling exemption certificates are granted to property developers and act as a ‘pre-approval’ allowing the sale of new dwellings in a specified development to foreign persons (without each foreign purchaser seeking their own foreign investment approval). The current certificates do not limit the amount of sales that may be made to foreign purchasers.
The measure will ensure that a minimum proportion of developments are available for Australians to purchase.

  • Integrity measure for foreign resident CGT regime

The principal asset test in Division 855 of the Income Tax Assessment Act 1997 (Cth) will be applied on an associate inclusive basis for foreign tax residents with indirect interests in Australian real property. The test is relevant to determine whether a foreign resident’s asset is a taxable Australian property.
This measure will apply from Budget night and is intended to ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.

Individuals

Medicare levy increasing from 2.0% to 2.5% in 2019

The Medicare levy will be increased from 2.0% to 2.5% of taxable income from 1 July 2019. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
Low income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.
All revenue generated by the Medicare levy will be used to support the National Disability Insurance Scheme (NDIS) and to guarantee Medicare. For example, $9.1 billion will be credited over the forward estimates period to the NDIS Savings Fund Special Account when it is established.
This measure is estimated to have a gain to tax revenue of $8.2 billion over the forward estimates period (across all heads of revenue, not just the Medicare levy).

Medicare levy — low-income thresholds to increase

The Medicare levy low-income thresholds for singles, families, and seniors and pensioners will increase from the 2016-17 income year.
The threshold for singles will increase to $21,655 (up from $21,335 for the 2015-16 year).
The family threshold will increase to $36,541 (up from $36,001 for the 2015-16 year).
For single seniors and pensioners, the threshold will increase to $34,244 (up from $33,738 for the 2015-16 year). The family threshold for seniors and pensioners will increase to $47,670 (up from $46,966 for the 2015-16 year).
The child-student component of the income threshold for all families will increase to $3,356 (up from $3,306 for the 2015-16 year).
The increases take into account movements in the consumer price index so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
This measure is estimated to have a cost to revenue of $180 million over the forward estimates period.

Small business

Small business CGT breaks to be tightened

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.

Instant asset write-off and other depreciation measures from 2015-16 Budget extended

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.

Superannuation

LRBAs included in superannuation balance and transfer balance cap

From 1 July 2017, the use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap.
LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

Related party transactions to increase superannuation reduced

Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.
The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.

Tax relief for merging superannuation funds extended

The current tax relief for merging superannuation funds will be extended until 1 July 2020.
Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017. The tax relief will be temporarily extended as the Productivity Commission completes a review into the efficiency and competitiveness of Australia’s superannuation industry.
Extending this relief should:

  • ensure that member balances are not reduced by tax when superannuation funds merge;
  • remove tax as an impediment to mergers; and
  • facilitate industry consolidation, which should lead to better retirement outcomes through reduced costs.

GST

Purchasers of new residential properties to remit GST

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.

Double taxation of digital currency removed

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.

Tax integrity measures

Multinational Taxation

  • Tax integrity package — multinational anti-avoidance law broadened

The Government will extend the scope of the multinational anti-avoidance law (section 177DAof the Income Tax Assessment Act 1936 (Cth)) to prevent the use of foreign trusts and partnerships in corporate structures to minimise Australian income tax.
With retrospective effect from its date of commencement on 1 January 2016, the multinational anti-avoidance law will be amended so that it applies to:

  • corporate structures that involve the interposition of partnerships that have any foreign resident partners
  • trusts that have any foreign resident trustees, and
  • foreign trusts that temporarily have their central management and control in Australia.

The amendments will ensure the integrity of the original policy intent.

  • Tax integrity package — banks using hybrids for tax minimisation

Integrity rules will be introduced to clamp down on aggressive structures used by banks and financial institutions for tax minimisation. The new rules will apply OECD hybrid mismatch rules to hybrid tax mismatches that occur in cross-border transactions relating to regulatory capital known as additional Tier 1 (AT1) by:

  • preventing returns on AT1 capital from carrying franking credits where such returns are tax deductible in a foreign jurisdiction, and
  • where the AT1 capital is not wholly used in the offshore operations of the issuer, requiring the franking account of the issuer to be debited as if the returns were to be franked.

