Director changes tabled, $1m fines for non-compliance

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Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018 sets out the legal framework for the introduction of DINs – a unique identifier that will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities.

To date, current application to become a company director requires only a name, an address and a date of birth, with no requirement for a person to prove their identity.

The proposed DIN regime will aim to combat phoenix activity, as well as reduce time and cost for administrators and liquidators during the insolvency process by providing a more streamlined tracking of directors and their corporate history.

Under the new requirements, new directors will have 28 days to apply for a DIN from the date they are appointed a director unless they are provided an exemption or extension by the registrar.

Directors who are currently in place will be afforded transitional provisions of 15 months to apply for a DIN from the application days of the new requirement.

Failure to comply with the DIN regime will see a maximum penalty of $200,000 for individuals or $1 million for a body corporate.

BDO national tax director Lance Cunningham said the new measure was a step in the right direction and would help regulators and creditors readily identify individuals involved in failed companies, and flag higher-risk individuals and entities.

“The introduction of DINs will help curb potential phoenix by improving data integrity and security, including by allowing directors to be identified by a number rather than by other more personally identifiable information, such as their name and address,” said Mr Cunningham.

“While it will require some additional regulation, it should not be seen as just an additional layer of red tape. It will offer more effective tracking of directors and their corporate history, which will reduce time and cost for administrators and liquidators, thus improving the efficiency of the insolvency process.

“Mandatory training in director responsibilities will be required, which will be costly. However, these costs will be outweighed by the reduced time and costs and other efficiencies. From a practical perspective, the new obligations will require all companies to incorporate the DIN registration process as an additional step in appointing directors.”

However, Mr Cunningham believes rogue operators might still be able to bypass the measures and has joined calls to increase prosecution powers to deter such activity.

“Companies can structure themselves in ways that dodge the new provisions and directors can still exploit the proposed new rules by misstating information,” said Mr Cunningham.

“Contravention of the proposed new legal obligations constitutes both a civil penalty provision and a criminal offence. However, paradoxically, prosecution under criminal law is difficult to prove as the criminal standard of beyond reasonable doubt is a high bar.”

Business owners, however, have been much more vocal against the proposal.

The pervading concern from the business community is that yet another form of identification, on top of existing ABNs and ACNs, will do little to actually address the problem of phoenix activity while simply adding more cost and red tape onto SMEs.

“Why create a whole new set of ID numbers when we already have one in Tax File Numbers. Who cares that there [sic] original intended purpose was to track interactions with the ATO. The ATO is a federal government agency, ASIC is a federal government agency – why reinvent the wheel,” said one My Business reader after it was suggested the DIN should be rolled out to all company officials, not just directors.

“Besides, I would have thought the ATO would want access to this information itself anyway (i.e. keeping track of the number of companies a person is director of and the financial state of those companies & the individual).”

Source : https://www.mybusiness.com.au/management/5017-director-changes-tabled-1m-fines-for-non-compliance?utm_source=MyBusiness&utm_campaign=04_10_18&utm_medium=email&utm_content=1

 

Explanatory Memorandum October 2018

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Claiming work-related expenses: ATO guides and toolkits

This year, the ATO has launched its biggest ever education campaign to help taxpayers get their tax returns right. The ATO says the campaign, which is running throughout tax time, includes direct contact with over three million selected taxpayers, as well as specialised guides and toolkits for taxpayers, agents, employers and industry bodies. A key component of the campaign is simple, plain English guidance for the most common occupations, like teachers, nurses, police officers and hospitality workers.

ATO Assistant Commissioner Kath Anderson said that last year work-related expenses totalled a record $21.3 billion, “and we have already flagged that over-claiming of deductions is a big issue”. The most popular topics this year include car, clothing, travel, working from home and self-education expenses, and the guides for tradies, doctors, teachers, office workers and IT professionals have been a big hit, Ms Anderson said.

The ATO reminds taxpayers that a number of expense types cannot be claimed as work-related deductions, including:

  • Teachers cannot claim the costs of home-to-work travel, costs of gifts or prizes they buy for students, or costs of attending functions.
  • Police cannot claim the costs of haircuts, grooming, weight-loss programs or supplies, even though they may be covered by specific occupational regulations. They also cannot claim costs associated with attending social functions or fitness expenses unless their employment depends on maintaining a level of fitness well above ordinary police standards, such as special operations.
  • Hospitality workers cannot claim the costs of ordinary clothes, like black pants or a white shirt, even if their employer told them to wear those clothes, and even if they only wear them for work. They can, however, claim the cost of uniforms that are unique and distinct to their employer or occupation-specific (like chef’s pants). They cannot generally claim the cost of trips between home and work, even if they live a long way from their usual workplace or have to work outside normal business hours (e.g. public holidays or night shifts).
  • Truck drivers who receive a travel allowance from their employer are not automatically entitled to a deduction. They still need to show that they were away overnight, that they spent the relevant money themselves and that the travel was directly related to earning their income.
  • Retail workers cannot claim a deduction for ordinary clothes or makeup that their employer tells them to wear (e.g. clothing from the latest fashion line), even if they work in a store that sells those items. They also cannot generally claim the cost of home-to-work travel, even if they have to work outside of normal business hours (e.g. late-night shopping shifts).
  • Nurses and carers cannot claim the costs of home-to-work travel, ordinary clothes they wear to work (like closed-toe shoes or black pants), or of study that is not directly related to their current job.
  • Building and construction workers usually cannot claim the costs of home-to-work travel, nor costs of clothes or shoes that are not uniforms or are not designed to provide them with sufficient protection from the risk of injury at their worksite, even where items are called “workwear” or “tradie wear” by the supplier.
  • Flight attendants cannot claim a deduction for costs like hairdressing, cosmetics, hair and skincare products, even though they may be paid an allowance for grooming and be expected to be well groomed. Grooming product costs are considered by the ATO to be private expenses.

Source: www.ato.gov.au/Media-centre/Media-releases/What-can-you-claim-if-you-re-a-flight-attendant,-police-officer-or-a-nurse-/

Illegal phoenix activity: public examinations in Federal Court matter

The ATO has announced that public examinations started in a Federal Court matter on 27 August 2018 in relation to a group of entities connected to a pre-insolvency advisor. The examinations will focus on the suspected promotion and facilitation of phoenix activities and tax schemes.

