TaxWise Business September 2015

Small business Budget measures now law

The following small business tax measures announced in the 2015-16 Federal Budget have passed into law:

  • Company tax rate cut – The tax rate for companies with an aggregated annual turnover of less than $2 million will be reduced by 1.5% (ie from 30% to 28.5%) from the 2015-16 income year.
  • Increase to the instant asset write-off threshold to $20,000 – The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000. This applies to assets purchased from Budget night (12 May 2015) until 30 June 2017.
  • Small business simplified depreciation pool – Assets costing more than $20,000 will be able to be put in the small business simplified depreciation pool. If the pool balance falls below $20,000, it will be able to be written off immediately. The rules preventing small businesses from re-entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended. This applies from Budget night onwards.
  • Preparing for drought – Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from Budget night.

More small business Budget measures

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

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

The amount of the tax offset is 5% of the income tax payable on the portion of an individual’s income that is small business income, that is 5% of the person’s “total net small business income”. An individual’s “total net small business income” is comprised of the “net small business income” they make as a small business entity, together with any share of the “net small business income” of a small business entity that is included in the individual’s assessable income.

In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled to the extent the deductions are attributable to the income. Where an individual has a share of the net small business income of another entity included in his or her assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent the deductions are attributable to the share of the entity’s net small business income.

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

The exemption is extended to small businesses that provide employees with more than one work-related portable electronic device, even where the devices have substantially identical functions.

Currently, a portable electronic device is not exempt from FBT if, earlier in the same FBT year, the employer has provided the employee, by way of an expense payment or property benefit, with an item that has substantially identical functions.

For small businesses, this limitation will be removed with respect to portable electronic devices. Small business employers will be allowed an FBT exemption for multiple portable electronic devices provided to the same employee in the same FBT year, even if those devices have substantially identical functions.

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

This will include government fees and charges as well as costs associated with raising capital that are presently only deductible over five years.

For expenses to be immediately deductible, the entity claiming the deduction must be:

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

for the income year in which the deduction is claimed.

Immediate deductibility will be available for only two categories of expenditure:

  • expenditure on advice or services relating to the structure or the operation of the proposed business (including costs associated with raising capital, whether debt or equity); and

 

  • payment to an Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure.

The amendments do not apply to expenditure incurred in relation to an ongoing business or a business that has ceased to operate (including expenditure relating to the liquidation or winding up of an entity).

The amendments will apply to expenditure incurred in the 2015-2016 income year and later income years. The amendments will have retrospective application to a small group of taxpayers with substituted accounting periods for the 2015-2016 income year that commence before 1 July 2015.

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

 

Employee share schemes – proposed changes are now law

In previous editions of TaxWise Business, we noted the proposed changes to the taxation of employee share schemes which include:

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

These amendments have now become law. Despite these changes already being made, changes to further improve the taxation of employee share schemes may be coming shortly. Keep an eye out for further information in future editions of TaxWise Business.

ATO trusts letter campaign for SMSF clients

The ATO is reviewing the returns of self-managed superannuation funds (SMSFs) which have received distributions from a discretionary trust.

Distributions of income to SMSFs from discretionary trusts are considered to be non-arm’s length income, which is taxed at the highest marginal rate.

Trustees of SMSFs (or their advisors) will receive an ATO letter asking them to contact the trustee of the distributing trust and review the trust deed and any resolutions to determine whether the amount reported in the annual return is non-arm’s length income. Returns may need to be amended as a result of this review.

 

To do!
Seek the assistance of your tax agent/adviser if you receive one of these letters.

 

ATO focus on rental property deductions

The ATO says that it will have an increased focus on rental property deductions this Tax Time and is encouraging rental owners to double-check that their claims are correct before lodging their tax returns.

In particular, the ATO is paying close attention to:

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

While the ATO will be paying closer attention to these issues in 2015, it will also be actively educating rental property owners about what they can and cannot claim.

For example, the ATO will be writing to rental property owners in popular holiday locations, reminding them to claim only the deductions they are entitled to, for the periods the property is rented out or is genuinely available for rent.

Your tax adviser will be able to assist you with ensuring you make the correct claims against your rental property.

 

Tip!
Your tax adviser is well-equipped to assist you to make appropriate claims for deductions against rental income you may have earned. Seek their advice and assistance to ensure you claim the right amounts (and don’t miss out on anything you might not realise you are entitled to claim).

 

Receipt of individual interest in net income of partnership – draft TD 2015/D2

In June this year, the ATO issued a draft taxation determination TD 2015/D2 entitled “Income tax: if a retiring partner receives an amount representing their individual interest in the net income of the partnership for an income year, is the amount assessable under section 92 of the Income Tax Assessment Act 1936?”

The draft determination answers this question as ‘yes’. Subject to paragraph 3 of the draft determination, the amount is included in the partner’s assessable income for the income year under section 92 of the ITAA 1936.

This is the case regardless of:

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

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

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

 

 

Single Touch Payroll – further consultation

In the previous edition of TaxWise Business, it was noted that the ATO had published a discussion paper on Single Touch Payroll. Since the last edition of TaxWise Business, the Government has announced that it will undertake further consultation with the business community on simplifying tax and superannuation reporting obligations through Single Touch Payroll. The Government acknowledges that a start date of July 2016 will not be achievable for many businesses.

The Government has therefore asked the Treasury and the ATO to continue to consult with the business community and the software industry on the scope and timing for the Single Touch Payroll initiative and the feasibility of conducting targeted pilots from July 2016.

The Government also recognises the cash-flow implications for business of real time payments, and will therefore only be consulting further on real time reporting and voluntary real time payments as an option.

Under Single Touch Payroll, employers’ accounting software will automatically report payroll information to the ATO when employees are paid.

This will eliminate the need for employers to report employee-related Pay As You Go Withholding (PAYGW) in their activity statements throughout the year and employee payment summaries at the end of the year.

In addition, the Government will streamline Tax File Number declarations and Super Choice forms by providing digital services to simplify the process of bringing on new employees.

 

Tip!
Get in touch with your tax adviser to find out how these changes are progressing and when they are likely to impact on your business.

 

Limiting fringe benefits tax concessions on salary packaged entertainment benefits

In late June 2015, exposure draft legislation was released for consultation in relation to the 2015-2016 Federal Budget measure that will limit the FBT concessions on salary packaged entertainment benefits.

