I’m Hiring! Getting the Most from the Gig Economy

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What is the gig economy?

The gig economy is a labour market made up of an ad hoc workforce, including freelancers, contractors, sole traders and casual employees, who are engaged in short-term or project-based work. It includes workers whose services are engaged via digital platforms such as Uber, Airtasker and a growing number of platforms that serve the corporate market, connecting workers with businesses that need temporary support.

Data on the true scale of the Australian freelance market is still based on estimates, but if we are following the United States, then our gig economy is on an upwards trend.

Australian freelance market ranking snapshot

  1. Web, mobile and software development: 44%
  2. Design and creative: 14%
  3. Customer and administrative support: 13%
  4. Sales and marketing: 10%
  5. Writing: 8%

Benefits for businesses

All organisations have much to gain from a fluid workforce, easy access to on-demand specialists, and the opportunity to bring in new perspectives and skills – but small to medium sized businesses are potentially the biggest winners. Traditional recruitment models can be time-consuming and expensive, and smaller players and start-ups may struggle to afford recruiting, training and retaining the best talent while experiencing economic uncertainty or a variable level of activity. The platform gig economy has pushed labour costs from fixed to variable, so hiring becomes more economical for many businesses. This is advantageous for you, for example, as a fledgling sole trader or small company looking to balance your workload when your business is taking off.

While we aren’t looking at employment issues specifically here, if you’re hiring via a platform it’s worth knowing that there is pressure for providers to recommend, if not enforce, minimum standard fees. And there are many moving parts involved in managing a temporary or remote workforce, despite our highly connected 24-hour world – you may need to take into account uncertainty over legal and regulatory developments, the risk of a low “care factor” from contingent workers, and the logistics of geography and time zones.

If you have a portfolio of jobs, and also hire workers, you’re probably facing extra administrative burdens. So how can you best realise the benefits of incorporating freelancers into your business? By being on top of the latest employment and tax issues, and by being open to new approaches.

Who’s in the line-up?

It’s important to understand the employment status of any additional hires you make. Are you hiring a casual employee, or a contractor? The difference significant. You can face taxation penalties for misclassifying an employee as a contractor, and there is a lot of misleading and even false information about. If you are unsure, get in touch with us to discuss your situation.

Australian employment law provides clear definitions of “employee” and “contractor” – although this could change, as it has in other countries, to keep up with the growing numbers of workers in the gig and platform economies. Broadly, you need to ask: do you control what the worker does and how they perform their job? If the answer is yes, they are likely to be an employee under Australian law.

Employees

If you hire an employee, the following obligations apply:

  • withholding taxes from the worker’s wages, and reporting and paying these amounts to the ATO;
  • paying superannuation for eligible employees; and
  • reporting if you provide your employee with fringe benefits (eg car, travel or meal expenses) as part of, or in addition to, their wages – this means you must register for and pay fringe benefits tax (FBT).
Contractors

You are not obliged to withhold tax for contractors, unless they don’t provide their Australian Business Number (ABN) to you, or you have a voluntary agreement with them to withhold tax from their payments.

You won’t have FBT obligations, but you may still have to pay superannuation for individual contractors if the contract is principally for their labour.

Gigs and GST

The Federal Government has been re-evaluating how to tax consumption through two major legislative changes, The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 – otherwise known as the “Netflix tax”, on digital goods and services – and the Treasury Laws Amendment (GST Low Value Goods) Bill 2017. The latter is still being debated (as at May 2017), but might have tax implications for you if you engage overseas workers to provide legal or architectural services.

As companies with a smaller permanent workforce will be less affected by withholding taxes, the gig economy revolution will inevitably spur further tax reforms, with the government seeking new ways of keeping the tax revenue stream flowing.

Talk to us

The gig economy comes with numerous benefits for employers, but has certainly has equal challenges. This can be daunting in the face of such rapid change. We can help. Contact us today to talk about the specifics of your business, your tax obligations and financial concerns.

Explanatory Memorandum December 2018

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Work-related tax deductions down for 2018

The ATO has reported a decline in the overall value of work-related deductions for tax time 2018. In his opening statement to Senate Estimates on 24 October 2018, ATO Commissioner Chris Jordan said taxpayers appear to have taken extra care when claiming work-related expenses in their 2017–2018 income tax returns. This follows recent ATO initiatives to close the income tax gap for individuals, which was estimated at $8.7 billion or 6.4% in 2014–2015. By far the most common driver of the tax gap was incorrectly claimed work-related expenses. A lot of individuals were over-claiming work-related by small amounts, which adds up to a lot, Mr Jordan said. In response, the ATO stepped up its awareness and education efforts to help people get it right for tax time 2018.