Subject to transitional arrangements, the measure will apply to returns on AT1 instruments paid from the later of 1 January 2018 or six months after assent.
Transitional arrangements will apply to AT1 instruments issued before 7.30pm (AEST) on 9 May 2017 such that the measure will not apply to returns paid before the next call date of the instrument occurring after 7.30pm (AEST) on 9 May 2017.
This measure will strengthen the integrity of Australia’s tax system and seeks to implement the government’s decision, announced in the 2016/17 Budget “Tax Integrity Package — implementing the OECD hybrid mismatch arrangement rules”, in relation to regulatory capital.

Funding to address serious and organised tax crime

Currently, the ATO’s compliance work to target serious and organised crime in the tax system is funded to 30 June 2017.
The Government will provide $28.2 million to the ATO to allow them to continue with this work. This extends an existing measure by a further four years to 30 June 2021. This measure is estimated to have a gain to revenue of $408.5 million and a net gain to the budget of $380.3 million over the forward estimates period.

Bringing tax integrity in the Black Economy

The Government will introduce the following measures to bring integrity into the Black Economy:

  • From 1 July 2018, the taxable payment reporting system (TPRS) will be extended to two high-risk industries — cleaning and couriers — to ensure payments made to contractors in these sectors are reported to the ATO. The first report will be due in August 2019
  • Additional funding of $32 million will be provided to the ATO for ATO audit and lodgement activities to better target Black Economy risks. This measure is estimated to have a net gain to the budget of $447.2 million over the forward estimates period. The revenue includes an additional GST component of $109.8 million which will be paid to the States and Territories
  • The manufacture, distribution, possession, use or sale of sales suppression technology will be banned. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system.

Other tax changes

Major bank levy to be introduced

From 1 July 2017, a major bank levy (the levy) will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100 billion.
The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities as at each quarterly reporting date mandated by the Australian Prudential Regulation Authority (APRA). This equates to an annualised rate of 0.06%.
The $100 billion threshold will be indexed to grow in line with nominal gross domestic product.
Liabilities subject to the levy will include items such as corporate bonds, commercial paper, certificates of deposit, and Tier-2 capital instruments. The levy will not apply to the following liabilities: additional Tier-1 capital, and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme. It will not be levied on mortgages.
Superannuation funds and insurance companies will not be subject to the levy.
The levy is forecast to raise $6.2 billion over the forward estimates period, net of interactions with other taxes (principally corporate income taxes). The levy is designed to assist with budget repair and to provide a more level playing field for smaller banks and non-bank competitors. It complements prudential reforms being implemented by the government and APRA.
To facilitate the introduction of the levy, the Australian Competition and Consumer Commission (ACCC) will undertake a residential mortgage pricing inquiry until 30 June 2018. As part of this inquiry, the ACCC will be able to require relevant ADIs to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates by those ADIs.

Skilling Australians Fund levy introduced

Businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will provide revenue for a new Skilling Australians Fund from March 2018.
Businesses with turnover of less than $10 million per year (ie small businesses) will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.
The levy will replace the current training benchmark financial obligations for employers of workers on Temporary Work (Skilled) (subclass 457) visas, which are being abolished, and permanent Employer Nomination Scheme (subclass 186) Direct Entry stream visas.

Additional resources for tax policy development and tax law drafting

  • Tax policy development and other capabilities

The Government will provide $29.5 million over two years from the 2017-18 income year to Treasury to build capability to better support the Government on issues such as the development of taxation policy and forecasting of revenue, macroeconomic modelling and foreign investment.

  • Tax law drafting

The Government will provide $16.9 million to Treasury and $5.2 million to the Office of Parliamentary Counsel over four years from the 2017-18 income year to ensure dedicated drafting resources are available to progress financial services and taxation reform legislation.

Foreign investment framework to be clarified and simplified

The foreign investment framework will be clarified and simplified with effect from 1 July 2017. This will make foreign investor obligations clearer, and allow for more efficient allocation of Foreign Investment Review Board screening resources to higher risk cases.
The amended framework will allow the foreign investment framework to operate more efficiently by facilitating business investment and reducing unnecessary red tape by:

  • refining the type of developed commercial property subject to the lower $55 million threshold by removing low sensitivity applications from the meaning of “sensitive land”;
  • improving the treatment of residential applications by allowing failed off-the-plan purchases to be considered as “new”;
  • overcoming limitations with the existing exemption certificate system for individual residential real estate purchases and amending the treatment of residential land used for a commercial purpose;
  • streamlining and simplifying foreign investment business application fees, including legislating existing fee waiver arrangements;
  • introducing a new exemption certificate that applies to low risk foreign investors;
  • clarifying the treatment of developed solar and wind farms; and
  • restoring the previous arrangement whereby companies with significant foreign custodian holdings (ie legal rather than equitable interest holders) are not subject to notification requirements.