The measure, which applies from 1 April 2016, will introduce a separate single grossed-up cap of $5,000 for salary packaged meal entertainment and entertainment facility leasing expenses (entertainment benefits) for employees of public benevolent institutions, health promotion charities and employees of public and not-for profit-hospitals and public ambulance services. Currently these employees can salary package entertainment benefits with no FBT payable by the employer and without the benefits being reported.

All salary packaged entertainment benefits will also become reportable fringe benefits.

Note!
If you salary package entertainment benefits for your employees, you should consult your tax adviser to see if this proposed law change affects your business in any way, including your obligations to your employees.

 

Reasonable travel and overtime meal allowance expense amounts for 2015-2016 – TD 2015/14

On 1 July 2015 the ATO issued taxation determination TD 2015/14 “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year?”

The determination sets out the amounts that the Commissioner considers are reasonable (reasonable amounts) for the substantiation exception in the income tax legislation for the 2015-2016 income year in relation to claims made for:

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

SuperStream now applies to small businesses

Previous editions of TaxWise Business have noted that SuperStream was coming for small businesses. The ATO has issued a reminder that SuperStream has now started for small businesses. If business clients have 19 or fewer employees, it’s time for them to get ready.

Small employers have up to 12 months to implement SuperStream. There are a number of steps that employer clients need to take to be SuperStream compliant.

 

Tip!
The ATO has prepared a step-by-step checklist to enable tax agents to help their small business clients get started now. Talk to your tax agent about getting SuperStream ready.

 

ATO warns about phony tax debt scam

The ATO is again warning the public to be aware of an aggressive phone scam circulating where fraudsters are intimidating people into paying a fake tax debt over the phone by threatening jail or arrest: ATO media release (6 July 2015).

Second Commissioner Geoff Leeper has said that the ATO is very concerned about taxpayer privacy and is reminding people of the key differences between a scam of this nature and a genuine call from the ATO.

“We make thousands of outbound calls to taxpayers a week, but there are some key differences to a legitimate call from the ATO and a call from a potential scammer” said Mr Leeper.

“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on

13 28 69,” said Mr Leeper.

 

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

13 28 69.

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

Improving tax compliance – enhanced third party reporting, pre-filling and data matching

 

In July, exposure draft legislation was released to implement the 2013-2014 Budget measure Tax compliance – improving compliance through third party reporting and data matching.

Reporting by relevant third parties to the ATO of certain transactions will start from 1 July 2017. The reportable transaction types are:

  • payments of grants and other financial benefits for services to government entities;
  • transfers of securities; and
  • business transactions made through electronic payment systems such as credit and debit cards and online payment methods.

In addition, the States and Territories will continue to report on a quarterly basis to the ATO regarding transfers of real property as they do now.

The ATO has also issued draft guidance related to these changes. The following may be of interest to businesses:

  • Real property transfers – Draft record structure and Discussion guide; and
  • Business transactions made through payment systems – Draft record structure and Discussion guide.

Work-related car expense deductions

Following the announcement in the 2015-16 Federal Budget, exposure draft legislation was released in July this year to “modernise and simplify” the calculation of work-related car expenses.

The four available methods will be reduced to two. The “cents per kilometre” and “logbook” methods will be retained and the “12 per cent of original value” and the “one-third of actual expenses” methods will be removed.

The “cents per kilometre” method will be amended so that the three current rates based on engine size will be replaced with one rate set at 66 cents per kilometre, which applies to all motor vehicles.

Revisions to the rate will be made by the Commissioner in future income years.

Though not law yet, this change applies from 1 July 2015.

2) PAYG withholding variation: allowances – cents per km car expenses

On 17 June 2015 the ATO made a legislative instrument which varies the amount of withholding required by a payer under the PAYG withholding system for allowance payments in certain circumstances: Taxation Administration Act 1953 – Pay as you go withholding – PAYG Withholding Variation: Allowances (legislative instrument F2015L01047; registered 30 June 2015).

The legislative instrument revokes and replaces the previous instrument, Taxation Administration Act 1953 – PAYG Withholding Variation: Allowances (legislative instrument F2013L00521; registered 21 March 2013). That instrument provided a variation to the rate of withholding from a number of allowances when certain conditions are met. Broadly, the variation applies in certain cases when the allowance is expected to be fully expended on tax deductible items and the payee would not be required to substantiate expenditure incurred in relation to the allowance.

The new instrument differs from the previous instrument in only one respect. The variation for cents per kilometre car expense payments has been adjusted because of the proposed change to the calculation rules noted above.

The variation for cents per kilometre car expense payments will now apply for up to 5,000 business kilometres at:

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

Where the allowance for car expenses is no more than the published rate, then no withholding will be required for payments up to 5,000 kilometres for a financial year. Withholding will be required from payments for distances travelled beyond 5,000 kilometres in a financial year.

If the per kilometre rate paid exceeds the published rate withholding will be required from the amount of each payment which exceeds the amount calculated at the published rate.

To do!
Do you have employees that claim business-related car expense deductions? If so, they should be made aware of this change.

For employers, you need to be aware of the changes to the PAYG withholding requirements.

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

 

GST on low-value overseas online transactions

At the Australian Leaders’ Retreat held in Sydney on 22 July 2015, the Prime Minister, First Ministers from each State and Territory, and the President of the Australian Local Government Association agreed to keep Commonwealth and State tax changes on the table including the GST and the Medicare levy: Australian Leaders’ Retreat Communiqué (23 July 2015).

As a first step, there was agreement in principle to broaden the GST to cover overseas online transactions under $1,000. This matter will be referred to the meeting of Treasurers that was to be held on 21 August 2015 to progress in detail.

At the time of writing, no further details on proposed changes to the $1,000 were available and the Treasurers’ meeting had not yet occurred.

Should the proposed changes be proceeded with, later issues of TaxWise Business will contain any necessary updates.

Dedicated tax support service for drought-affected communities

The Government launched a new service in July 2015 to help people in drought-affected communities to manage their tax affairs. The ATO and Department of Agriculture will work together to identify drought-affected taxpayers. Personalised assistance and customised support plans for business owners and communities in these areas will be provided.

Help options can include payment plans tailored to individual circumstances, including interest-free periods and extensions of time to pay tax bills or make lodgements.

There is a dedicated hotline for drought affected taxpayers on 13 11 42 (Select Option 3) so that taxpayers who need support can discuss their situation and available options to help them manage their tax obligations.

The ATO has also undertaken to get in contact with businesses in drought-affected communities to make sure they are aware of the options available to help them meet their obligations.

Note!
Of course, your tax agent is always there to help assist you to manage your tax obligations, particularly if you have been affected by drought or a natural disaster.