More than 45 service providers, clients and employees of pre-insolvency advisors, as well as alleged “dummy directors” of phoenix companies, will be examined, ATO Deputy Commissioner Will Day confirmed. He also said that the ATO has funded court-appointed liquidators, Pitcher Partners, to investigate the affairs and conduct of these entities before any further legal action by the Commonwealth is considered.

Source: www.ato.gov.au/Media-centre/Media-releases/Public-examinations-to-identify-phoenix-activity-commence/; www.comcourts.gov.au/file/Federal/P/VID282/2018/actions.

Banking Royal Commission: possible super contraventions

On 24 August 2018, the Royal Commission into banking, superannuation and financial services misconduct released the closing submissions setting out possible contraventions by certain superannuation entities. The evidence surrounding these alleged breaches was revealed during the fifth round of public hearings (conducted 6–17 August 2018). During that time the Counsel Assisting, Ms Rowena Orr QC and Mr Michael Hodge QC, grilled high-level executives of some of the largest superannuation funds about practices that may involve misconduct or fall below community expectations.

Superannuation hearings

Mr Hodge QC opened the super hearings on 6 August 2018 by asking the underlying question, “What happens when we leave these trustees alone in the dark with our money? Can they be trusted to do the right thing?”

Unlike the Royal Commission’s earlier hearings, which exposed horror stories about the personal devastation suffered by some individuals who received inappropriate financial advice, this fifth round of hearings focused on evidence about corporate governance and structural failures within the super system. While they lacked the drama of the earlier hearings, which brought home the human cost of misconduct and poor business practices, the fifth round of hearings was more about extracting evidence to make findings on structural issues that equally undermine outcomes for super fund members.

The Commission heard evidence about fees-for-no-service conduct and conflicts of interests which hamper some trustees from ensuring that they always act in the best interests of members. Counsel Assisting was particularly interested in how trustees supervise the activities of a fund and respond to queries from the regulators. Executives were also quizzed on how they justified expenditure on advertisements and sporting sponsorships as being in the best interests of members. Finally, the Commission turned its attention to the effectiveness of the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) as regulators.

Alleged breaches by super entities

The 222 pages of closing submissions, published on 24 August 2018, set out the relevant evidence in relation to each of the 17 superannuation entities that were the subject of the case studies before the Royal Commission. The submissions go on to address specific findings about misconduct (or conduct falling short of community expectations) that Counsel Assisting contend are open to Commissioner Hayne. This includes allegations that some of the entities may have breached various provisions of the Superannuation Industry (Supervision) Act 1993 (the SIS Act), the Corporations Act 2001 (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (the ASIC Act) in relation to the alleged conduct. For example, Counsel Assisting said that the fee-for-no-service conduct admitted by certain entities may have breached ss 1041H and 912A(1)(c) of the Corporations Act, s 12DA of the ASIC Act and ss 29E(1)(a) and 52(2) of the SIS Act. Other entities may have breached ss 29E(1)(a) and 52(2) of the SIS Act in relation to the use of tax surpluses and the transition to MySuper.

Counsel Assisting also made salient observations about ASIC and APRA in relation to the cultural and governance practices in the super industry. Importantly, at least one of the case study entities (EnergySuper) was totally cleared by Counsel Assisting, which concluded that it was not open to make any findings of misconduct or conduct falling short of community expectations.

Political advertising by super funds

In relation to AustralianSuper’s investment in The New Daily, and its political advertising campaign (the “Fox and Henhouse”), Counsel Assisting said it was not open to the Commissioner to find that any of the conduct by AustralianSuper constituted misconduct or conduct falling short of community expectations. However, Counsel Assisting said there was a broader policy question about whether political advertising is consistent with the intention behind s 62 of the SIS Act, and whether a legislative amendment was warranted. Counsel Assisting also submitted that there is a policy question about whether there is identifiable detriment (or benefit) to consumers from advertising by super funds or particular advertising (such as the “Fox and Henhouse” campaign).

Insight from leading practitioners

While the mass media has provided saturation coverage of the Royal Commission, perhaps the most insightful and refreshing observations, from a practitioner’s perspective, have come from Michelle Levy, Andrew Maher and Simun Soljo, partners at Allens Linklaters. Commenting on the closing submissions by Counsel Assisting, Ms Levy said it was significant that the submissions do not contain any legal analysis to support these very serious allegations. “Counsel Assisting seems to be saying that the conduct speaks for itself”, she said.

Ms Levy noted that the laws that have allegedly been breached “are not easy to interpret, and some of them have never or rarely been considered by a court”. “These are not matters that can be determined on the facts alone in the same way that, say, a breach of a driving speed limit might be”, she said. According to the partners at Allens Linklaters, the interpretation that Counsel Assisting has presumably given the provisions, in some cases, appears inconsistent with the courts’ interpretations of them. No doubt subsequent submissions from the impacted parties may provide some assistance to the Commission on these important matters.

In terms of the Commission’s focus on the best interests duty, Allens Linklaters have observed that the witnesses were often asked how certain conduct was in the best interests of beneficiaries. However, the legal obligation of a superannuation trustee to comply with the best interests duty in s 52(2)(c) of the SIS Act is concerned more with “process not outcome”: Breen v Williams (1996) 186 CLR 71. Asking a witness how their conduct was “in the best interests of beneficiaries” is clearly not a question that invites an answer about proper process, Ms Levy said.

Interim report due by September 2018

The Royal Commission’s interim report is due by the end of September 2018, with the sixth round of public hearings taking place on 10–21 September 2018. This round of hearings is investigating conduct in the insurance industry by reference to case studies involving certain entities. To help inform these hearings, the Royal Commission has released four background papers covering life insurance, group life insurance, reforms to general and life insurance (Treasury) and features of the general and life insurance industries.

Source: https://financialservices.royalcommission.gov.au/public-hearings/Pages/round-5-hearings.aspx#closing-submissions.