These amendments are informed by stakeholder views and a public consultation process on options to improve the framework and make obligations clearer.

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.

IN THIS ISSUE

  • Credit and debit card debt, online selling and ride sourcing data matching
  • Simpler reporting with Single Touch Payroll
  • ‘Black Economy’ Taskforce
  • Targeted amendments to Division 7A
  • ATO issues warning on contrived trust arrangements
  • Goods taken from stock for private use
  • Top cyber security tips
  • GST matters
  • Simplified approach for car fringe benefits
  • Taxable payments annual report
  • Foreign resident capital gains withholding
  • Superannuation matters
  • Working holiday makers

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 financial 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 part of your business.
Simpler reporting with Single Touch Payroll
Single Touch Payroll is a government initiative to simplify business reporting obligations. In the previous issue of TaxWise Business, we noted that the Budget Savings (Omnibus) Bill 2016 which contains the Single Touch Payroll rules, had been introduced into Parliament. This has now become law.
The Single Touch payroll regime will enable employers to report salary or wages, pay as you go (PAYG) withholding and superannuation information to the ATO from their payroll solution, at the same time they pay their employees. This will mean simpler reporting obligations and more options for completing tax and super forms electronically. 
Single Touch Payroll reporting will be available to all employers from 1 July 2017. 
However, only employers with 20 or more employees will have to report this way under the law. They must start reporting through Single Touch Payroll from 1 July 2018.
Further information is available on the ATO website: Simpler-reporting-with-Single-Touch-Payroll.

To do!

If you are an employer with 20 or more employees, you will need to look into your reporting to the ATO to ensure it complies with the requirements of the Single Touch Payroll regime.

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 in March 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.

Top cyber security tips

It is important that businesses keep all their business and client information secure. If data is lost or compromised, it can be very difficult or very costly to recover.
The ATO has released a list of tips on how to keep your business and client data safe from hackers and identity thieves:

  • Ensure your passwords are strong and secure
  • Remove system access from people who no longer need it
  • Ensure all devices have the latest available security updates
  • Do not use USBs or external hard drives from an unfamiliar source
  • Use a spam filter on your email account
  • Secure your wireless network and be careful when using public wireless networks
  • Be vigilant about what you share on social media
  • Monitor your accounts for unusual activity or transactions
  • Use a PO Box, or ensure your mail is secure
  • Do not download programs or open attachments unless you know the program is legitimate
  • Do not leave your information unattended – secure your electronic devices

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 Federal Budget, the government confirmed that from 1 July 2017, the GST will be extended to low value imports of physical goods imported by consumers. 
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. 
An exposure draft outlining the proposed law changes and application was released for public comment. More information will be provided as this measure progresses.

Certain transactions between overseas and Australian businesses are no longer subject to Australian goods and services tax (GST). These changes came into effect on 1 October 2016. See the previous edition of TaxWise Business for further information.
Overseas businesses with whom you transact may no longer need to be registered for GST if they supply to (or are supplied from) Australian businesses.
They may therefore no longer need an Australian ABN and may no longer be required to identify the exact amount paid for international transport, insurance and other ancillary costs. This applies when calculating the value of taxable importations for GST purposes. They can choose to use an uplift factor of 10% of customs value as a proxy for these costs. 
For more information on GST cross-border transactions between businesses, including specific changes for non-residents and Australian businesses, visit the ATO’s website.

To do!

Talk to your tax agent about how the change in GST status of overseas businesses you transact with may impact on your own GST obligations.

  • When to charge GST (and when not to)

i)          When to charge GST
If your business is registered for GST, most of the sales 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.

5)   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.

6)   Simpler BAS test findings
The ATO has been working to make business activity statement (BAS) reporting simpler for small business.
From 1 July 2017, small businesses will only be required to report:

  • GST collected (1A);
  • GST entitled to be claimed (1B);
  • Total sales (G1).