Source: https://www.aph.gov.au/Parliamentary_Business/Senate_Estimates/Economics/2018-19_Supplementary_Budget_estimates/treasury.

ATO identifies 26,000 incorrect rental property travel expense claims

The ATO has identified 26,000 taxpayers who have claimed deductions during tax time 2018 for travel to their investment residential rental properties, despite recent changes to the tax laws that disallow such claims. From 1 July 2017, investors cannot claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, subject to certain exceptions: s 26-31 of the Income Tax Assessment Act 1997 (ITAA 1997).

Rental property investors should check if their situation matches one of the exceptions to this change before they lodge any claim for rental travel. An exclusion does apply for this restriction on travel expenses if the expenditure is necessarily incurred in carrying on a business for income-producing purposes (including a rental property business), or if it is incurred by an “excluded entity”, namely:

  • a corporate tax entity,
  • a superannuation fund that is not a self managed superannuation fund (an SMSF);
  • an approved deposit fund (ADF) or a pooled superannuation trust (PST);
  • a public unit trust;
  • a managed investment trust; or
  • a unit trust or partnership.

If the travel expenditure is incurred by a unit trust or partnership, it will only be deductible if all members of the trust or partnership are excluded entities. See also the ATO website at www.ato.gov.au/rentaltravel and refer to Law Companion Ruling LCR 2018/7 Residential premises deductions: travel expenditure relating to rental investment properties.

Note that the restriction only applies to travel expenses in relation to a “residential rental property”. As such, it is still possible to claim a deduction for travel expenses in relation to commercial property that falls outside the definition of “residential premises” used as residential accommodation. Of course, the other deduction requirements in s 8-1 of ITAA 1997 must still be satisfied.

Golden rules for deductions

The ATO now uses sophisticated data analytics to assess a range of deductions and claims. Taxpayers must follow three golden rules when claiming a deduction:

  • the taxpayer must have spent the money (and not been reimbursed);
  • the claim must be directly related to earning the taxpayer’s income; and
  • they must keep records to prove it.

Small business corporate tax rates Bill is now law

The Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 received assent on 25 October 2018 as Act 134 of 2018 and has become law.

This implements the Government’s proposal to accelerate the reduction of the corporate tax rate for corporate tax entities that are base rate entities (ie corporate tax entities that derive no more than 80% of their income in passive forms and have an aggregated turnover of less than $50 million). The corporate tax rate for base rate entities will now reduce from 27.5% to 26% in 2020–2021, before being cut to 25% for 2021–2022 and later income years. This means eligible corporate taxpayers will have a tax rate of 25% in 2021–2022, rather than from 2026–2027 as under the previous law.

The new law also increases the small business income tax offset rate to 13% of an eligible individual’s (ie unincorporated business’s) basic income tax liability that relates to their total net small business income for 2020–2021. This offset rate will then increase to 16% for 2021–2022 and later income years.

The maximum amount of the small business income tax offset does not change – it continues to be capped at $1,000 per individual per year.

Source: https://www.legislation.gov.au/Details/C2018A00134.

GST reporting: common errors and how to correct them

The ATO has reported that some businesses are making simple mistakes reporting their GST, and has reminded taxpayers to avoid the following common GST reporting errors:

  • Transposition and calculation errors – can occur when an amount is manually input. The ATO says these errors can be eliminated by double-checking all figures and calculations before submitting a Business Activity Statement (BAS).
  • No tax invoice – tax invoices must be kept to claim GST credits on business-related purchases.
  • Transaction classification – check what GST is applicable. For example, transactions involving food may be GST applicable.
  • Accounting systems – a system with one coding error can classify several transactions incorrectly. Taxpayers can check their business systems using the ATO’s GST governance and risk management guide for large businesses.
Correcting GST errors

If a taxpayer finds a mistake made on a previous activity statement, they can:

  • correct the error on a later activity statement if the mistake fits the definition of a “GST error” and certain conditions are met;
  • lodge an amendment – the time limit for amending GST credits is four years, starting from the day after the taxpayer was required to lodge the activity statement for the relevant period; or
  • contact the ATO for advice.