 

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.

TaxWise Individual September 2015

Personal income tax cuts repeal

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

The second round of tax cuts was intended to have done the following:

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

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

Changes to the Medicare levy

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

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

Medicare levy low-income thresholds

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

Phase-in limits

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

Dependent spouse tax offset and other amendments

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

  • Cessation of the First Home Saver Accounts Scheme

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

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

  • Abolishing the dependent spouse tax offset

The Bill amends the tax legislation to:

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

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

These measures have now been passed into law.

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

Employee share schemes – proposed changes are now law

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

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

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

Work-related car expense deductions

Following the announcement in the 2015-16 Federal Budget, exposure draft legislation was released in July this year to “modernise and simplify” the calculation of work-related car expenses.

The four available methods will be reduced to two. The “cents per kilometre” and “logbook” methods will be retained and the “12 per cent of original value” and the “one-third of actual expenses” methods will be removed.

The “cents per kilometre” method will be amended so that the three current rates based on engine size will be replaced with one rate set at 66 cents per kilometre, which applies to all motor vehicles.

Revisions to the rate will be made by the Commissioner in future income years.

Though not law yet, this change applies from 1 July 2015.

2) PAYG withholding variation: allowances – cents per km car expenses

On 17 June 2015 the ATO made a legislative instrument which varies the amount of withholding required by a payer under the PAYG withholding system for allowance payments in certain circumstances: Taxation Administration Act 1953 – Pay as you go withholding – PAYG Withholding Variation: Allowances (legislative instrument F2015L01047; registered 30 June 2015).

The legislative instrument revokes and replaces the previous instrument, Taxation Administration Act 1953 – PAYG Withholding Variation: Allowances (legislative instrument F2013L00521; registered 21 March 2013). That instrument provided a variation to the rate of withholding from a number of allowances when certain conditions are met. Broadly, the variation applies in certain cases when the allowance is expected to be fully expended on tax deductible items and the payee would not be required to substantiate expenditure incurred in relation to the allowance.

The new instrument differs from the previous instrument in only one respect. The variation for cents per kilometre car expense payments has been adjusted because of the proposed change to the calculation rules noted above.

The variation for cents per kilometre car expense payments will now apply for up to 5,000 business kilometres at:

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

Where the allowance for car expenses is no more than the published rate, then no withholding will be required for payments up to 5,000 kilometres for a financial year. Withholding will be required from payments for distances travelled beyond 5,000 kilometres in a financial year.

If the per kilometre rate paid exceeds the published rate withholding will be required from the amount of each payment which exceeds the amount calculated at the published rate.

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

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

Superannuation

On 7 May 2015 the Assistant Treasurer announced that the government will amend the provision for accessing superannuation for people suffering a terminal illness. This follows representations by Breast Cancer Network Australia and other organisations: Assistant Treasurer’s media release “Early access to superannuation for people with terminal illness” (7 May 2015).

Under the current provision for early access to superannuation, a person with a terminal illness is required to obtain a certification from medical specialists that he or she has less than 12 months to live.

This has proven difficult for some people, including women with secondary breast cancer diagnosis. Understandably, they want access to their money as they may experience significant financial burden associated with treatment costs or want to make the most of their time with their families.

On 25 June 2015, the government amended the relevant regulations to change the life expectancy period to 24 months, with the change taking effect from 1 July 2015.

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

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

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

These changes have now become law.

The ATO has advised that from July 2015, it expects to start issuing elections to individuals with excess non-concessional contributions in 2013-2014. The election allows individuals to tell the ATO how they would like their excess non-concessional contributions to be treated.

Upon receipt of an election, where an individual has chosen to have their excess non-concessional contributions (and associated earnings) withdrawn from their super fund, the ATO will issue the nominated super fund with a release authority to have the money withdrawn. Funds can expect to start receiving release authorities from July 2015.

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

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

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

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

 

Self-managed superannuation funds

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

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

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

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

The ATO is reviewing the returns of self-managed superannuation funds (SMSFs) which have received distributions from a discretionary trust.

Distributions of income to SMSFs from discretionary trusts are considered to be non-arm’s length income, which is taxed at the highest marginal rate.

Trustees of SMSFs (or their advisors) will receive an ATO letter asking them to contact the trustee of the distributing trust and review the trust deed and any resolutions to determine whether the amount reported in the annual return is non-arm’s length income. Returns may need to be amended as a result of this review.

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

Receipt of individual interest in net income of partnership – draft TD 2015/D2

In June this year, the ATO issued a draft taxation determination TD 2015/D2 entitled “Income tax: if a retiring partner receives an amount representing their individual interest in the net income of the partnership for an income year, is the amount assessable under section 92 of the Income Tax Assessment Act 1936?”

The draft determination answers this question as ‘yes’. Subject to paragraph 3 of the draft determination, the amount is included in the partner’s assessable income for the income year under section 92 of the ITAA 1936.

This is the case regardless of:

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

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

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

Small business Budget measures

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

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

The amount of the tax offset is 5% of the income tax payable on the portion of an individual’s income that is small business income, that is 5% of the person’s “total net small business income”. An individual’s “total net small business income” is comprised of the “net small business income” they make as a small business entity, together with any share of the “net small business income” of a small business entity that is included in the individual’s assessable income.

In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled to the extent the deductions are attributable to the income. Where an individual has a share of the net small business income of another entity included in his or her assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent the deductions are attributable to the share of the entity’s net small business income.

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

The exemption is extended to small businesses that provide employees with more than one work-related portable electronic device, even where the devices have substantially identical functions.

Currently, a portable electronic device is not exempt from FBT if, earlier in the same FBT year, the employer has provided the employee, by way of an expense payment or property benefit, with an item that has substantially identical functions.

For small businesses, this limitation will be removed with respect to portable electronic devices. Small business employers will be allowed an FBT exemption for multiple portable electronic devices provided to the same employee in the same FBT year, even if those devices have substantially identical functions.

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

This will include government fees and charges as well as costs associated with raising capital that are presently only deductible over five years.

For expenses to be immediately deductible, the entity claiming the deduction must be:

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

for the income year in which the deduction is claimed.

Immediate deductibility will be available for only two categories of expenditure:

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

The amendments do not apply to expenditure incurred in relation to an ongoing business or a business that has ceased to operate (including expenditure relating to the liquidation or winding up of an entity).

The amendments will apply to expenditure incurred in the 2015-2016 income year and later income years. The amendments will have retrospective application to a small group of taxpayers with substituted accounting periods for the 2015-2016 income year that commence before 1 July 2015.