SMSF issues update: ATO speech

ATO Assistant Commissioners Superannuation Tara McLachlan and Dana Fleming recently spoke at the Self-Managed Superannuation Fund (SMSF) Association Technical Days in various capital cities. The speech was mainly about practical considerations to be taken into account when setting up a new SMSF and during the first year of its operation. Other issues raised included:

  • SMSF registrations: For 2017–2018 there were about 26,000 SMSF registrations, with 2,100 of these, subject to further review. Of those reviewed, 621 (29%) had their Australian Business Number (ABN) cancelled and 336 (16%) had their details withheld from Super Fund Lookup.
  • SMSF annual return lodgements: By the deferred deadline of 30 June 2018, 90% of SMSFs (as at 30 July 2018) had lodged their 2016–2017 SMSF annual return, and 3% had received a deferral based on the particular circumstances of the fund. Around 44,000 SMSFs made an election in their annual return to apply the transitional capital gains tax (CGT) relief in relation to the pension reforms.
  • SuperStream for SMSFs: The ATO is working with industry on implementing the 2018–2019 Budget proposal to extend SuperStream to include SMSF rollovers. The measure is expected to start in late 2019.
  • Exempt current pension income and actuarial certificates: 2016–2017 was a transitional year for exempt current pension income (ECPI), as some SMSFs went from using the segregated method to using the proportionate method (requiring an actuarial certificate). From 2017–2018 there will generally only be a few circumstances where an SMSF needs to get an actuarial certificate to claim ECPI, as follows:
  • when the SMSF is paying a pension that is not an account-based pension;
  • where the SMSF is required to use the proportionate method because a member has a total super balance above $1.6 million; and
  • where the SMSF has a mix of accumulation and retirement-phase interests and chooses not to use the segregated method.

Source: www.ato.gov.au/Media-centre/Speeches/Other/Fledgling-SMSFs—the-first-18-months-of-an-SMSF-s-life/.

ATO data analytics and prefilling help tax return processing

The ATO reports that a record number of tax returns were finalised in the first two months of tax time this year, thanks to the ATO’s data prefilling arrangements and correction of mistakes using analytics and data-matching. Over $11.9 billion has been refunded to taxpayers, and errors worth more than $53 million were detected and corrected before refunds were issued, Assistant Commissioner Kath Anderson has reported.

The ATO has prefilled over 80 million pieces of data from banks, employers, health funds and government agencies to make tax time easier for taxpayers and agents. However, some people are still getting it wrong. Ms Anderson said the ATO’s advanced analytics allow it to scrutinise more returns than ever before, and make immediate adjustments where taxpayers have made a mistake.

Mistakes in returns

In the first half of tax time, the ATO automatically adjusted more than 112,000 tax returns to correct mistakes in returns, totalling more than $53 million. Most of the income adjustments made by the ATO were for simple mistakes, like leaving out bank interest or salary and wages. But for some, the ATO suspects, peoples’ priority was on generating a refund rather than getting it right, as they deliberately ignored the prefill information that was available at the time of lodgment, Ms Anderson said.

The ATO welcomes that so many people are confident to lodge early, but reminds them to use the prefilled data available. Taxpayers who may be tempted to bend the rules and deliberately leave out income (or over-claim deductions) should remember that the ATO’s analytics and data-matching setup is likely to pick that up, Ms Anderson said, warning that penalties between 25% and 75% can apply. Anyone who realises that they have made a mistake or left something out should lodge an amendment online or via a tax agent to minimise any penalties and interest charges.

Deductions for insurance premiums

Insurance premium deductions have also become a focus area for the ATO after it identified some taxpayers who were over-claiming deductions. “Just to be clear”, Ms Anderson said, “premiums for income protection insurance are tax deductible, but premiums for other insurances like life, permanent disability and trauma are not”.

While life and permanent disability insurance premiums are not deductible for individual taxpayers, certain death and disability insurance premiums are deductible for complying superannuation funds (ss 295-460 and 295-465 of the Income Tax Assessment Act 1997).

Tax time numbers

According to the ATO, young people seem to be getting in early, with 17% of returns coming from 18- to 24-year-olds and the majority using myTax:

  • 5,775,000 taxpayers or their agents lodged a tax return in July and August;
  • 977,000 (17%) were aged between 18 and 24 years old;
  • almost 5,155,000 refunds have been issued, totalling more than $11.9 billion.

Source: www.ato.gov.au/Media-centre/Media-releases/Data-and-analytics-generating-faster-refunds-this-tax-time/.

Parliamentary committee recommends standard tax deduction, “push return” system

The report of the House of Representatives Standing Committee on Tax and Revenue into Taxpayer Engagement with the Tax System has been tabled. This is a significant report, also covering issues that have been canvassed in previous tax reform reports such as the Australia’s Future Tax System Review and the Henry Review.

In its inquiry, the Committee examined the ATO’s points of engagement with taxpayers and other stakeholders, and reviewed the ATO’s performance against advances made by revenue agencies in comparable nations. The inquiry asked what taxpayers should now expect from a modern tax service which is largely or partly automated.

During the inquiry, the Committee received extensive evidence from the ATO about its “reinvention” as a modern automated tax administration system. However, the inquiry also raised alarms that the Committee said it was compelled to explore. In particular, the Committee was concerned that complexity in Australia’s tax system is impeding the ATO’s transformation into a fully automated and intuitive service. Australia’s complex system for claiming workplace-related deductions, for example, was highlighted during the inquiry as being out of step with approaches in most other advanced nations, which had almost universally standardised their approach. The Committee concluded that, under Australia’s self-assessment model, more should be done to make tax obligations easier for taxpayers to understand and simpler to comply with.