The benefit of correcting a GST error on a later activity statement (where the conditions are met) is that the taxpayer will not be liable for any penalties or general interest charge (GIC) for that error. The ATO says it is generally easier to correct a GST error on a later activity statement than to revise an earlier activity statement. Revising an earlier activity statement that contains an error can incur penalties or GIC.

Source: www.ato.gov.au/Business/Large-business/In-detail/Business-bulletins/Articles/Avoid-simple-mistakes-with-GST-reporting/.

Government announces super refinements

In a media release on 31 October 2018, Assistant Treasurer Stuart Roberts announced that the Government will make technical changes to the superannuation tax law to address some minor but important issues, as part of the ongoing super reforms. The changes are in the following areas:

  • comprehensive income product for retirement (CIPR) framework – the start date will be deferred to 1 July 2022;
  • innovative income streams – the definition of “life expectancy period” will be amended to account for leap years when determining the maximum commutation amount, and the pension transfer balance cap rules will be amended to provide credits and debits when such products are paid off in instalments;
  • defined benefit pensions – the transfer balance cap valuation rules will be amended to reflect certain pensions that are permanently reduced following an initial higher payment;
  • market-linked pensions – changes will correct a valuation error under the transfer balance cap rules where a market-linked pension is commuted and rolled over, or involved in a successor fund transfer; and
  • death benefit rollovers involving insurance proceeds – changes will ensure these amounts remain tax-free for dependants.

CIPR framework

The Government will defer to 1 July 2022 the start date for superannuation funds to offer a comprehensive income product for retirement (CIPR), and will increase the threshold superannuation balance for offering a CIPR from $50,000 to $100,000.

By way of background: the Government released a discussion paper in December 2016 on the development of a CIPR framework, to be known as MyRetirement products. This followed its response to the Murray Financial System Inquiry in which it agreed to facilitate trustees offering these products to members. The Government has also established a consumer and industry advisory group to assist in the next phase of development. The CIPR framework was originally expected to commence at some time after mid-2019, following consultation on exposure draft legislation and regulations (yet to be released as at 1 November 2018). However, the Government has now deferred the start date until 1 July 2022.

Retirement income strategy covenant

To support the development of the CIPR framework, the Government has previously proposed to introduce a retirement income strategy covenant. Among other things, the covenant will require superannuation trustees to consider members’ retirement income needs by developing a retirement income strategy for fund members. The principles underpinning this retirement income covenant, as announced in the 2018–2019 Federal Budget, were set out in a Treasury position paper released in May 2018.

The Government had originally proposed to legislate the retirement income covenant by 1 July 2019, with a start date of 1 July 2020. However, the requirement for funds to offer CIPR products has now been deferred until 1 July 2022.

Innovative income streams

The pension standards for innovative superannuation income streams (regs 1.06A and 1.06B of the Superannuation Industry (Supervision) Regulations 1994) allow for retirement income products from 1 July 2017, including deferred lifetime annuities, investment-linked products and group self-annuitisation products that enable the pooling of risk. These types income streams are a precursor to the development of the CIPR framework that will depend on such pooled annuity-type products. Note that the Government has confirmed the social security means test treatment of pooled lifetime retirement income streams.

Mr Robert announced that the Government will amend the definition of the “life expectancy period” for tax-exempt innovative superannuation income streams to account properly for the number of days in a leap year when determining the maximum commutation amount. The amendment will align the definition of life-expectancy with annuity anniversary dates and ensure that individuals with these products are not short-changed in a leap year.

Pension cap credits/debits

The Government will also amend the Income Tax Assessment Regulations 1997 to provide transfer balance cap credits and debits for innovative superannuation income stream products that are paid off in instalments. The amendments will ensure that innovative income stream products receive appropriate treatment under the pension transfer balance cap.

Defined benefit pensions

Amendments will also be made to the valuation rules for defined benefit pensions under the transfer balance cap to reflect when pensions are permanently reduced following an initial higher payment, such as for some public sector defined benefit reversionary pensions or reclassification of invalidity pensions.

Where an individual receives a capped defined benefit income stream, a credit arises (under s 294-25 of the Income Tax Assessment Act 1997) in their transfer balance account equal to the “special value” of the superannuation interest determined under s 294-135 of ITAA 1997. The calculation of the special value is based on the “first income stream benefit payable”.