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

Limiting fringe benefits tax concessions on salary packaged entertainment benefits

In late June 2015, exposure draft legislation was released for consultation in relation to the 2015-2016 Federal Budget measure that will limit the FBT concessions on salary packaged entertainment benefits.

The measure, which applies from 1 April 2016, will introduce a separate single grossed-up cap of $5,000 for salary packaged meal entertainment and entertainment facility leasing expenses (entertainment benefits) for employees of public benevolent institutions, health promotion charities and employees of public and not-for profit-hospitals and public ambulance services. Currently these employees can salary package entertainment benefits with no FBT payable by the employer and without the benefits being reported.

All salary packaged entertainment benefits will also become reportable fringe benefits.

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

Reasonable travel and overtime meal allowance expense amounts for 2015-2016 – TD 2015/14

On 1 July 2015 the ATO issued taxation determination TD 2015/14 “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year?”

The determination sets out the amounts that the Commissioner considers are reasonable (reasonable amounts) for the substantiation exception in the income tax legislation for the 2015-2016 income year in relation to claims made for:

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

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

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

This measure does not commence until 1 July 2017, so there is quite a long lead time before this measure will be enacted. However, it is good to be aware that this change will soon be coming.

GST on low-value overseas online transactions

At the Australian Leaders’ Retreat held in Sydney on 22 July 2015, the Prime Minister, First Ministers from each State and Territory, and the President of the Australian Local Government Association agreed to keep Commonwealth and State tax changes on the table including the GST and the Medicare levy: Australian Leaders’ Retreat Communiqué (23 July 2015).

As a first step, there was agreement in principle to broaden the GST to cover overseas online transactions under $1,000. This matter will be referred to the meeting of Treasurers that was to be held on 21 August 2015 to progress in detail.

At the time of writing, no further details on proposed changes to the $1,000 were available and the Treasurers’ meeting had not yet occurred.

Should the proposed changes be proceeded with, later issues of TaxWise Individual will contain any necessary updates.

ATO focus on rental property deductions

The ATO says that it will have an increased focus on rental property deductions this Tax Time and is encouraging rental owners to double-check that their claims are correct before lodging their tax returns.

In particular, the ATO is paying close attention to:

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

While the ATO will be paying closer attention to these issues in 2015, it will also be actively educating rental property owners about what they can and cannot claim.

For example, the ATO will be writing to rental property owners in popular holiday locations, reminding them to claim only the deductions they are entitled to, for the periods the property is rented out or is genuinely available for rent.

Your tax adviser will be able to assist you with ensuring you make the correct claims against your rental property.

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

ATO focus on high work-related expense claims

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

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

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

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

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

 

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

 

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

The ATO myDeductions tool for employees

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

 

The myDeductions tool can be used to:

 

  • capture and classify work-related expenses, gifts and donations or the cost of managing tax affairs
  • store photographs of receipts
  • record car trips.
Tip!
This might be a handy new tool to record your deductions throughout the year, but your tax agent is still the best source of information to help you know what you should be recording. Consider sitting down with them now to talk about the kinds of expenses you should retain information about throughout the income year to help you prepare for your 2015-16 return.

Have you been selling goods online?

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

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

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

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

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

Through this program, the ATO will be able to:

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

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

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

ATO issues guidance on the Sharing Economy

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

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

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

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

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

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

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

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

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

For more information, including advice about the involvement of “facilitators” (third parties who operate a website or mobile device application used to facilitate a transaction between a driver and a passenger), refer to the ATO website here, and here.

ATO warns about phony tax debt scam

The ATO is again warning the public to be aware of an aggressive phone scam circulating where fraudsters are intimidating people into paying a fake tax debt over the phone by threatening jail or arrest: ATO media release (6 July 2015).

Second Commissioner Geoff Leeper has said that the ATO is very concerned about taxpayer privacy and is reminding people of the key differences between a scam of this nature and a genuine call from the ATO.

“We make thousands of outbound calls to taxpayers a week, but there are some key differences to a legitimate call from the ATO and a call from a potential scammer” said Mr Leeper.

“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on

13 28 69,” said Mr Leeper.

Important information taxpayers should remember:

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

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

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

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

DISCLAIMER
Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.
Note!
If you are unsure about any contact you have received that is purportedly from the ATO, always contact your tax agent to see if the contact is legitimate, especially if your tax agent is your primary point of contact with the ATO and not your personal contact information.

Client Alert Explanatory Memorandum (September 2015)

Small business tax discount on the way

The Tax Laws Amendment (Small Business Measures No 3) Bill 2015 (No 3 Bill) was introduced in the House of Representatives on 24 June 2015.

The No 3 Bill proposes to provide a tax offset (the small business income tax offset) to individuals who run small businesses (businesses with an aggregate annual turnover of less than $2 million) or who pay income tax on a share of the income of a small business. The amount of the tax offset will be 5% of the income tax payable on the portion of an individual’s income that is small business income. In addition to calculating the offset in this way, the maximum amount of the tax offset available to an individual in an income year will be capped at $1,000.

The tax offset will be available to individuals who are small business entities, individuals who are a partner in a partnership that is a small business entity, and individuals who are a beneficiary of a trust that is a small business entity. The small business tax offset is designed to apply to trusts that actively carry on a business as a small business entity. Such trusts are unlikely to have beneficiaries under a legal disability that relates to a physical or mental disability. However, in the event that a trustee is assessed on the income of a beneficiary under a legal disability, the offset could be obtained by the beneficiary if they lodged a tax return, or a return was lodged on their behalf. Where a trust has a beneficiary who is under a legal disability because they are a minor, that minor will not have access to the tax discount. The tax offset will, however, not be available to individuals in their capacity as trustees.

An individual’s “total net small business income” will comprise the “net small business income” they make as a small business entity together with any share of the “net small business income” of a small business entity that is included in the individual’s assessable income.

The small business tax offset for an income year is calculated by first determining the percentage of an individual’s taxable income for the income year that is “total net small business income”. This percentage is then applied to the individual’s basic income tax liability for the income year, with the amount of the tax offset being equal to 5% of the result of that calculation, up to a maximum amount of $1,000. For most individuals, total net small business income will be worked out by reference to their own net small business income, and their share of the net small business income of another entity.

In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled, to the extent those deductions are attributable to the income. Where an individual has a share of the net small business income of another entity included in their assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent those deductions are attributable to the share of the entity’s net small business income. An individual’s total net small business income will not include a share of the net small business income of a corporate tax entity. The net small business income of a small business entity will not include assessable income that is a net capital gain or personal services income, unless the personal services income is produced from conducting a personal services business.