Recommendations

In its 242-page report, the Committee made 13 recommendations, including:

  • that a review of Australia’s tax system should be undertaken before 2022, with the purpose of making recommendations on how to simplify the present tax system, in order to both reduce the quantum of tax law and improve comprehension and compliance by people without expertise in taxation law;
  • more immediate tax reform to close up tax loopholes, and to meet new challenges evolving with the increase in freelance and contracting work – in particular, the Committee called for introduction of a standard workplace expenses deduction scheme (as proposed by the Australia’s Future Tax System Review), with individuals allowed to claim above the set amount by providing full substantiation through a tax return process;
  • that the ATO should continue to expand availability of technical initiatives such as prefilling, simplified electronic lodgement systems for business and individuals, and online assessment tools to facilitate Australia’s transition to a “push return” tax system – the Committee supports these developments, but wishes to uphold individuals’ choices to manage their own tax affairs, using ATO or commercial products, and to seek professional advice from tax professionals enabled by efficient online lodgement services;
  • based on the New Zealand system, that Treasury should consider an Australian Business Number (ABN) withholding tax system at source for all industries, with the potential for industry-specific rates;
  • that the ATO should adopt a roadmap for the abolition of paper-based returns, including testing and trialling with user groups, although for the foreseeable future the Committee recommends that the ATO maintains the paper-based return service on request;
  • that the ATO should review the functionality of the contactor assessment tool for accuracy and utility to taxpayers by reference to the functionality of the tool deployed in the United Kingdom, and report to the Committee on its progress;
  • that the ATO should continue to deploy behavioural insights approaches to increase taxpayer engagement;
  • that the ATO should make greater use of behavioural insights techniques – such as randomised controlled trials – before full implementation of new initiatives, to determine if such changes are indeed better than current practices, and which changes are the most effective;
  • that the ATO should conduct a comprehensive review of its high-level mission statements to devise a single, cohesive and easily understood framework – “a regulatory philosophy” – that clearly and simply outlines the rights and obligations of both the ATO and taxpayers in the tax engagement process; and
  • that the ATO should engage with all service providers according to the principle of competitive neutrality, allowing taxpayers the ultimate choice of which channel of access or service to use, and which channel is in their own best interests.

Other points from the report

Among other things, the report also noted the following:

  • While the trend towards electronic payments and “tap-and-go” contactless cards in Australia is strong, some jurisdictions overseas are more advanced in implementing financial technology developments that support the shift away from cash. For example, Sweden has mandated for implementation of certified cash registers to provide real-time information to the Swedish Taxation Authority (STA) on sales transactions.
  • Australia has one of the highest levels of reliance on tax practitioners of any OECD country. At hearings, the ATO advised that Australia’s reliance on agents is second only to Italy’s – in Australia, 74% of all tax entities (individuals and businesses) employ a tax professional to help them comply with their obligations.
  • Mr Graeme Davis, Treasury’s Acting Division Head, Tax Framework Division, conjectured that tax complexity may be one cause for Australia’s very high reliance on tax agents compared with other nations. However, he emphasised that “there doesn’t seem to be a direct correlation” between tax complexity and agent usage, citing the lower tax agent usage in the United States, which is not known for having a simple tax system.
  • The Australian tax system supports the use of taxation intermediaries (tax practitioners), as it provides taxpayers with a deduction for the cost of managing tax affairs (irrespective of complexity). The Committee heard evidence that this was inefficient, and that the calibration of the tax system towards overpayment of taxes with refunds provided for workplace deductions, for example, is fuelling a costly “refund churn” while supporting late lodgement and late payment of tax obligations.

Source: www.aph.gov.au/Parliamentary_Business/Committees/House/Tax_and_Revenue/completed_inquiries.

12-month extension of $20,000 instant asset write-off

The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 has now passed through both houses of Parliament without amendment. This uncontroversial and widely supported Bill was originally introduced on 24 May 2018, so it is unusual that the process has taken almost four months.

The Bill amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to extend the period during which small business entities can access expanded accelerated depreciation rules for assets costing less than $20,000 by another 12 months, to 30 June 2019 (the threshold amount was due to revert to $1,000 on 1 July 2018).

Among other things:

  • Small business entities will be able to claim an immediate deduction for depreciating assets that cost less than $20,000, provided the asset is first acquired at or after 7.30 pm (ACT legal time) on 12 May 2015, and first used or installed ready for use on or before 30 June 2019. Depreciating assets that do not meet these timing requirements continue to be subject to the $1,000 threshold.
  • Small business entities will be able to claim an immediate deduction for depreciating assets that cost less than $1,000 if the asset is first used or installed ready for use on or after 1 July 2019.
  • Further, small business entities will be able to claim a deduction for an amount included in the second element of the cost of depreciating assets that are first used or installed ready for use in a previous income year. The total amount of the cost must be less than $20,000 and the cost must be incurred at or after 7.30 pm (ACT legal time) on 12 May 2015, and on or before 30 June 2019. Costs that are incurred outside of these times continue to be subject to the $1,000 threshold.

Currently, assets that cost $20,000 or more, and costs of $20,000 or more relating to depreciating assets, can be allocated to a small business entity’s general small business pool and deducted at a specified rate for the depletion of the pool. This does not change.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, welcomed the passing of the Bill but said, “We will still continue to push for embedding the instant asset write-off in legislation and raising the threshold to at least $100,000”. She said that for capital-intensive businesses the $20,000 threshold is too low; for example, if you’re a farmer and you want to buy an asset like a tractor, “you’re not going to get one for anywhere near the $20,000 threshold”.

Ms Carnell said small businesses and family enterprises need to remember that this is a tax deduction, not a rebate – so they need to make a profit to be eligible to claim the benefit.

Source: http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;page=0;query=BillId%3Ar6118%20Recstruct%3Abillhome.

Cyptocurrency and tax: updated guidelines

The ATO says that for those carrying on a business that involves transacting with cryptocurrency, the trading stock rules apply, rather than the capital gains tax (CGT) rules.

The ATO’s guidelines on the tax treatment of cryptocurrencies have recently been updated, following feedback from community consultation earlier this year. The ATO has provided additional guidance on the practical issues of exchanging one cryptocurrency for another, and the recordkeeping requirements. The ATO received about 800 pieces of individual feedback and submissions.

Through the feedback, the ATO identified the five most frequently raised issues and its current response to these issues, as follows:

  • Issue 1: In many situations, cryptocurrency transactions cannot reasonably be accounted for on a transaction-by-transaction basis, and the only reasonable approach is taxing on a fiat-in and fiat-out basis.