The amendment will seek to address a problem that can currently arise for certain reversionary lifetime pensions. The governing rules of some public sector super schemes require that a reversionary pension is payable to a spouse at the deceased person’s standard pension rate immediately following the death, then is reduced to a lesser rate for the surviving spouse. This means the special value of the credit for the transfer balance account of the reversionary pension beneficiary is based on the higher first pension payment, even though it is only temporary for the surviving spouse.

Source: http://srr.ministers.treasury.gov.au/media-release/030-2018/.

Capital gains tax on grant of easement or licence

Taxation Determination TD 2018/15, issued on 31 October 2018, considers the CGT consequences of granting an easement, profit à prendre or licence over an asset.

In the ATO’s view, CGT event D1 (creating contractual or other rights) rather than CGT event A1 (disposing of an asset) happens when any of the following rights are granted over an asset:

  • an easement, other than one arising by operation of law;
  • a profit à prendre (a right to enter and remove a product or part of the soil from the taxpayer’s land); or
  • a licence (which does not confer the right of exclusive possession of land).

The consequences of CGT event D1 being the relevant CGT event are that:

  • in determining the amount of any capital gain or loss that arises from the grant over the asset, no part of the asset’s cost base is taken into account;
  • any capital gain from the grant is not a discount capital gain;
  • the main residence exemption is not available; and
  • any capital gain or loss cannot be disregarded merely because the asset over is a pre-CGT asset. This means, for instance, that CGT event D1 can happen where a right is granted over pre-CGT land – see Examples 1 and 2 of TD 2018/15. In Example 3, however, the ATO concludes that the sale of timber is not subject to CGT if the timber was cut from pre-CGT land and trees.

TD 2018/15 applies before and after its date of issue.

Withdrawn rulings

TD 2018/15 is a “refresh” of Ruling IT 2561 Capital gains: grants of easements, profits à prendre and licences, which was withdrawn from 31 October 2018. TD 2018/15 also consolidates the following Taxation Determinations, all of which were withdrawn on 31 October 2018:

  • TD 93/79 Capital gains: if a taxpayer owns pre-CGT land and trees and after 19 September 1985 the taxpayer cuts the trees, are there any CGT consequences arising from the subsequent sale of the timber by the taxpayer?
  • TD 93/81 Capital gains: a taxpayer owns pre-CGT land and trees. The taxpayer sells timber according to two post-CGT contracts: over a period of time and remove timber as and when required; and a contract for the sale of the uncut timber. How is the sale treated for CGT purposes?
  • TD 93/235 Capital gains: how are grants of easements treated for the purposes of the CGT provisions of the ITAA 1936?
  • TD 93/236 Capital gains: does the principal residence exemption apply to the amount received for the granting of an easement or profits à prendre over land adjacent to a dwelling?
  • TD 96/35 Capital gains: when does a person, who on or after 21 September 1989 grants to another a right to cut and remove timber from the grantor’s land, dispose of the right? Is it when the right is granted or when the trees are felled?
First Home Super Saver scheme: ATO guidance

On 1 November 2018, the ATO issued Super Guidance Note SPR GN 2018/1 to provide general information about the First Home Super Saver (FHSS) scheme. The guidance note explains who is eligible to use the scheme, the kind of contributions that can be released, how to apply for a FHSS determination and the requirement to purchase a house. Interesting points made in SPR GN 2018/1 include that:

  • an individual who holds real property as the trustee of a trust (including a unit trust or self managed super fund) can qualify for the FHSS scheme;
  • the eligibility of an individual who is a beneficiary of a trust depends on their particular rights as a beneficiary;
  • before the transfer of a deceased person’s property, the beneficiary of the deceased estate can apply for a FHSS determination; and
  • contributions that are ineligible for release include amounts contributed to superannuation as part of the CGT small business concessions.
Financial hardship

Although the FHSS scheme is targeted at people who wish to buy or build their first home, others who do not satisfy the first home requirement may qualify for the scheme if they are suffering financial hardship. They will first need to apply to the ATO for a financial hardship determination.

The guidance note lists examples of the types of events the ATO will consider to determine whether the financial hardship requirement is met. These include employment loss, natural disaster, bankruptcy, illness, divorce and eligibility for early access to super. Crucially, the person needs to demonstrate a link between the event and the loss of the person’s property interest.