The “net small business income” of a small business entity will be calculated by working out the assessable income of the entity that relates to it carrying on a business, and subtracting from that assessable income the entity’s deductions, to the extent its deductions are attributable to that income.

Where an individual receives a share of an entity’s net small business income, the individual’s total net small business income will also be reduced by the deductions to which the individual is entitled, to the extent their deductions are attributable to that share.

An individual will be able to claim one small business tax offset for an income year, irrespective of the number of sources of small business income that individual has.

The small business tax offset will not be restricted to individuals who are Australian residents. To the extent that the Australian sourced income of a foreign resident satisfies the requirements for obtaining the offset, the offset will be available to that foreign resident. Similarly, the small business tax offset can apply to the foreign business income of an Australian resident.

Example

Adrian is a small business entity. For the 2015–2016 income year, his taxable income is $100,000, his basic income tax liability is $25,000 and his total net small business income is $50,000.

To work out the amount of his small business income tax offset for the 2015–2016 income year, Adrian first divides his total net small business income by his taxable income ($50,000/$100,000 = 0.5). The result of this calculation shows that half of Adrian’s taxable income relates to his total net small business income.

Adrian then multiplies the result of the first calculation by the amount of his basic income tax liability (0.5 × $25,000 = $12,500). The result of this second calculation shows that $12,500 of Adrian’s basic income tax liability is from his total net small business income.

Adrian’s small business tax offset is equal to 5% of the result of this second calculation (0.05 × $12,500 = $625). The full amount of his small business tax offset is therefore $625.

Adrian can claim the full amount of the small business tax offset for the 2015–2016 income year because it is less than $1,000.

Date of effect

The amendment will apply from the 2015–2016 income year.

Other important amendments

The Bill also proposes the following amendments:

  • Immediate deductibility of start-up expenses: amendment of the ITAA 1997 to allow small businesses and individuals to immediately deduct certain costs incurred when starting up a business, including government fees and charges as well as costs associated with raising capital, which are presently only deductible over five years under s 40-880 of the ITAA 1997.
  • Extension of the FBT exemption: this exemption applies to employers that provide employees with work-related portable electronic devices such as mobile phones, laptops and tablets. The amendments would extend the exemption to small businesses that provide employees with more than one work-related portable electronic device, even where the devices have substantially identical functions.

CGT restructure relief measure still to come

The Government, via Small Business Minister Bruce Billson, said the 5% tax discount, plus the start-up deduction measures and FBT red tape reduction measures, mean that five out of the six small business measures from the 2015–2016 Budget have been introduced. The Minister said the remaining measure, to enable small businesses to restructure without facing an immediate CGT liability, is scheduled to be introduced in the 2015 spring sittings (scheduled to run from 10 August to 3 December 2015).

Source: Tax Laws Amendment (Small Business Measures No 3) Bill 2015, which has passed all stages without amendment and is awaiting Royal Assent at the time of publication, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;page=0;query=BillId%3Ar5494%20Recstruct%3Abillhome; Small Business Minister’s media release, 24 June 2015, http://bfb.ministers.treasury.gov.au/media-release/055-2015/.

Ride-sharing provider challenges ATO’s GST view

Uber BV has lodged an application in the Federal Court against the Commissioner of Taxation. The matter concerns the ATO’s view on GST in relation to ride-sharing drivers. In May 2015, the ATO released information on its website providing its view of the tax obligations of people providing services in the sharing economy. The ATO was of the view that people who provide ride-sourcing (or ride-sharing) services were providing “taxi travel” under the GST law, and were required to register for GST regardless of turnover, charge GST on the full fare, lodge BASs and report the income in their tax returns. The ATO had given ride-sourcing drivers until 1 August 2015 to obtain their ABN and be registered for GST.

ATO affirms view on ride-sharing services

Following the announcement of Uber’s court challenge, the ATO updated the guidance on its website (as at 5 August 2015). The ATO affirmed that people who provide ride-sourcing services are providing “taxi travel” under the GST law. The guidance also states that from 1 August 2015 the ATO expects all drivers involved in providing ride-sourcing services to be registered for GST.

The guidance refers to the current court challenge of the ATO’s advice. In this regard the guidance states: “Taxpayers often challenge the Commissioner’s view but this does not affect our continued administration of the GST law. Similarly, current legal proceedings do also not change the Commissioner’s view on our published guidance, therefore the ATO will continue to support and advise impacted drivers on how to demonstrate their compliance with the law and the ATO position.”

The guidance also sets out the ATO responses to “what the community is asking” it in relation to ride-sourcing services. In relation to passengers, the ATO notes that if a passenger is running a GST-registered business and the travel is part of running that enterprise, they can generally claim a GST credit for the fare charged. The ATO says that for fares over $82.50 a passenger must hold a tax invoice in order to claim a GST credit. If the passenger doesn’t get a tax invoice for a fare of more than $82.50, the ATO suggests that “it would be ideal if you captured the details of the car number plate and advised the ATO via the ‘Report a Concern’ function on the ATO’s mobile phone app.”

The ATO set out the following key issues and points in relation to “drivers”:

  • ABN registration: Drivers can use business industry codes 46239 (Road Passenger Transport) or 46231 (Taxi Service Operation). The ATO also recommends drivers use “ride-sourcing” or “ride-sharing” as their business description.
  • Employee or contractor: The ATO considers drivers to be independent contractors instead of employees.
  • Small business concessions: In response to the question “Are ride-sourcing drivers eligible for all small business concessions and what deductions can be claimed?”, the ATO said, “If you are carrying on a business, and you bought an asset for less than $20,000 (excluding GST) on or after 1 July 2015, you would be entitled to claim an immediate deduction for the asset in your 2015–2016 tax return. If your purchase is used for both business and private use, you can only claim a GST credit or an income tax deduction for the part of the purchase relating to your business use. For example if you use your car 50% for your business, you can claim 50% of the GST on the fuel and other car-related expenses and 50% of the GST-exclusive cost as an income tax deduction. You need to keep records of the income and expenses and how you apportioned for private use.”

The ATO has also released a factsheet entitled “Ride-sourcing – the facts”, summarising key points on its view of the GST treatment of ride-sharing services. The factsheet is available on the ATO website at https://ato.gov.au/Media-centre/Articles/Ride-sourcing—the-facts/.

