Tax residency rules reassessed in recent Full Federal Court decision

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The recent Full Federal Court decision of Harding v Commissioner of Taxation is an important tax case for Australian expatriates living and working overseas. The Court analysed two of the tests for when an individual will continue to be a tax resident of Australia.

What happened in Mr Harding’s case?

Mr Harding permanently departed Australia in 2009. He started living in an apartment in Bahrain and commuted across the causeway to his permanent position in Saudi Arabia. The plan was that Mr Harding’s wife and youngest son would join Mr Harding in Bahrain at the end of 2011, when their second son finished high school in Australia. Until then, Mr Harding’s wife would continue to live in the family home on the Sunshine Coast. Mr Harding bought a car in Bahrain for his wife, enrolled his youngest son in school in Bahrain and looked for a family house in Bahrain when she visited. But Mrs Harding never moved to Bahrain, and they subsequently separated, and then divorced.

The ATO assessed Mr Harding on the basis that he was a tax resident of Australia for the 2011 income year.

Tests for Australian tax residency

Under the domestic tax law in Australia, an individual will be a tax resident if they meet any one of the following four tests

  1. The person ‘resides’ in Australia – based on the ordinary meaning of the word ‘resides’.
  2. The person’s domicile is in Australia, unless the Commissioner is satisfied the person’s ‘permanent place of abode’ is outside Australia.
  3. The person has actually been in Australia 183 days or more in the tax year (subject to one exception).
  4. The person is either a member of the superannuation scheme established by the Superannuation Act 1990 or an eligible employee for the purpose of the Superannuation Act 1976 – or the spouse or child under 16 of that person. This test often applies to commonwealth government employees.

The decision in Harding concentrated on the first two tests.

How does the decision in Harding help Australian expatriates?

Two aspects of the decision should provide some comfort to Australians living and working overseas.

First, the ATO argued that Mr Harding did not have a ‘permanent place of abode’ outside Australia because his first apartment was only ‘temporary’ while he waited for his wife and youngest son to join him in Bahrain. The ATO also pointed out that Mr Harding could move by packing his belongings in two suitcases and moving to an apartment on a different floor.

The Full Federal Court rejected the ATO’s argument, and concluded that the relevant consideration was whether Mr Harding had abandoned his residence in Australia.

This conclusion may help Australian expatriates living in serviced apartments or hotels on long‑term arrangements, where they can show they have abandoned their residence in Australia.

Second, the ATO argued that a person’s subjective intention should not trump objective ‘connections’ with Australia. The ATO pointed to a list of objective connections Mr Harding continued to have with Australia.

The Full Federal Court concluded that the taxpayer’s intention is relevant. In fact, in Mr Harding’s case, some of the objective connections supported the conclusion that Mr Harding was not a resident of Australia.

What key risks remain for Australian expatriates living and working overseas?

Australian expatriates who maintain a family home in Australia will continue to be high risk and will need to review their circumstances carefully.

Mr Harding’s case was described by the learned primary judge as ‘unusual’, and it is worth noting that the ATO did not assess the income years after Mr Harding and his wife were separated.

The number of days that a person is physically present in Australia (even if well under 183 days) will continue to be a risk indicator that the ATO will consider.

If a taxpayer is a tax resident of the country where they are living and working, there may be a double tax agreement that applies. The effect of the residency article in double tax agreements is generally to deem the individual to be solely a tax resident of one country rather than another. This is based on a series of ‘tie-breaker’ tests. The ‘tie-breaker’ tests vary between the double tax agreements. Care needs to be taken in interpreting double tax agreements, as the rules of interpretation are different to interpreting Australian domestic law.

How to substantiate being a non-resident

The taxpayer’s evidence will always be critical to persuading either the ATO, or a court or tribunal, that the person has stopped ‘residing’ in Australia and has established a ‘permanent place of abode’ outside Australia.

The non-resident taxpayer must make sure they keep relevant, contemporaneous evidence so that they can support their position in any ATO audit.

Logan J gave an important reminder in the Harding decision – that the facts of a particular case should not be elevated to matters of principle. The law has to be applied to ‘the overall circumstances of a given case’.

The critical task for the taxpayer is to ensure that they have sufficient evidence of their ‘overall circumstances’ so that the legislation can be applied to those particular circumstances.

Source : https://www.cgw.com.au/publication/tax-residency-rules-reassessed-in-recent-full-federal-court-decision-how-does-harding-affect-you/.

Greater Flexibility For Accessing Company Losses

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The ability to carry forward tax losses is important for business growth and innovation. A tax loss arises when a taxpayer has more deductions in an income year than assessable income. Being able to carry forward tax losses and deduct these against future assessable income encourages businesses to undertake entrepreneurial or innovative activities that may not initially be profitable.