Downsizer super contributions: ATO guidance

The ATO issued the following products on 7 November 2018 to provide guidance on the recently enacted downsizer superannuation contributions measure:

  • Law Companion Ruling LCR 2018/9, which focuses on the numerous conditions that must be satisfied for a contribution to qualify as a downsizer contribution. This ruling finalises Draft LCR 2018/D4 and contains the same views as the draft.
  • Super Guidance Note SPR GN 2018/2, which contains detailed general information and examples for individuals.

Section 292-102 of the Income Tax Assessment Act 1997 (ITAA 1997) allows individuals aged 65 or over to make a downsizer contribution of up to $300,000 (not indexed) from the proceeds of selling their home. This measure took effect on 1 July 2018 (for contracts of sale entered into from that date).

A downsizer contribution is:

  • excluded from the definition of a non-concessional contribution and therefore does not count towards the person’s non-concessional contributions cap;
  • exempt from the contribution rules for people aged 65 and older;
  • exempt from the restrictions on non-concessional contributions for people with total superannuation balances above the general transfer balance cap; and
  • not tax deductible.

Ruling LCR 2018/9 notes that although an individual’s total superannuation balance will not affect their eligibility to make a downsizer contribution, any downsizer contribution amount will still count towards their total superannuation balance.

Qualifying conditions

The following conditions need to be met for a contribution to qualify as a downsizer contribution:

  • The individual must be aged 65 or more when the contribution is made.
  • The contribution must be all or part of the capital proceeds from disposing of an ownership interest in a qualifying dwelling in Australia. Ruling LCR 2018/9 confirms that the ownership interest can be an equitable interest or an interest as a joint tenant or tenant in common, and that a person is not prevented from making a downsizer contribution if others hold interests in the same dwelling.
  • The capital proceeds must be fully or partially exempt from CGT under the main residence exemption (or, for pre-CGT assets, would have qualified for a full or partial exemption). However, the ATO confirms that it is not relevant how the main residence exemption is calculated or apportioned.
  • Just before the disposal, the ownership interest must have been held by the person or their spouse. The ATO says it is not necessary for the dwelling to have been their main residence at the time of disposal.
  • A 10-year ownership condition must be met by the person or their spouse (including a former or deceased spouse). The ATO notes this condition is not related to the main residence requirement –the dwelling does not need to have been the person’s main residence for a 10-year period, provided an effective partial main residence exemption is available, or would have been available had the person (and not their spouse) held the interest.
  • The contribution must be made within 90 days of settlement (or any longer period allowed by the ATO).
  • The person must choose to treat the contribution as a downsizer contribution and must notify their super provider of this choice (using the approved form) by the time the contribution is made.
  • The person must not have previously made any downsizer contributions from an earlier disposal of a main residence. However, multiple downsizer contributions may be made to one or more funds from the sale of interests in a qualifying dwelling, provided the maximum contribution amount is not exceeded.

The maximum contribution amount must be the lesser of $300,000 or the total capital proceeds that the person, their spouse or both receive from disposing of their ownership interests in the dwelling. The ATO confirms that where an individual uses their spouse’s interest in a dwelling to calculate the available maximum contribution amount, the spouse does not need to satisfy the eligibility requirements for making a downsizer contribution. The ATO also notes that a person who uses the capital proceeds to discharge a mortgage can still make a downsizer contribution.

ATO scam alert: fake demands for tax payments

Although tax time 2018 is over, the ATO has warned taxpayers and their agents to remain on high alert for tax scams. Assistant Commissioner Kath Anderson has said scammers are growing increasingly sophisticated and hope to exploit vulnerable people, often using aggressive tactics to swindle people out of their money or personal information. The ATO has noticed an increasing trend of scammers demanding tax payments through Bitcoin ATMs.

People should be wary if someone contacts them demanding payment of a tax debt that they didn’t know they owed. The ATO’s advice is simple: it will never ask a person to make a payment into an ATM or via gift or pre-paid cards such as iTunes and Visa cards, or ask for direct credit to be paid to a personal bank account.

Taxpayers who lodge through a registered tax agent generally have longer to pay their tax bill, and will be advised by their tax agent if and when any tax payment is due. However, the ATO warned that scammers have been known to attempt to impersonate tax agents too. If people have any doubts about the legitimacy of a phone call or other communication, they can call the ATO (toll free) on 1800 888 540.

Source: https://www.ato.gov.au/Media-centre/Media-releases/Scams-alert-as-tax-bill-due-date-draws-near/.