Source: ATO website “Providing taxi travel services through ride-sourcing and your tax obligations”, last modified 5 August 2015, https://ato.gov.au/Business/GST/In-detail/Managing-GST-in-your-business/General-guides/Providing-taxi-travel-services-through-ride-sourcing-and-your-tax-obligations/.

Crowdfunding for small proprietary companies: consultation

Minister for Small Business Bruce Billson has released a consultation paper on facilitating crowd-sourced equity funding (CSEF, or equity crowdfunding) and reducing compliance costs for small businesses. In releasing the paper, the Minister said the Government was “committed to this important consultation as part of our $5.5 billion Growing Jobs and Small Business package in the 2015–2016 Budget.”

Public consultation closes on 31 August 2015.

Public companies

The consultation paper outlines for the first time the key elements of the Government’s proposed CSEF framework for public companies. Mr Billson said further details will be available in draft legislation that will be released for public comment later in the year. Introduction of legislation to Parliament is expected to follow in the spring sittings.

The key elements of the proposed framework for public companies cover issuers, intermediaries and investors. The following are some of the key points from the proposed framework:

  • An issuer must be incorporated as a public company in Australia; limited to certain small enterprises that have not raised funds under existing public offer arrangements.
  • An issuer may raise up to $5 million in any 12-month period, inclusive of any raisings under the small scale offerings exception but excluding funds raised under existing prospectus exemptions for wholesale investors.
  • Intermediaries must hold an Australian financial services licence. Intermediaries would be responsible for monitoring compliance for investments made via their platform. They must provide generic risk warnings to investors.
  • Investment caps for retail investors are $10,000 per offer per 12-month period and $25,000 in aggregate CSEF investment per 12-month period, self-certified by investors. Investors have an unconditional right to withdraw five days after accepting an offer.

Proprietary companies

Proprietary companies are subject to limitations on the ways they can raise funds, including that:

  • they must not have more than 50 non-employee shareholders; and
  • they must not, except in limited circumstances, offer shares to the general public or undertake other fundraising activities that would require the issue of a disclosure document to investors.

These limitations would make it difficult for proprietary companies to effectively use CSEF to raise funds from a large number of small shareholders.

The consultation paper seeks views on whether to extend the proposed CSEF framework to proprietary companies, and outlines a potential model. The paper seeks comments to identify which areas of the Corporations Act 2001 could be amended to reduce the burdens on small proprietary companies and make capital raising more flexible.

Mr Billson noted that the paper specifically discusses whether it may be possible to simplify:

  • the requirement to make an annual solvency resolution;
  • the requirement to maintain a share register;
  • the execution of documents; and
  • completion and lodgment of forms with the regulator.

Of particular interest to small businesses and entrepreneurs is the debate regarding the limit of 50 non-employee shareholders for proprietary companies and the “small scale offerings” exception to the disclosure requirements. Issues concerning these items are also discussed in the paper.

Next steps

The paper states that the Government will consider stakeholder feedback before making decisions on whether to proceed with CSEF for proprietary companies. However, the Government noted that regardless of whether the Government proceeds with CSEF for proprietary companies, it remains committed to facilitating CSEF for public companies.

Source: Treasury Consultation Paper, “Facilitating crowd-sourced equity funding and reducing compliance costs”, 4 August 2015, http://treasury.gov.au/ConsultationsandReviews/Consultations/2015/Facilitating-crowd-sourced-equity-funding; Minister for Small Business, 4 August 2015, http://bfb.ministers.treasury.gov.au/media-release/071-2015/.

SMSFs in pension phase need to exercise care

Kasey Macfarlane, ATO Assistant Commissioner, SMSF Segment, Superannuation, recently delivered a speech covering compliance issues in relation to self managed super funds (SMSFs). She said the ATO was of the view that most trustees and advisors “do the right thing”; however, a few areas of concern were highlighted. One area was low-cost audits. Ms Macfarlane said the ATO appreciated that auditors would likely have a sliding scale of costs for SMSF audits, based on complexity and the time involved. However, she said the ATO still considered low cost “a potential indicator of lack of quality and will review SMSF auditors whenever necessary in this regard”.

SMSFs in pension phase

Ms Macfarlane also discussed issues relating to SMSFs paying pensions, noting the growing number of people expected to receive a pension in the next 10 years. Key points included the following:

  • Setting up and starting a pension: In the pension establishment phase, a fundamental but critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that from 1 July 2015 the legislated rise in the preservation age came into effect – this affects people born after 30 June 1960. It is also necessary to consider whether there are any cashing restrictions applicable to the condition of release that the particular member has satisfied.
  • Paying a pension: One of the most common reasons for an SMSF in pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee fails to pay the required annual minimum pension amount to a member. This also has flow-on tax consequences for the individual member, because they are taken to have received lump-sum payments rather than pension payments throughout the whole income year. Also:

–        It is critical that trustees monitor and continually review the ongoing liquidity requirements of their SMSF from the outset when starting a pension, as well as throughout the life of the pension. For example, if the SMSF’s only asset is property, making a cash payment and thus meeting the minimum pension payment requirements can be extremely difficult. Ms Macfarlane said the ATO has seen SMSFs paying pensions where the net rental income was insufficient and there were no other liquid assets or contributions being made to the SMSF.

–        The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). Ms Macfarlane said the ATO is finding that as income of the SMSF is diverted to meeting the loan obligations of the fund, there can be insufficient funds remaining to make the required pension payments. She further noted that there is an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm’s-length rules in an effort to try to overcome their liquidity issues.

–        The Commissioner has general powers of administration (GPA) allowing a catch-up pension payment as having been made in the relevant income year, so that a fund can continue to report ECPI even though the minimum payment requirements have not been satisfied. Trustees can self-assess for the treatment, or if they do not meet the criteria for self-assessment, they can apply to the ATO for exercise of the GPA. The Commissioner may exercise his powers to allow a fund to continue to report ECPI even though the minimum pension amount is not paid where an honest mistake by the trustee has resulted in a “small underpayment” of the minimum amount. Ms Macfarlane said there has been confusion that this “small underpayment” means the underpayment must total 1/12th or less of the minimum annual payment. To clarify, Ms Macfarlane said the Commissioner will consider the specific facts of each individual matter; in some cases a small underpayment that is due to an honest mistake and is a bit higher than 1/12th of the minimum annual payment, or that is a small amount in absolute dollar terms, may still satisfy the criteria for exercise of the GPA. However, she reaffirmed that the administrative concession is only for limited circumstances and that trustees should not rely on it as a “fix-it” for all pension underpayments.