Talk to your tax agent to find out how this may impact on your activity statement reporting to the ATO.
Simplified approach for car fringe benefits
The ATO has collaborated with industry representatives to develop a safe harbour for car fringe benefits. A safe harbour is a guideline that allows businesses to make use of an efficient way to calculate their tax where certain conditions are met. 
This safe harbour will simplify the approach for working out the business use percentage of car fringe benefits for fleets of 20 cars or more. The new approach reduces the record-keeping burden for your business clients. It allows them to use an ‘average business use percentage’ when using the operating cost method. 
To find out how it works, talk to your tax agent.
Taxable Payments Annual Report

The ATO is contacting businesses in the building and construction industry about their overdue taxable payments annual reports.
If you are in the building and construction industry and have not lodged your 2016 or any prior year taxable payments annual reports, now is the time to get them back on track to avoid penalties. 
Regardless of where you claim contractor expenses in your tax returns, if you have paid contractors for building and construction services, you need to lodge a taxable payments annual report. 

  • Lodging your report 

You must lodge your Taxable payments annual report online using the Business, Tax Agent and BAS Agent Portals. The ATO only accepts reports that meet these specifications. 
To lodge online you’ll need:

  • an Australian business number (ABN);
  • an AUSkey – to protect your security and privacy when dealing with the ATO online; and
  • business software that meets the ATO’s requirements.

Tip!

It is best to get the assistance of your tax agent when completing your Taxable payments annual report.

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 financial 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.

Superannuation matters

The previous edition of TaxWise Business covered the superannuation reform package extensively in detail. The reforms passed into law in December 2016.

In summary, the reforms include:

  • Legislating the objective of superannuation;
  • Introducing a $1.6 million superannuation transfer balance cap;
  • Reforming the taxation of concessional superannuation contributions;
  • Lowering the annual non–concessional contributions cap;
  • Introducing the Low Income Superannuation Tax Offset (LISTO);
  • Improving access to concessional contributions;
  • Allowing catch–up concessional contributions;
  • Extending the spouse tax offset;
  • Removing barriers to innovation in retirement income stream products;
  • Improving the integrity of transition to retirement income streams (TRIS);
  • Abolishing the anti–detriment rule;
  • Streamlining administrative processes.

The ATO has also begun issuing guidance to assist taxpayers to understand the new superannuation reforms. However, your tax agent will be able to assist you to understand the new reforms and what they might mean for you.

If you are an employer, you must ensure you meet your super guarantee obligations. Some reminders of things you need to do are below:

  • contribute at a rate of 9.5% of their employees’ ordinary time earnings;
  • make contributions by the quarterly due dates (28 January, 28 April, 28 July, 28 October) or more frequently;
  • pay super for contractors if they are eligible, even if the contractor quotes an Australian Business Number;
  • be SuperStream compliant; and
  • keep accurate records to show they have met their obligations.

The ATO has a range of information, tools and calculators to help employers:

  • Super obligation employer’s checklist – Six easy steps
  • Super guarantee eligibility decision tool
  • Super guarantee contributions calculator
  • Super for employers home page

Note!

Although the ATO has developed lots of tools to help employers meet their superannuation obligations in relation to employees, employers should still consult their tax adviser for help and support to meet their superannuation obligations.

Previous editions of TaxWise Business have included information on SuperStream.
The deadline for all employers to be SuperStream compliant has now passed. All employers should be paying super and sending the corresponding data in an appropriate electronic format. 
If you haven’t made the switch to SuperStream, you should work with your tax adviser to help you become SuperStream compliant. 

Do you send employees to work temporarily overseas? If so, you still need to make super contributions in Australia for those employees. 
Your employees may also have to pay super or social security in the foreign country. A certificate of coverage exempts them from those obligations in countries we have bilateral agreements with.
Your tax agent can use the automated form on the Tax Agent Portal to request a certificate of coverage on your client’s behalf. However, you need to grant your tax agent access to your certificate of coverage account first. This can be done via Access Manager in the Business Portal. 
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 super 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

If you employ (or plan to employ), working holiday makers, you must register with the ATO.
Once you register, 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 you do not register, you 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 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.

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.