Government to establish $2 billion fund for small business lending

The Government has announced that it will establish a $2 billion Australian Business Securitisation Fund. Treasurer Josh Frydenberg said small businesses currently find it difficult to obtain finance on competitive terms (unless the finance is secured against real estate). To overcome this, Mr Frydenberg said, the proposed Australian Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms. The Australian Business Securitisation Fund will be administered by the Australian Office of Financial Management (AOFM), consistent with its prior involvement in the Residential Mortgage Backed Securities Market in 2008.

The Government is also consulting with the Australian Prudential Relation Authority (APRA) and a number of financial institutions in regard to the establishment of an Australian Business Growth Fund that would provide longer-term equity funding to small businesses. The Australian Business Growth Fund is expected to follow similar international precedents, such as the United Kingdom’s Business Growth Fund, which has invested some $2.7 billion in a range of sectors since its establishment in 2011.

According to the Treasurer, such a fund has not emerged in Australia, in part, as a result of the unfavourable treatment of equity for regulatory capital purposes. However, APRA has indicated it is willing to review these arrangements to assist in facilitating the establishment of the Australian Business Growth Fund. To fast-track the process, the Government is hosting a meeting of key stakeholders in Canberra during the final 2018 Parliamentary sitting period (26 November to 6 December 2018).

Source: http://jaf.ministers.treasury.gov.au/media-release/051-2018/.

ATO information-sharing: super assets in family law proceedings

The Government has announced that it will develop an electronic information-sharing mechanism between the ATO and the Family Law Courts to allow superannuation assets held by relevant parties during family law proceedings to be identified swiftly and more accurately. The measure was included as part of a broader financial support package for women announced on 20 November 2018.

Super and family law

Superannuation is often the most significant asset in a separated couple’s property pool, particularly for low-income households with few assets. Parties to family law proceedings are already legally required to disclose all of their assets to the court, including superannuation, but in practice parties may forget, or deliberately withhold, information about their super assets. As it stands, where parties to family law proceedings are not forthcoming about their assets, costly and time-consuming information-gathering exercises can be required just to identify superannuation accounts – let alone to establish their balances.

The non-disclosure of super assets can often disproportionately disadvantage women due to a significant disparity in super savings between men and women. A lack of financial disclosure by a former partner can result in a woman receiving a smaller share of property than they would otherwise be entitled to. A recent study by the Women’s Legal Service Victoria also found that two-thirds of surveyed clients faced delays caused by a former partner failing to make the necessary financial disclosures.

Assistant Treasurer Stuart Robert said the ATO will receive $3.3 million in funding to develop an electronic information-sharing system for super assets in family law proceedings. Giving the courts access to super information held by the ATO is expected to result in faster and fairer family law property settlements. Getting full visibility of super assets in family law matters can be complex, time-consuming and costly, often requiring parties to go on “fishing expeditions” using subpoenas and other formal court processes, with no guarantee of success, Mr Robert said.

According to the Government, the proposed ATO information-sharing system will make it easier to identify lost or undisclosed super assets. It will help parties in family law proceedings, particularly women, avoid the cost and complexity involved in seeking superannuation information from multiple super funds, or subpoenaing employment records. The Government considers that allowing the ATO to provide this information to the Courts will reduce the need for such exercises and ensure more just and equitable superannuation splitting outcomes.

Source: http://srr.ministers.treasury.gov.au/media-release/040-2018/.

Client Alert – December 2018

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Work-related tax deductions down for 2018

The ATO has reported a decline in the overall value of work-related deductions for tax time 2018. In his opening statement to Senate Estimates on 24 October 2018, Commissioner Chris Jordan said taxpayers appear to be taking extra care when claiming work-related expenses in their 2017–2018 income tax returns. This follows recent ATO awareness and education efforts to close the income tax gap for individuals.

ATO identifies 26,000 incorrect rental property travel expense claims

The ATO has identified 26,000 taxpayers who have claimed deductions during tax time 2018 for travel to their investment residential rental properties, despite recent changes to tax laws.

From 1 July 2017, investors cannot claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, subject to certain exceptions. An exclusion does apply for this restriction if the expenditure is necessary for the income-producing purposes of carrying on a business (for example, a rental property business), or if the costs are incurred by an “excluded entity”.

Small business corporate tax rates Bill is now law

The company tax rate for base rate entities will now reduce from 27.5% to 26% in 2020–2021, and then to 25% for 2021–2022 and later income years. This means eligible corporate taxpayers will pay 25% in 2021–2022, rather than from 2026–2027.