–        The ATO has received a number of enquiries “recently” about whether an actuarial certificate is required in cases where a pension starts part way through an income year when the segregated method is applied. The ATO’s initial response has been that an actuarial certificate is required in those circumstances. However, Ms Macfarlane said that, following discussions with some professional and industry representatives, the ATO is working to get a better understanding of industry and commercial practice and expects to provide some “clearer guidance on this point in the near future”.

–        Since the release of Taxation Determination TD 2014/5 (about the circumstances when a bank account of a complying super fund is a segregated current pension asset), the ATO has received questions about the partial segregation of other asset types. The ATO view is that it is not possible to segregate part of an asset.

–        Ms Macfarlane noted ATO ID 2014/39 and ATO ID 2014/40, which set out the ATO’s view that the non-arm’s length provision applies to the non-commercial LRBAs involving related parties in those cases. She said the ATO’s position remains unchanged: it is likely to scrutinise related-party LRBAs where the terms of the loan, taken together, and the ongoing operation of the loan, are not consistent with a genuine arm’s-length arrangement (ie the type of arrangement you would expect to get dealing with a third party such as a bank). In this regard, the Assistant Commissioner urged trustees to review any arrangements which may not be on commercial terms. She said the ATO is “keen to work with trustees who may be concerned about their particular arrangements”. Depending upon the facts and circumstances of the case, she said this may involve refinancing the arrangement on a commercial arm’s-length basis.

–        Since the release of Taxpayer Alert TA 2015/1, the ATO has seen variations of the dividend stripping arrangements mentioned in the alert. Ms Macfarlane noted that even if a company (with retained earnings and franking credits) with business real property or residential property (leased to an unrelated party) transfers shares to an SMSF with a view to avoiding the stamp duty consequences that may otherwise arise if it transferred the property instead, this would not necessarily obviate the application of the dividend stripping provisions. Ms Macfarlane said the ATO will work with industry to develop an ATO view to support TA 2015/1 and provide further guidance and certainty to SMSF trustees and advisors.

–        A number of SMSFs continue to incorrectly claim expenses as a deduction, despite having some members in pension phase. As a general rule, a fund cannot claim a deduction for expenditure incurred in gaining or producing exempt income unless a specific deduction provision applies.

  • Ceasing a pension: Ms Macfarlane said the ATO is seeing a range of issues relating to what happens in the unexpected event of a pensioner’s death. In cases where an SMSF is paying a pension and the pensioner dies, if there is an automatic reversionary beneficiary in place the pension does not stop on the pensioner’s death. It simply transfers to the nominated beneficiary and they continue to receive it on the same terms as the original pensioner. The fund’s ability to claim ECPI generally continues. However, Ms Macfarlane raised a number of issues in this regard, such as:

–        Firstly, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF’s deed and the law? The concern here is that not all SIS dependants can receive a death benefit pension under the law, irrespective of the terms of the deed.

–        Secondly, in order to be able to report ECPI in the year of the death, the trustees must make sure that the annual minimum pension payment is still made. Although there is no requirement to adjust the minimum pension payment amount for the year of death, regardless of any difference in the minimum factors between the deceased pensioner and the reversionary beneficiary, there is still a need to make the full annual pension payment by 30 June. It is not until 1 July of the next financial year that the reversionary beneficiary’s relevant drawdown factor is required to work out the minimum pension calculation.

–        Thirdly, where the original pensioner was in receipt of a transition-to-retirement income stream, it is important for the trustees to recognise that the reversionary beneficiary’s benefit should be recorded as unrestricted non-preserved. This is important if the reversionary beneficiary wishes to access any lump sum amounts in future. This also means that the reversionary beneficiary will be in receipt of an ordinary account-based pension without the limitations imposed by a transition-to-retirement pension, regardless of their age.

Other compliance issues

The Assistant Commissioner also identified the following additional compliance focus areas in relation to SMSFs for the ATO “in the coming year”:

  • inexplicable, significant and out-of-pattern changes in the value of an SMSF’s assets and/or an SMSF’s income; and
  • related-party investments and/or transactions entered into on non-commercial terms.

Through monitoring of the SMSF sector, Ms Macfarlane said the ATO has also identified the following activities which have raised concerns:

  • the marketing and selling of investment products such as real property investments via “cold calls”, where the primary focus is on enticing people to invest and then having them establish an SMSF to invest in the product. Individuals are often advised to establish an SMSF without regard to whether an SMSF is appropriate to their particular needs and circumstances;
  • LRBA loans that are not structured correctly, including incorrect registration of the ownership of property acquired under an LRBA, and other SMSF assets in addition to the asset acquired under the LRBA being used as security for the loan – that is, the lender’s recourse is not appropriately limited to the underlying asset; and
  • the promotion of arrangements that seek to gain a present-day benefit for the member (eg housing benefits, cosmetic surgery, holidays, etc).

Source: ATO speech, “What’s ahead for SMSFs? The ATO perspective”, last modified 28 July 2015, https://ato.gov.au/Media-centre/Speeches/Other/Whats-ahead-for-SMSFs-The-ATO-perspective/.

ATO data-matching: immigration visa holders

The ATO has announced that it will acquire names, addresses and other details of visa holders, their sponsors and their migration agents for the 2013–2014, 2014–2015, 2015–2016 and 2016–2017 financial years from the Department of Immigration and Border Protection. It is estimated that records relating to approximately a million individuals will be obtained.

Data items to be collected include:

  • address history for visa applicants and sponsors;
  • contact history for visa applicants and sponsors;
  • all visa grants;
  • visa grant status by point in time;
  • migration agents (visa application preparer who assisted or facilitated the processing of the visa);
  • address history for migration agents;
  • contact history for migration agents;
  • all international travel movements undertaken by visa holders (arrivals and departures);
  • sponsor details (457 visa);
  • education providers (educational institution where the student visa holder intends to undertake their study); and
  • visa subclass name.

 

The records will be electronically matched with certain sections of ATO data holdings to identify non-compliance with tax obligations. The objectives of the data-matching program are to:

  • improve intelligence on the overall level of compliance with taxation obligations by visa holders, sponsors and migration agents;
  • test the veracity and strengths of existing risk detection models and treatment systems and identify areas for improvement in the ATO’s suite of compliance models and treatment systems and practices;
  • improve the integrity of the data on the Australian Business Register by cancelling ineligible registrants;
  • identify potentially new or widespread fraud methodologies and entities controlling or exploiting those methodologies;
  • assist in developing and implementing administrative strategies to improve voluntary compliance by visa holders, sponsors and migration agents; and
  • ensure compliance with registration, lodgment, correct reporting and payment of taxation and superannuation obligations.