IN THIS ISSUE

  • Your small business may be entitled to a lower tax rate
  • Single Touch Payroll
  • 2016 PAYG withholding schedules
  • Reminder: GST cross-border changes started 1 October 2016
  • Superannuation reform packages
  • SMSFs: further guidance on LRBAs with non-arm’s length terms available now
  • ATO warns small businesses: time running out to meet super payment compliance
  • Reinventing the ATO: blueprint for change released
  • Commissioner’s statement on the tax evasion “week of action"
  • Proposed changes to the ATO approach to penalties
  • Building better incubators to support new Australian start-ups
  • Helping the building and construction industry with debt
  • Educational visits to small businesses
  • Inspector-General of Taxation’s new work program for 2017

Your small business may be entitled to a lower tax rate

Depending on the structure of your business, the lower tax rate of 28.5% may apply to your business if you run your business through a company for the 2016 year. Your aggregated turnover must be less than $2 million. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts. 
If you run your business through a non-corporate structure, such as a sole trader, partnership or trust, you are also entitled to receive a tax offset of up to 5% of your tax payable capped at $1,000.
In the previous edition of TaxWise Business, we noted that these small business concessions will change for the 2017 income year:

  • the tax rate for small businesses operating through corporate structures will be further reduced to 27.5% where the aggregated turnover is less than $10 million;
  • the tax offset for unincorporated entities will be progressively increased from 5% to 16% over the next 10 years (starting with 8% remaining constant for the next eight years then moving to 10% in the 2025 income year, 13% in the 2026 income year and 16% in the 2027 income year). However, the cap remains at $1,000.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016which contains these measures is, at the time of writing, sitting before the House of Representatives.

Single Touch Payroll

On 31 August 2016, the Budget Savings (Omnibus) Bill 2016 was introduced into the House of Representatives, which contains a number of measures relating to budget savings. This includes the “Single Touch Payroll” reporting framework.  
“Substantial employers” (with 20 or more employees) will be required to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under this framework will not have to comply with a number of existing reporting obligations under the taxation laws. 
A pilot will be run by the ATO to test whether the Single Touch Payroll reporting framework should also be adopted by employers with less than 20 employees in the near future.

2016 PAYG withholding schedules

On 2 September 2016, the ATO made a legislative determination entitled the Taxation Administration Act Withholding Schedules October 2016 (legislative instrument F2016L01380; registered 2 September 2016).
The instrument makes the withholding schedules, which set out the amounts, formulas and procedures to be used for calculating the amount required to be withheld by entities from withholding payments. The withholding schedules facilitate the collection of income tax, Medicare levy, Higher Education Loan Program, Student Start-up Loans, Trade Support Loans and Financial Supplement repayments.
These withholding schedules are being updated to incorporate the rates and thresholds contained in the Treasury Laws Amendment (Income Tax Relief) Bill 2016. The change is to the third personal income tax threshold from $80,000 to $87,000. These updates are needed in order for businesses to work out the amount they must withhold from payments made to individual taxpayers.
The date of effect for these schedules is 1 October 2016. Employers, payroll providers and software developers were advised by the ATO of this change well in advance to ensure systems were updated appropriately by this time.
From 1 October 2016, employers are required to lower the amount of tax withheld for affected taxpayers to factor in the new lower tax rate. Any tax overpaid beforehand will be refunded by the ATO on assessment after the end of the 2016-2017 financial year.
The instrument contains eight withholding schedules. Each schedule provides information for calculating the withholding amount, taking into account the particular circumstances presented in the schedule.
Note that this legislative instrument will revoke eight schedules which formed part of the Taxation Administration Act Withholding Schedules 2016 (legislative instrument F2016L01035; registered 16 June 2016). The revoked schedules have been superseded by the eight schedules made by the new instrument.

To do!
All employers must make sure that they have made appropriate changes to their payroll systems to ensure they are withholding and reporting the correct amounts from employees.

Reminder: GST cross-border changes started 1 October 2016

This is just another reminder that overseas business clients may no longer be subject to GST from 1 October 2016. 
Overseas businesses supplying Australian businesses do not need to register for GST if they: 

  • only make GST-free supplies through an enterprise carried on outside Australia;
  • have a business presence in Australia of less than 184 days in a 12-month period; and
  • have a GST turnover below the GST registration threshold of AUD$75,000 (because certain supplies will no longer be included in the GST turnover).