The new law also increases the small business income tax offset rate to 13% of the basic income tax liability that relates to small business income for 2020–2021. The offset rate will then increase to 16% for 2021–2022 and later income years.

The maximum available amount of the small business tax offset does not change – it will stay capped at $1,000 per person, per year.

GST reporting: common errors and how to correct them

Some businesses are making simple mistakes reporting their GST. The ATO reminds taxpayers that avoid the following common GST reporting errors:

  • transposition and calculation errors – these mistakes often happen when manually entering amounts, so it’s important to double-check all figures and calculations before submitting your BAS;
  • no tax invoice – you must keep tax invoices to be able to claim GST credits on business-related purchases;
  • transaction classifications – it’s important to check what GST applies for each transaction; for example, transactions involving food may be GST applicable; and
  • errors in accounting systems – a system with one coding error can classify several transactions incorrectly.

Government announces super refinements

The Government has announced it will amend the super tax laws to address some minor but important issues, as part of the ongoing super reforms. The changes include:

  • deferring the start date for the comprehensive income product for retirement (CIPR) framework;
  • adjusting the definition of “life expectancy period” to account for leap years in calculations, and amending the pension transfer balance cap rules to provide credits and debits when these products are paid off in instalments;
  • adjusting the transfer balance cap valuation rules for defined benefit pensions to deal with certain pensions that are permanently reduced after an initial higher payment;
  • correcting a valuation error under the transfer balance cap rules for market-linked pensions where a pension is commuted and rolled over, or involved in a successor fund transfer;
  • making changes to ensure that death benefit rollovers involving insurance proceeds remain tax-free for dependants.

CGT on grant of easement or licence

Taxation Determination TD 2018/15, issued on 31 October 2018, considers the capital gains tax (CGT) consequences of granting an easement, profit à prendre or licence over an asset.

In the ATO’s view, CGT event D1 (creating contractual or other rights) rather than CGT event A1 (disposing of an asset) happens when any of the following rights are granted over an asset:

  • an easement, other than one arising by operation of the law;
  • a right to enter and remove a product or part of the soil from a taxpayer’s land (a profit à prendre); or
  • a licence (which does not confer the exclusive right to possess the land).

First Home Super Saver scheme and downsizer super contributions: ATO guidance

In November 2018, the ATO issued a Super Guidance Note to provide people with general information about how the First Home Super Saver (FHSS) scheme works. The guidance note explains who is eligible to use the scheme, the kind of contributions that can be made and then released from super for buying a first home, how to apply to the ATO for a FHSS determination, and the requirement to purchase a house.

The ATO also issued guidance on the recently enacted downsizer superannuation contribution measures, which allow people aged over 65 to contribute the proceeds from selling certain property into their super.

ATO scam alert: fake demands for tax payments

Although tax time 2018 is over, the ATO has warned taxpayers and their agents to remain on high alert for tax scams. Scammers are growing increasingly sophisticated and hope to exploit vulnerable people, often using aggressive tactics to swindle people out of their money or personal information.

Be wary if anyone contacts you demanding payment of a tax debt that you didn’t know about. The ATO will never ask you to make a payment into an ATM or using gift or pre-paid cards such as iTunes and Visa cards, and will never you to deposit funds into a personal bank account.

Government to establish $2 billion fund for small business lending

The Government has announced that it will establish a $2 billion Australian Business Securitisation Fund and an Australian Business Growth Fund to provide longer-term equity funding for small businesses.

Treasurer Josh Frydenberg has said some small businesses currently find it difficult to obtain finance on competitive terms unless it is secured against real estate. To overcome this, the proposed Australian Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

ATO information-sharing: super assets in family law proceedings

Superannuation is often the most significant asset in a separated couple’s property pool, particularly for low-income households with few assets. Parties to family law proceedings are already legally required to disclose all of their assets to the court, including superannuation, but in practice parties may forget, or deliberately withhold, information about their super assets.

The Government has announced an electronic information-sharing mechanism to be established between the ATO and the Family Law Courts to allow superannuation assets held by relevant parties during family law proceedings to be identified swiftly and more accurately from 2020. This measure was included as part of a broader financial support package for women announced on in November.

 

Guidance on Superannuation measure for downsizer contributions

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The ATO has released a ruling and a guidance note on the measure allowing downsizer contributions to be made into superannuation funds.