ATO response: The normal recordkeeping rules under the tax laws apply to cryptocurrency transactions as with any other transactions involving the disposal of property. As part of the ATO’s research, it discovered low-cost software solutions that can both record each cryptocurrency transaction (including cryptocurrency-to-cryptocurrency transactions) and convert the value of the proceeds into Australian dollars.

  • Issue 2: High fluctuations in values make it difficult to value cryptocurrency.

ATO response: The ATO heard that high fluctuations in value could create large changes in the “paper” value of cryptocurrency portfolios, compared to realised gains. As cryptocurrencies are generally CGT assets, any gains are not realised until the time of disposal. This is an issue in all investments, and managing this risk falls into the realm of tax planning.

  • Issue 3: Records have not been kept, and we can’t reconstruct them now.
  • Issue 4: It is hard to keep records of high volume trades, particularly in ascertaining value for each trade.
  • Issue 5: There is difficulty in accessing the data required for proper recordkeeping.

ATO response to issues 3, 4 and 5: The normal recordkeeping rules under the tax laws apply to cryptocurrency transactions, as with any other transactions involving the disposal of property. As part of the ATO’s research, it discovered low-cost software solutions that can both record each cryptocurrency transaction (including cryptocurrency-to-cryptocurrency transactions) and convert the value of the proceeds into Australian dollars. The software can take information directly from the exchange or a digital wallet and do the calculations, which helps alleviate the issues with recording trades and accessing data. This type of software may be suitable for cryptocurrency recordkeeping. In most cases, it may be possible to reconstruct records through historical information available from digital currency exchanges, wallet transactions or even normal bank account transactions. Market values of various cryptocurrency can also be obtained from a reputable online exchange.

Source: www.ato.gov.au/Business/Large-business/In-detail/Business-bulletins/Articles/Cyptocurrency-and-tax/.

The ATO as SMSF regulator: observations

In the opening address to the Chartered Accountants Australia and New Zealand National Self-Managed Superannuation Fund (SMSF) Conference in Melbourne on 18 September 2018, James O’Halloran, ATO Deputy Commissioner, Superannuation, shared some observations and advice from the ATO’s perspective as regulator for the SMSF sector. The address included the following points:

  • The ATO aims to address behaviour that seeks to take advantage of the closely held and concessionary nature of an SMSF or seeks to undermine the retirement system by accessing savings in circumstances not allowed under the law.
  • The role of trustees is a crucial one. For example, they must act honestly in all matters concerning the fund, must act in the best interests of all fund members when making decisions and must manage the fund separately from their own affairs.
  • The ATO estimates that about 1,900 SMSFs reported reserves in their 2016–2017 annual returns, totalling $375 million.
  • As at 30 July 2018, some 90% of SMSF returns for the 2016–2017 financial year were lodged on time.
  • Some 27,000 registered SMSFs have not lodged since their establishment, including some 8,900 funds that registered in the 2016–2017 financial year and have not yet lodged their 2016–2017 return.
  • Events likely to attract close scrutiny from the ATO include any unexplained increase in new reserves, increases in the balances of existing reserves, or allocation of amounts from a reserve directly into the retirement phase.
  • Where an SMSF does have reserves, the ATO will be looking to see whether they’re being maintained by a trustee in line with the sole-purpose test.
  • Another emerging issue is the use of multiple SMSFs to manipulate tax outcomes. Given the recent introduction of the transfer balance cap and disregarded small fund assets provisions, the ATO will closely scrutinise arrangements where an individual with multiple SMSFs acts within these funds to circumvent the intended outcomes of these measures. At a baseline level, the ATO believes there are some 13,600 trustees who have more than one SMSF, and 35 trustees who have more than five SMSFs.

Source: www.ato.gov.au/Media-centre/Speeches/Other/Trust-and-confidence-in-self-managed-superannuation-funds–our-common-purpose/.

 

 

 

Client Alert – October 2018

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Claiming work-related expenses: ATO guides and toolkits

This year, the ATO has launched its biggest ever education campaign to help taxpayers get their tax returns right. The ATO says the campaign, which is running throughout tax time, includes direct contact with over three million selected taxpayers, as well as specialised guides and toolkits for taxpayers, agents, employers and industry bodies. A key component of the campaign is simple, plain English guidance for people with the most common occupations, like teachers, nurses, police officers and hospitality workers.

ATO Assistant Commissioner Kath Anderson says that last year work-related expenses totalled a record $21.3 billion, “and we have already flagged that over-claiming of deductions is a big issue”. The most popular topics this year include car, clothing, travel, working from home, and self-education expenses, and the guides for tradies, doctors, teachers, office workers and IT professionals have been popular.

Illegal phoenix activity: public examinations in Federal Court matter

The ATO has announced that public examinations started in a Federal Court matter on 27 August 2018 in relation to a group of entities connected to a pre-insolvency advisor. The examinations will focus on the suspected promotion and facilitation of phoenix activities and tax schemes.

More than 45 service providers, clients and employees of pre-insolvency advisors, as well as alleged “dummy directors” of phoenix companies, will be examined.

Banking Royal Commission: possible super contraventions

On 24 August 2018, the Royal Commission into banking, superannuation and financial services misconduct released the closing submissions, totalling over 200 pages, that set out possible contraventions by certain superannuation entities. The evidence surrounding these alleged breaches was revealed during the fifth round of public hearings, when high-level executives of some of the largest superannuation funds were grilled about practices that may involve misconduct or fall below community expectations.

The Commission heard evidence about fees-for-no-service conduct and conflicts of interests which affect the ability of some super fund trustees to ensure that they always act in the best interests of members. Questioning during the hearings focused particularly on how trustees supervise the activities of a fund and respond to queries from the regulators. Executives were also quizzed about expenditure on advertisements and sporting sponsorships, and finally, the Commission turned its attention to the effectiveness of the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) as regulators.

What’s next?

The Royal Commission’s interim report is now due, and the sixth round of public hearings (10–21 September 2018) is investigating conduct in the insurance industry. The Royal Commission has released four background papers covering life insurance, group life insurance, reforms to general and life insurance (Treasury) and features of the general and life insurance industries.