Further information on the ATO’s data-matching program is available on its website at https://ato.gov.au/General/Gen/DIBP-Visa-Holders-Data-Matching-Program/.

Source: Notice of Data Matching Program – Immigration Visa Holders, Gazette – C2015G01255, 4 August 2015, https://comlaw.gov.au/Details/C2015G01255.

Client Alert (September 2015)

Small business tax discount on the way

In a surprise – but welcome – move in the 2015 Federal Budget, the Government announced a small business tax discount. The Government said that, with effect from 1 July 2015, individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset through the individual’s end-of-year tax return.

Example: A person running a business as a sole trader has an annual turnover of $300,000 and taxable income of $75,000. Under the current law, the business would pay tax, at the owner’s marginal tax rate, of around $16,000 in total. Under the proposed new law, the $16,000 tax bill on the business income would be reduced by 5%, or $800. While there is no change in the owner’s tax rate, under the new law the owner would pay only $15,200 tax.

Legislation to implement the small business tax discount is currently awaiting formal enactment.

Ride-sharing provider challenges ATO’s GST view

Uber BV has lodged an application in the Federal Court to challenge the ATO’s view on GST in relation to ride-sharing drivers.

In May 2015, the ATO released information on its website providing its view of the tax obligations of people providing services in the sharing economy.
The ATO was of the view that people who provide ride-sourcing (or ride-sharing) services were providing “taxi travel” under the GST law, and were therefore required to register for GST regardless of turnover, charge GST on full fare amounts, lodge BASs and report income in their tax returns. The ATO had given ride-sourcing drivers until 1 August 2015 to obtain their ABN and be registered for GST.

However, in a company statement, Uber argued that the ATO’s position unfairly targets Uber’s driver-partners. In the meantime, the ATO has maintained its view that people who provide ride-sourcing services are providing “taxi travel” under the GST law, and that it expects all ride-sourcing drivers to be registered for GST.

TIP: According to the ATO, although ride-sourcing drivers need to account for the GST on full fare amounts, they can also claim GST credits for relevant business expenses. The ATO says drivers must report income earned from providing ride-sourcing services; however, they can also claim deductible business costs. Please contact our office for assistance.

Crowdfunding for small proprietary companies: consultation

Crowd-sourced equity funding (or equity crowdfunding) is an innovative form of fundraising that allows a large number of individuals to make small equity investments in a company.

The Government is looking at ways to facilitate equity crowdfunding and has released details of its proposed regulatory framework for public companies. However, a key part of the Government’s public consultation is to also examine whether its proposed regulatory framework for public companies should be extended to proprietary companies.

The Government notes that proprietary companies are subject to limitations under the Corporations law on the way they can raise funds. These limitations make it difficult for proprietary companies to effectively use equity crowdfunding to raise funds from a large number of small shareholders. Accordingly, the Government is seeking views on way it could amend the law to make capital raisings by small proprietary companies more flexible. Public consultation closes on 31 August 2015.

SMSFs in pension phase need to exercise care

The ATO is of the view that most trustees of self managed super funds (SMSFs) do the right thing. However, it has identified a number of issues concerning SMSFs in pension phase, noting the growing number of people expected to receive a pension in the next 10 years.

The following gives a snapshot of some key issues identified by the ATO:

  • Setting up and starting a pension: In the pension establishment phase, a fundamental and critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that the legislated rise in the preservation age came into effect from 1 July 2015 – this affects people born after 30 June 1960.
  • Paying a pension: One of the most common reasons for an SMSF in the pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee has failed to pay the required annual minimum pension amount to a member.
  • Ceasing a pension: The ATO is starting to see a range of issues related to what happens in the unexpected event of a pensioner’s death. For example, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF’s deed and the law?

TIP: The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). As the income of the SMSF is diverted to meeting the loan obligations of the fund, the ATO has found there can be insufficient funds remaining to make the required pension payments. There is also an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm’s-length rules in an effort to try to overcome their liquidity issues. If you have any concerns, please contact our office for further information.

ATO data-matching: immigration visa holders

The ATO has announced that it will acquire names, addresses and other details of visa holders, their sponsors and migration agents for the 2013–2014, 2014–2015, 2015–2016 and 2016–2017 financial years from the Department of Immigration and Border Protection (DIBP). The purpose of the data-matching program is to ensure that taxpayers are correctly meeting their taxation obligations. It is estimated that records relating to one million individuals will be obtained.

The ATO has been data-matching visa data from the DIBP (and its predecessors) against ATO data holdings for a number of years. The ATO said this electronic data-matching has been very effective in assisting to mitigate compliance risks. According to the ATO, empirical evidence from earlier data-matching programs has confirmed an elevated level of risk within the subset of taxpayers who are first-time lodgers with DIBP links.

Important: Clients should not act solely on the basis of the material contained in Client Alert. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

What Sort of Accounting Software Product Should I Use?

Do you find it challenging to decide on the one accounting software product that works the best for you and your business? Should you use spreadsheets, purchase your own software or use subscription cloud based software? These are common questions that arise for business owners when it comes to decision making.

With the growing quantity of different mediums available to perform accounting work, it is often difficult to settle on the best solution. We have reviewed the following three most used and efficient products in accounting to assist you in your decision.

  1. Excel Spreadsheet: If you are operating a business, use a limited number of bank entries every year and not relying on information on an ongoing basis, an excel spreadsheet is sufficient. You can probably do most of the work yourself and it is a low cost alternative. This is usually a starting point for a business.
  2. MYOB: If you have been a long term MYOB user of their various products, you may prefer to stay with your own MYOB or move to their online offerings. Their suite of product includes ­MYOB Essentials, MYOB AccountRight and MYOB AccountEdge. The advantage for existing users of MYOB is that you are already familiar with the features. Also with the newer additional online features, it can ultimately save you time spent on accounting. If you are in a business, the time saved can be more profitably used to run your business and do what you are good at.
  3. Xero: The Xero suite of products is relatively new but is becoming the fastest growing company in this segment of the market. Their products are completely cloud based and no data is saved on your local hard drive. This product is especially useful when you have different users in multiple locations. Xero also offers a very large array of apps which works in with the Xero product. Again, this product will cost a fee each month but will make up for that in the time saved.

For more information regarding your different options please send an email to admin@hurleyco.com.au or call Patrick on 02 9954 3843.