The ruling discusses these contributions and how the measure interacts with other income tax and superannuation concepts including:

  • contribution caps
  • superannuation fund acceptance rules, and
  • capital gains tax (CGT).

Generally, a personal contribution that an individual makes on their own behalf is treated as a non-concessional contribution unless a deduction has been claimed for it, or it is subject to an exclusion from treatment as a non-concessional contribution. Downsizer contributions are excluded from the definition of a non-concessional contribution and if an election is made to treat a contribution as a downsizer contribution, and it is reported as such, a deduction cannot be claimed for it.

For a contribution made to a complying superannuation plan to be a downsizer contribution, the following conditions must be satisfied:

  • the individual must be aged 65 years or older at the time the contribution is made
  • the contribution must be an amount equal to all or part of the capital proceeds received from the disposal of an interest in a qualifying dwelling in Australia held by the individual or their spouse just before the disposal
  • the 10-year ownership condition
  • any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
  • the contribution must have been made within 90 days of disposing of the dwelling, or such longer time as allowed by the Commissioner
  • a choice is made to treat the contribution as a downsizer contribution, and the complying superannuation plan provider is notified in the approved form of this choice at or before the time the contribution is made
  • the individual has not previously made downsizer contributions, or had one made on their behalf, in relation to an earlier disposal, and
  • the maximum amount of the contributions is the lesser of either $300,000, or the proceeds from the sale of the interests in the dwelling.

Individuals are not required to purchase another dwelling following the sale of the relevant dwelling interest to be eligible to make a downsizer contribution. A contribution can only be a downsizer contribution where the contract for the disposal of the relevant dwelling interest is entered into on or after 1 July 2018.

A downsizer contribution is neither a concessional nor a non-concessional contribution and therefore is not counted towards the respective contribution caps. The total superannuation balance of the individual will not affect their eligibility to make a downsizer contribution. Note, however, that any downsizer contribution amount will still be counted towards their total superannuation balance.

ATO’s Use Of Real-Time Data For SG Compliance

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As technology improves, there’s a continual move towards real-time data for enhanced and timely administration of the tax system, particularly in the superannuation sector.

The ATO is leveraging this real-time data and event-based reporting to make inroads in ensuring employees receive their full super guarantee (SG) entitlements.

In the 2017-18 year, the ATO received 31,000 employee notifications regarding SG entitlements and contacted around 24,000 employers. It completed 19,000 SG entitlements cases which were initiated by employees and a further 13,000 SG audits and reviews based on risk modelling. Total liabilities raised by the cases were approximately $850m.

On the back of that success, the ATO has continued to undertake additional SG casework through the current year financial year using funding from the SG taskforce. Thus far, it has completed around 537 cases and raised around $22.8m in liabilities including $3m in penalties. Most of the cases completed (65%) were from either NSW or Victoria. According to the ATO, it is on track to close over 2,600 cases from 1 July 2018 to 30 June 2019, raising around $130m in liabilities.

As event-based reporting from large APRA funds improves – the ATO is currently receiving data for 55% of APRA fund members which equates to 17.47m members – ensuring employer compliance with SG obligations as well as monitoring whether super contributions caps are exceeded will become progressively easier and more timely.

Currently, event-based reporting through the ATO member account attributable service (MAAS) platform, includes information such as member’s name, address, TFN, and date of birth. Changes to such details are reported to the ATO within 5 business days of the event. The ATO has also started to receive information from a few funds through the ATO member account transactions service platform, which includes details on employer contributions, non-employer transactions, retirement-phase events and notice of intent. Any changes to these details will usually be reported to the ATO within 10 business days of the event.

What this means for you is that for the first-time, there will be event-based reporting on things such as employer contributions, employer SG, award payments, salary sacrifice, voluntary employer contributions, as well as details of the employer and the period of payments. By extension, the ATO will also know who has not received an SG payment from their employer.

This will be an enormous help for younger people that increasingly work in more transient industries and/or roles, who often don’t find out that their employer has not been contributing to their super until years later or when the company collapses. It is envisaged the complete transition to event-based reporting will be completed by mid-2019 which will better enable the ATO to protect employees and ensure super caps and other changes to superannuation are attended to in a timely manner.

Do you have an SG entitlement issue?

If you think your employer hasn’t been paying the correct amount of super guarantee, or if you just want to find out whether you’re doing the right thing by your employees, we can help you get everything in order. Contact us today.