GST-registered importers no longer need to identify the exact amount paid for international transport, insurance and other costs to calculate the value of the taxable importation for GST purposes. 
The measure aims to ensure Australia does not draw non-residents into the GST system unnecessarily. It relieves non-resident suppliers of the obligation to account for GST on certain supplies, therefore reducing their compliance costs.
It also reduces the compliance costs for GST-registered importers in calculating the value of taxable importations. 
To help businesses understand the operation of the new law and to help decide if your business needs to register for GST, the ATO has released Law Companion Guideline LCG 2016/D1 GST and carrying on an enterprise in the indirect tax zone (Australia).

Superannuation reform packages

Since the last edition of TaxWise Business, the Government released for consultation several tranches of legislation in relation to the 2016-17 Budget measures that relate to the taxation of superannuation.
Tranche 1
Tranche 1 contains the following measures:

  • the objective of superannuation;
  • tax deductions for personal superannuation contributions;
  • improve superannuation balances of low income spouses;
  • introduce a Low Income Superannuation Tax Offset (LISTO); and
  • harmonising contribution rules for those aged 65 to 74.

The Treasurer and the Minister for Revenue and Financial Services have said that the draft legislation will:

  • enshrine the objective of superannuation in legislation, being to provide income in retirement that substitutes or supplements the age pension, which has guided the development of the Government’s reforms;
  • improve access to concessional contributions by allowing people (under age 75) to claim a tax deduction for personal superannuation contributions, irrespective of their employment arrangements. This will assist around 800,000 people, particularly benefiting those who are partially self-employed, partially wage and salary earners (for example contractors) and those people whose employers do not offer salary sacrifice arrangements;
  • provide more flexibility and choice for older Australians, including by removing the restrictions that currently prevent some people aged between 65 and 74 from making voluntary contributions to their superannuation. Around 40,000 older Australians will benefit from this change by having increased flexibility to make additional contributions and to increase their retirement savings from sources not necessarily available to them before retirement, such as proceeds from downsizing their home;
  • encourage more people to make contributions to the superannuation fund of a low income spouse; and
  • introduce the Low Income Superannuation Tax Offset (LISTO). Around 3.1 million low income earners will have their superannuation savings boosted by the LISTO, including 1.9 million women. This change will ensure individuals do not pay more tax on their superannuation contributions than on their take-home pay.

Tranche 2
Tranche 2 contains the following measures:

  • introduce a $1.6 million transfer balance cap and transitional arrangements for individuals who already have retirement phase balances above $1.6 million; 
  • reform the taxation of concessional contributions (i.e. lower the Division 293 tax income threshold to $250,000 and reduce the concessional contributions cap to $25,000); 
  • allow catch-up concessional contributions for those with balances less than $500,000;
  • remove regulatory barriers to innovation in the creation of retirement income stream products; 
  • improve integrity of transition to retirement income streams; and
  • remove the anti-detriment provision.

The Treasurer and the Minister for Revenue and Financial Services have said that this tranche of measures will do the following:

  • the $500,000 lifetime non-concessional (after-tax) cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year;
  • individuals aged under 65 will continue to be able to “bring forward" three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums. The overwhelming bulk of such larger contributions are typically less than $200,000;
  • individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions from 1 July 2017. This limit will be tied and indexed to the transfer balance cap. This ensures that the entitlement for after tax contributions is focused on those Australians who have an aspiration to maximise their superannuation balances and reach the transfer balance cap in the retirement phase, where a zero tax on earnings applies;
  • with their annual concessional contributions, Australians will be able to contribute $125,000 each year and, if taking advantage of the non-concessional “bring-forward" contributions, up to $325,000 in any one year until such time as they reach $1.6 million;
  • broadly commensurate treatment will apply to members of defined benefit schemes;
  • the Government will now not proceed with the harmonisation of contribution rules for those aged 65 to 74 in order to fully offset the cost of reverting to a reduced annual non-concessional cap;
  • individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation. This will encourage individuals to remain engaged with the workforce; and
  • the commencement date of the proposed catch-up concessional superannuation contributions will be deferred by 12 months to 1 July 2018 to ensure the full cost of changes to non-concessional contribution arrangements are met over both the forward estimates and the medium term.