SMSF issues update: ATO speech

ATO Assistant Commissioners, Superannuation, Tara McLachlan and Dana Fleming recently spoke at the SMSF Association Technical Days in various capital cities. The speech was mainly about practical considerations to be taken into account when setting up a new self-managed superannuation fund (SMSF) and during the first year of its operation. Other issues raised included SMSF registrations, annual return lodgements, SuperStream SMSFs and exempt current pension income and actuarial certificates.

ATO data analytics and prefilling help tax return processing

The ATO reports that a record number of tax returns have been finalised in the first two months of this year’s “tax time” period, thanks to prefilling of tax return data and the ATO’s correction of mistakes using analytics and data-matching. Over $11.9 billion has been refunded to taxpayers, and errors worth more than $53 million were detected and corrected before refunds were issued.

The ATO has prefilled over 80 million pieces of data from banks, employers, health funds and government agencies to make tax returns easier for taxpayers and agents. The ATO’s advanced analytics allow it to scrutinise more returns than ever before, and make immediate adjustments where taxpayers have made a mistake.

Parliamentary committee recommends standard tax deduction, “push return” system

The House of Representatives Standing Committee on Tax and Revenue has tabled its 242-page report on taxpayer engagement with the tax system. This significant report covers issues that have also been canvassed in previous tax reform reviews such as the Australia’s Future Tax System Review and the Henry Review.

In its inquiry, the Committee examined the ATO’s points of engagement with taxpayers and other stakeholders, and reviewed the ATO’s performance against advances made by revenue agencies in comparable nations. The inquiry asked what taxpayers should now expect from a modern tax service that is largely or partly automated.

Australia’s complex system for claiming work-related tax deductions, for example, was highlighted during the inquiry as being out of step with approaches in most other advanced nations, which have almost universally standardised their approach. The Committee concluded that under Australia’s self-assessment model, more should be done to make tax obligations easier for taxpayers to understand and simpler to comply with. The report includes 13 recommendations to help achieve this goal.

12-month extension of $20,000 instant asset write-off

The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 has now passed through Parliament without amendment.

The Bill makes changes to the tax law to extend by 12 months the period during which small businesses can access expanded accelerated depreciation rules for assets that cost less than $20,000. The threshold amount was due to revert to $1,000 on 1 July 2018, but will now remain at $20,000 until 30 June 2019.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the extension, but reminded small businesses and family enterprises that the instant asset write-off is a tax deduction, not a rebate – your small business needs to make a profit to be eligible to claim the benefit.

Cyptocurrency and tax: updated guidelines

The ATO says that for taxpayers carrying on businesses that involve transacting with cryptocurrency, the trading stock rules apply, rather than the capital gains tax (CGT) rules.

The ATO’s guidelines on the tax treatment of cryptocurrencies have recently been updated, following feedback from community consultation earlier this year. The ATO received about 800 pieces of individual feedback and submissions, and has now provided additional guidance on the practical issues of exchanging one cryptocurrency for another, and the related recordkeeping requirements.

The ATO as SMSF regulator: observations

In the opening address to the Chartered Accountants Australia and New Zealand National SMSF Conference in Melbourne on 18 September 2018, James O’Halloran, ATO Deputy Commissioner, Superannuation, shared some observations and advice from the ATO’s perspective as regulator for the SMSF sector. He spoke about matters including the crucial role of fund trustees, the ATO’s activities to address behaviour that seeks to take advantage of SMSFs, what sort of SMSF events attract close ATO scrutiny, and issues relating to the use of multiple SMSFs to manipulate tax outcomes.

 

Taxable SMSF Assets Double: Is Your Fund Affected?

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It’s been a little over a year since the dual changes of the pension transfer balance cap and the reduction of tax concessions for transition to retirement pensions were implemented by the government. Recent research has indicated that these changes has achieved their policy outcome by making almost 25% of previously tax-free SMSF assets lose their status and become taxable.

To recap, a pension transfer balance cap of $1.6m applied from 1 July 2017 to limit the total amount of accumulated superannuation that can be transferred to the retirement phase, where the earnings on assets are tax-exempt. The transfer balance cap is indexed but adjustments are unlikely to occur until at least 2023-24.

The ATO uses the concept of a transfer balance account to track each person’s net pension amounts against their transfer balance cap. Where an individual’s transfer balance accounts exceed their transfer balance cap, the ATO will issue a determination requiring the excess amount to be removed from retirement phase.

In addition, these excess transfer balance amounts are subject to tax, initially at 15% but increasing to 30% for breaches in subsequent years.

Similarly, the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs) was removed from 1 July 2017. From that date, earnings from assets supporting TRISs were taxed at 15% instead of 0%. TRISs have traditionally been used by individuals who have reached their preservation age but do not want to retire.

According to recent research, at June 2018, one year after the sweeping superannuation changes came in, SMSF asset value in accumulation phase was approximately $422bn. This was a 90% increase from March 2017 (before the changes) when asset value in accumulation was around $222bn.

Based on simple modelling (not taking into account contributions tax, deductible expenses, and rebates), assuming a modest return of 5% on assets for the 2018 income year, this increase of SMSF asset value in accumulation phase would result in $3.2bn worth of tax on SMSF earnings. This equates to a $1.5bn increase from the 2017 year.

However, it’s not all doom and gloom for the SMSF sector after the changes, one ray of sunshine in the research is that the changes have led to new strategies being implemented which significantly improved gender imbalance in SMSF assets and balances. Two of the most notable strategies used include:

  • contributions splitting which involve a member of an accumulation fund splitting superannuation contributions with his or her spouse to equalise their total superannuation balances to counter the $1.6m transfer balance cap.
  • re-contributions strategy which involve withdrawal and re-contributions to a spouse’s superannuation account to equalise total superannuation balances up to $1.6m each (subject to the non-concessional contributions limits).

Are you affected?

Is your fund affected by this? Talk to us today, we may have a strategy to help you reduce the taxable proportion of your SMSF assets. Alternatively, if you’re thinking of commencing a TRIS we can help you navigate the tricky laws around this area and make sure you get the maximum benefit from your hard-earned superannuation.

 

ATO holds millions in unclaimed refunds after 200k skipped lodgement

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With the deadline of 31 October for self-preparers edging closer, the ATO is looking to drive lodgement compliance, with about 7 million completed returns lodged so far this tax time.