Tranche 3

Tranche 3 contains the following measures:

  • lower the annual non-concessional contributions cap to $100,000 and restrict eligibility to make non-concessional contributions to individuals with superannuation balances below $1.6 million; and
  • further amendments to improve the superannuation administration arrangements.

The Treasurer and the Minister for Revenue and Financial Services have said that this tranche of measures will do the following:

  • include legislative amendments to better target superannuation tax concessions by reducing the annual non-concessional contributions cap to $100,000 and restricting access to individuals with superannuation balances below $1.6 million; and
  • include further amendments to make administrative arrangements simpler and more consistent for individuals and superannuation providers.

SMSFs: further guidance on LRBAs with non-arm’s length terms available now

Further guidance on non-arm’s length limited recourse borrowing arrangements (LRBAs) is now available in the form of Taxation Determination TD 2016/16 which was released on 28 September 2016. TD 2016/16 replaces the views contained in ATOID 2015/27 and ATOID 2015/28. TD 2016/16 follows the release of the ATO’s Practical Compliance Guideline PCG 2016/5 which sets out when the Commissioner will accept that an LRBA is structured on arm’s length terms. 
The development of TD 2016/16 follows feedback the ATO received after the issue of PCG 2016/5 in April this year that questioned how the non-arm’s length income (NALI) provisions apply, in circumstances where an arrangement is not on arm’s length terms. 
SMSFs contemplating an LRBA on non-arm’s length terms are strongly encouraged to seek independent professional advice, or to seek a private binding ruling from the ATO. 
The release of this new taxation determination is in line with the ATO’s promise to have released further LRBA guidance by 30 September 2016, ahead of the new deadline of 31 January 2017 by which borrowing arrangements must be compliant.

Note!
There are only a couple of months left to ensure LRBAs meet the relevant compliance requirements.

Reinventing the ATO: blueprint for change released

The ATO has asked its clients how they use the tax and superannuation systems, and what they want. The feedback the ATO received was that the ATO should fix the basics, provide certainty, tailor services to clients’ needs and help them navigate the system.
From this consultation the ATO has created a blueprint for change, which provides a clear line of sight over want they want to achieve. The measure of success will be client satisfaction and community participation in the tax and superannuation systems.
Some improvements from the blueprint have already been delivered, including for:

Commissioner’s statement on the tax evasion “week of action"

The Commissioner has said that the ATO has made significant progress in dealing with those taxpayers exposed in the Panama Papers who have tried to avoid their tax obligations. The Commissioner said, “This week of action further demonstrates our strong stance against tax crime, and the active collaboration between our domestic agencies in delivering a whole-of-Government response."
Following the success of Project Wickenby, the Government supported the establishment of the Serious Financial Crime Taskforce. The Taskforce has broadened the focus of Project Wickenby and reinforced the domestic agencies working together to detect and deal with serious financial crime. This week of action is, in the Commissioner’s view, a good example of how the Taskforce has been able to take swift, timely and decisive action in relation to the Panama Papers.
Led by the ATO, the Taskforce made 15 unannounced access visits in Victoria and Queensland, and executed three search warrants following analysis of the leaked information. In addition, more than 100 taxpayers will be contacted and advised they are the subject of compliance action, if they have not been contacted already, and further criminal investigations have not been ruled out.
To read more on the Serious Financial Crime Taskforce and the “week of action" visit the ATO’s website.

Proposed changes to the ATO approach to penalties

The ATO is proposing to make changes to their approach to penalties as they apply to businesses and individuals. As part of the proposal, the ATO will take a “one chance” approach before applying a penalty in the following circumstances:

  • for certain small business and individual clients, the ATO will not apply penalties for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements; and
  • the ATO will not apply failure to lodge on time penalties for late lodgment of income tax returns and activity statements.

This will apply to the first error and late lodgment subject to penalty. The ‘one chance’ timeframe will be refreshed after a set period of time. The ATO will confirm in writing to these small business and individual clients that, while they were liable to a penalty, the ATO has chosen not to apply one on this occasion.
The ATO is of the view that it is open to the Commissioner to exercise his general powers of administration and therefore does not require a law change to adopt such an approach.
While detailed design would determine the extent of its application, if community consultation supports this proposal, it is expected the following parameters may apply:

  • it would be available to small businesses (with turnovers under $2 million) and individuals subject to some criteria, with eligible clients being informed at the time the ATO provides the ‘one chance’ opportunity;
  • it would not be available to clients who demonstrated reckless or dishonest behaviour and those who disengage and cease communicating with the ATO during an audit or review;
  • the ATO would explain that although a taxpayer could have received a penalty, it has not on this occasion;
  • all clients will receive a clear explanation of how the error occurred and understand what they need to do to get things right in the future;
  • after a defined period of time (e.g. a three or four-year financial cycle) the opportunity would be reset. Given the frequency of reporting for activity statements, when considering late lodgment penalties, this set period may be different for income tax returns and activity statements;
  • after the ‘one chance’ opportunity has been provided, failure to lodge on time would automatically apply if lodgment was not received by the due date; and
  • consistent with current administration, interest charges would remain payable on any amounts outstanding after the date they are due for payment.

Note!

Your tax agent is the best person to assist you and your business with any penalty notices received regardless of whether the ATO adopts the proposal outlined above.

Building better incubators to support new Australian start-ups

On 20 September 2016, the Government launched the Incubator Support Initiative at Sydney-based fintech hub Stone & Chalk to help new Australian businesses and start-ups accelerate and scale-up their operations for launch into global markets.
The Incubator Support Initiative is a new element of the Entrepreneurs’ Programme and is one of the measures under the National Innovation and Science Agenda (NISA). The initiative includes $23 million to assist with the creation of new business incubators which will help start-up companies access advice, capital and valuable connections. 
Applications are now open for matching grants between $10,000 and $500,000 for the creation of new incubators in regions or business sectors with strong links to international trade, and for existing, high-performing incubators to expand their services.
For more information, visit the website of the Minister for Industry, Innovation and Science.

Tip!

Consider also the ‘tax incentives for early stage investors’ outlined in previous editions of TaxWise Business.

Helping the building and construction industry with debt

The ATO has been working with the building and construction industry to provide support and assistance to those with outstanding debts. In the last month, the ATO started contacting tax agents regarding their clients in the building and construction industry who continue to have outstanding tax debts. 
The ATO can offer a range of payment options to help get back on track sooner and reduce any interest liability. 
If your business has an outstanding obligation, you can manage your business’ debt by asking your tax agent to assist you to request a payment arrangement.

To do!

If you are in the building and construction industry and are concerned about any outstanding debts you may have, talk to your tax agent.

Educational visits to small businesses

The ATO is having one-to-one discussions with small businesses about the full range of their digital services. 
If you are new to business or the circumstances of your business have recently changed, the ATO may contact you to offer to arrange a visit. The visit will demonstrate to you the products and services the ATO has to support your business and to answer questions you may have. 
These visits will be covered by the ‘Commissioner’s Guarantee’, which promises that no information gathered in these visits will be used for any other purpose. 

Tip!

If you are contacted for one of these visits, ensure you let you tax agent or tax adviser know and make sure they can attend the discussion with you.

Inspector-General of Taxation’s new work program for 2017

The Inspector-General of Taxation, Mr Ali Noroozi, called for submissions to help develop his new work program for 2017. 
The Inspector-General of Taxation seeks to improve the tax system for the benefit of all Australians by reviewing the administration of tax and superannuation laws by the ATO and the Tax Practitioners Board (TPB). 
Since 1 May 2015, the Inspector-General of Taxation has been responsible for handling taxpayer and tax practitioner complaints about the actions of the ATO and the TPB, similar to the role the Tax Ombudsman used to have. In addition to providing specialist assistance and support to complainants, this expanded role has provided the Inspector-General of Taxation with real-time insight into tax administration issues and an opportunity to address them before they escalate into major causes of community discontent. 
As the complaints handling function is continuing to develop, the Inspector-General of Taxation will consult widely to develop this upcoming work program as well as draw on themes emerging from complaints. The topics that are selected for review are those with the most potential for making tax administration fairer, simpler, more transparent or more efficient. 
Mr Noroozi said, “I invite everyone to have their say in how administration of the tax system may be improved. I will consider all the issues raised and review matters with the most potential for making tax administration fairer, simpler, more transparent and more efficient." 

To do!

Should you wish to have your say on issues you would like the Inspector-General of Taxation to review, talk to your tax agent about putting a submission in. Submissions are due on 9 December 2016.

 

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.


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