Broken down, about 4.3 million taxpayers have lodged via a tax agent, with just over 2.7 million taxpayers having lodged their own returns through myTax.

“We estimate there are 200,000 individual salary and wage earners who are likely to have been either due a refund or owed a small amount of tax, but who had not lodged a tax return. Collectively, these clients have millions of dollars of unclaimed refunds,” said ATO Assistant Commissioner Kath Anderson.

“There are a few reasons why Australians might not lodge even if they are due a refund. Some might not lodge because they don’t realize they need to – maybe they are on a low income or haven’t worked recently. Others might be worried about lodging because they haven’t lodged for several years, which often causes them stress and anxiety.”

“We know some people put off lodging because they think they’ll owe money, but for self-preparers the payment is due on 21 November whether or not a return is lodged.”

According to the Tax Office, over 98 per cent of refunds have been issued within 12 business days this year.

However, it has warned against making some common errors, including not declaring all income streams and over-claiming deductions, with over 112,000 tax returns corrected over the first two months of tax time 2018, totalling more than $53 million.

 

Source: Article from Accountantsdaily.com.au

Are You An Australian Resident?

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In this global interconnected world, many Australians will no doubt leave Australia to work in many different countries in a vast array of professions. However, just because you leave Australia for a period time, that doesn’t mean that your Australian tax obligations are no longer relevant. Australian tax is based on the concept of “residency”. If you’re considered to be a resident of Australia then you will be taxed on your worldwide income with a tax offset available for any foreign tax paid.

To work out whether or not you’re a tax resident of Australia, there are several tests. The main test is the “resides” test under common law. This test is generally applied by considering your circumstances over the whole relevant year.

Rather than simply looking at the time spent in Australia, the question is whether your behaviour over a considerable period of time (6 months according to the ATO) has the degree of continuity, routine, or habit that is consistent with residing in Australia.

Some of the factors considered to be relevant in determining residency under this primary test include: your living arrangements (i.e. whether your usual place of abode is in Australia and whether you have family here, or whether any children are enrolled in school etc); the purpose, frequency and duration of visits to Australia; extent of any business/employment ties with Australia; extent of family/social ties with Australia; ownership of real estate in Australia; location of other assets and personal effects; where bank accounts are maintained; and nationality and citizenship.

As you can see, this primary test is entirely dependent on the individual circumstances of each case, and one change could sway the residency test one way or the other. It is also wholistic in that it encompasses almost every aspect of a person’s life and thus very complex to apply especially when you have to weigh certain factors against others.

If it is clear that you don’t satisfy the “resides” test, you will still be considered to be an Australian resident if you satisfy one of the following three statutory tests:

  • Domicile and permanent place of abode – you will be considered to be an Australian resident if Australia is your permanent home (note permanent doesn’t mean everlasting or eternal but is rather contrasted with temporary).
  • 183-day test – if you’re present in Australia for more than half of the income year, whether continuously or with breaks, then you will have constructive residence in Australia unless it can be established your usual place of abode is outside of Australia and you have no intention of taking up residence here.
  • Commonwealth superannuation test – If you’re a member of a Commonwealth government superannuation scheme or have a relationship to a member of such a scheme then you will be considered to be a resident of Australia.

A person’s residency is determined on a year-by-year basis and the Commissioner may treat an individual to be a resident of Australia until it can be clearly established that they have cut all relevant ties with Australia. Residency is a complex area, if you’re unsure or you think you’re on the borderline of being an Australian resident, a tax professional should be consulted before you make any decisions with tax consequences.

Are you going to work overseas or thinking of working overseas?

Before you head overseas to work or start a business, come and see us, we can help you figure out if your individual circumstance would make you an Australian resident once you leave. Or if you no longer wish to be an Australian resident and would like to start overseas with a clean slate, we can help you with that, too.

 

Garnishee Orders May Bring Home The Bacon

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Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

Age Pension Eligibility Rule

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The Government has announced that the Age Pension eligibility age will not go up to 70, as planned. But it is still going up, as is the superannuation preservation age.

The move to take the Age Pension eligibility age up to 67 was legislated by the last Labor Government. The process started in July last year, when Age Pension age went up from 65 to 65 and six months. It is scheduled to go up by six months every two years until 2023, when it will be 67.

The proposal to take Age Pension age up from 67 to 70 was announced in the 2014 Federal Budget. The plan was that from July 2025 the eligibility age would start increasing above 67 until it reached age 70 by July 2035.

The move up to age 70 was included in a bill that was never passed. This means that the decision announced by the Prime Minister last week does not require any legislative amendment.

The move up to age 67 will continue as planned.

The Government also introduced changes to the assets and income tests last year, which have a bearing on Age Pension recipients. Once you get to Age Pension age, the Department of Human Services, will apply a couple of tests to see whether you are entitled to a full or part pension.

Assets test. A single home owner can hold assets worth $258,500 before having the full age pension entitlement reduced. For a single non-home owner, the limit is $465,500.

A home owning couple can hold assets worth $387,500 before having their full age pension entitlement reduced. For a couple who do not own a home the limit is $594,500.

Assets included in the test include superannuation accounts, shares and other financial assets, investment property, business assets, motor vehicles, boats and caravans, collectibles. The family home is exempt.

The Department of Human Services updates these limits in January, March, July and September each year.

For each $1000 of assets over the threshold pension payments are reduced by $3.

Applying this taper rate, a single home-owner’s part pension runs out when asset value reaches $561,250. For a single non-home owner, the part pension runs out when assets reach $768,250.

A home owning couple’s part pension runs out when their asset value reaches $844,000. A non-homeowner couple’s part pension runs out when their assets reach $1.05 million.

Income test. A single person can earn up to $172 a fortnight ($4472 a year) without any reduction in their pension. The pension is reduced by 50 cents for each dollar of earnings over $172. When earnings reach $1987.20 a fortnight the pension cuts out altogether.

A couple can have combined income of up to $304 a fortnight ($7904 a year) without any reduction in pension entitlements. The pension is reduced by 50 cents for each dollar of earnings over $304. When earnings reach $3040.40 a fortnight the pension cuts out altogether.

Preservation age. While the eligibility age for the Age Pension will stop increasing at age 67, the age at which people can get access to their superannuation is still going up

The age at which people can get access to super, under normal circumstances, is called the preservation age. It used to be 55 for everyone but the rules have changed. Here is how it works now:

  • If before July 1, 1960 your preservation age is 55.
  • If date of birth is between July 1, 1960 and June 30, 1961, your preservation age is 56.
  • If date of birth is between July 1, 1961 and June 30, 1962, your preservation age is 57.
  • If date of birth is between July 1, 1962 and June 30, 1963, your preservation age is 58.
  • If date of birth is between July 1, 1963 and June 30, 1964, your preservation age is 59.
  • If date of birth is after July 1, 1964 your preservation age is 60.

There are some circumstances where you can get your super out early but they are very limited and relate mostly to serious medical conditions and severe financial hardship.

To get access to your super you must satisfy what is called a “condition of release”. In addition to reaching the preservation age you need to retire from full time work.

Once you reach age 65 you can take your super, even if you are still working.

Meaning Of Independent: Financial Advisers

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With all the media coverage around the negative behaviour of many large financial advisory firms and their affiliates, you may be forgiven for wanting to deal with a smaller, perhaps more independent financial adviser in the future, but what exactly does “independent” mean in in terms of financial services?

Under the Corporations Act, a person who carries on a financial services business or provides financial advice is prohibited from using the terms “independent”, “impartial”, or “unbiased” or any other term “of like import” in relation to the business or service, except where the person meets certain conditions. This condition is continually monitored by ASIC and it does take steps to intervene when it discovers false claims.

In one recent example, ASIC required four financial advice companies to cease and amend false claims of independence that could mislead consumers. The claims were made on websites and in some cases, in the marketing materials of the companies.

ASIC said it “will continue to publicly name advisers who do not comply with their obligations…and where appropriate, take action to enforce the obligations…and to ensure consumers are not mislead about the nature of the service they are receiving”.

So, what are the conditions that a financial services business have to satisfy to use terms such as “independent”? Basically, these restricted terms can only be used if the business does not:

  • receive commissions (other than commissions that are rebated in full);
  • volume-based payments (ie forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product); and
  • other gifts and benefits from product issuers which may reasonably be expected to have influence.

In addition, the business is expected to operate without any direct or indirect restrictions relating to the financial product and be free from conflicts of interest that may arise from relationships with product issuers (which might reasonably be expected to influence the person). It is ASIC’s view that words such as “independently owned”, “non-aligned”, “non-institutionally owned”, and other similar expressions must also satisfy those conditions.

If you go to a financial adviser that holds themselves out to the “independent” or the like, you can expect them to not receive commissions, volume-based payments or have conflicts of interest. However, “independent” financial advisers are still able to receive asset-based fees without affecting their ability to use restricted terms.

Independent financial advisers would also be more likely to have an open list of products in their approved product list (APL) and have an easy process to recommend a product that is not on the (APL) should you wish to invest in those particular products. Any restrictions whereby an off-APL process is not easy to access would be considered to be a restriction and therefore, the financial services business would not be permitted to use a restricted term such as independent.

Looking for a financial adviser?

The independence of financial advisers is an important issue and may sway decisions about investments as well as choice of advisers. If you’re looking for a financial adviser that’s independent, remember to look out for the use of restricted terms. If you’re after some simple financial advice around your super fund or just some general advice, an accountant with a limited AFSL licence may be able to help. Contact us today to find out more.

 

Reform Of The ABN System

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In Australia, there are currently around 7.7m ABNs with over 860,000 new ABNs issued in 2017-18. The ABN system was originally introduced in 2000 as a way to provide businesses with a unique identifier when dealing with the government and to support the introduction and administration of GST. Over the years, the ABN has become a de facto licence to do business and a key business credential used by other businesses and consumers in general.

Despite this expanded role, the ABN system has not changed substantially since 2000, ABNs can still be obtained easily and quickly using intentionally simple processes to facilitate small businesses. There is concern that this ease of application has led the ABN system to being used for nefarious purposes by operators in the black economy.

This view was affirmed by Black Economy Taskforce which found that ABNs were being used to provide a false sense of legitimacy to dodgy businesses with the potential to deceive consumers and other businesses. 

As a way to tackle this issue, the government has proposed changes to the ABN system to ensure that it remains fit to support the expanded range of purposes it is used for. It is currently consulting on changes including adjusting ABN entitlement rules, imposing conditions on ABN holders, and introducing a renewal process including a renewal fee.

The potential changes to ABN entitlement rules stem from the Taskforce finding that not everyone obtaining an ABN is entitled. This includes: inappropriate use of ABNs in phoenixing schemes; individuals working as employees but applying for ABNs as independent contractors; individuals incorrectly obtaining ABNs to avoid “no ABN withholding”, and individuals fraudulently claiming GST input tax credits.

In response, the taskforce recommended that certain groups (such as apprentices and individuals on tourist visas, as well as workers in certain industries) be excluded from obtaining an ABN. Another avenue to restricting ABNs that is currently being developed by the ABR and ATO include an application experience based on the applicant’s risk profile which may involve stronger entitlement checks before an ABN can be obtained.

In terms of potentially imposing conditions on ABN holders, the Taskforce had initially recommended that ABN holders should only be allowed to continue to hold their ABN if they comply with government obligations (ie tax obligations). Which would allow businesses and individuals to better identify compliant businesses and act as a deterrent to those wanting to engage in black economy behaviour. However, the government emphasised that the design of the ABN cancellation process would need to be fair and transparent and only occur where the business had not taken appropriate steps of rectify issues.

Finally, the government is also consulting on the proposal to make ABNs subject to periodic renewal for a fee as recommended by the Taskforce. While a renewal process would not directly address those who use the ABN system to engage in fraudulent behaviour, it would indirectly address fraudulent behaviour by prompting ABN holders to have a closer engagement with the ABN system. The fee would also assist the ABR to better support data needs and discourage people from holding an ABN when they do not need one or are not entitled to one.