Under the current law, a company that has experienced a significant change in ownership or control may only carry forward its tax losses to a later income year if the company meets the “same business test”. This test broadly requires that the company currently carries on the same business as it did before the change of ownership or control, and that it does not derive any income from a new kind of business or a new kind of transaction that it previously did not enter into. These rules are designed to prevent “loss trading” (i.e. selling tax losses by selling a loss company to new owners).

Recognising that these rules may be too strict and discourage some companies from legitimately innovating or adapting their businesses to meet changing economic circumstances, the government now proposes to introduce an alternative “similar business test” to make it easier to access prior losses.

Under the proposed new rules, a company that has experienced a significant change in ownership or control will be able to carry forward its losses if it meets either the existing “same business test” or the new “similar business test”.

The word “similar” is not defined in the proposed new rules, and whether a company carries on a “similar” business will be a question of fact. There is no limit on the factors that may be taken into account when determining this. However, the following four factors must be taken into account:

  • the extent to which the assets (including goodwill) used in the current business were previously used in the former business;
  • the extent to which the activities and operations of the current business match those of the former business;
  • the “identity” of the current business compared to the former business – this is a broad-ranging enquiry into all of the characteristics of the business; and
  • the extent to which any changes to the former business result from development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business – this looks at whether any changes are part of the natural organic development of the former business (suggesting similarity) rather than merely reasonable or commercially sensible changes (which would not necessarily support similarity).

The ATO has already published draft guidance on its view of the proposed test. It says that “similar” does not mean a similar “kind” of business. It further says that it will be more difficult to meet the test if “substantial new business activities and transactions do not evolve from, and complement, the business carried on before the test time”. On the other hand, new products or functions that develop from the business activities previously carried on are more likely to indicate a similar business.

If enacted by Parliament, the proposed new alternative test will apply for tax losses arising from the 2015–2016 income year onwards. The new test will also apply to net capital gains and deductions for bad debts.

Make the best use of prior losses

Utilising prior year losses is an important tax planning issue for many businesses. Contact us for advice on the company tax loss rules and to consider whether your business activities are likely to meet the new “similar business test”.

Get your Rental Property claims right

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Claims for rental property tax deductions contain errors in 90 per cent of cases, the Australian Taxation Office reports. It is planning a blitz on what it calls ‘its next big area of focus’.

The ATO says it recently completed investigations of 300 rental property claims and found errors in almost nine out of 10.

Errors include incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.

“When you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.4 billion in reported income, you get a sense of the potential revenue at risk,” the ATO says.

This is the ATO’s next big area of focus when it comes to individual taxpayers. Eighty-five per cent of taxpayers with rental properties are represented by an agent, so that ATO will be targeting tax agents with clients claiming rental property deductions.

The ATO provides guidance to help rental property owners avoid common tax mistakes.

Make sure the property is available for rent. The property must be genuinely available for rent before the owner can claim a tax deduction. The owner must be able to show a clear intention to rent the property, such as advertising the property. The rent should be in line with similar properties in its area and there should not be unreasonable rental conditions.

Portioning expenses. If your rental property is rented out to family or friends below market rate, you can only claim a deduction for that period in proportion to the amount of rent. You can’t claim any deductions for periods when friends or family stay in the property free of charge, or for periods of personal use.

If you own a rental property with someone else, you must declare rental income and claim expenses according to your legal ownership of the property.

Mortgage interest. You can claim interest as a deduction if you borrow to purchase a rental property. If you use some of the borrowing for personal use, such as going on holiday, you cannot claim that interest cost incurred during that period. You can only claim the part of the interest that relates to the rental property.

Borrowing expenses. Borrowing expenses include loan establishment fees, title search fees and the cost of preparing and filing mortgage documents. If your expenses are more than $100, the deduction has to be spread over five years. If they are less than $100, you can claim the full amount in the same year you incurred the expense.

Purchase costs. You can’t claim any deductions for the costs of buying your property. These costs, which include conveyancing fees and stamp duty, are added to the cost base of the property, which is used to work out any capital gains tax liability.

Repairs, improvements and construction costs. Ongoing repairs that relate directly to wear and tear or damage that happened as a result of renting out the property, such as fixing a hot water system, can be claimed in full in the same income year you incurred the expense.

Initial repairs for damage that existed when the property was purchased are not immediately deductible. These costs are added to the cost base and used to work out the capital gain when the property is sold.

Work such as replacing a roof or renovating a bathroom is classified as an improvement and not immediately deductible. These can be claimed at 2.5 per cent each year for 40 years from the date of completion. Likewise, capital works, such as extensions and alterations, can be claimed at 2.5 per cent of the cost over 40 years from the date the construction is completed.

Capital gains. If you make a capital gain on the sale of the property, you will need to include the gain in your tax return for that financial year. If you make a capital loss, you can carry the loss forward and deduct it from capital gains in later years.

 

Source: https://therub.com.au/rub-featured/tax-man-warns-get-your-rental-property-claims-right/

 

New PAYG laws to place focus on on-time BAS lodgment

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Late last year, new legislation to deny an income tax deduction for certain payments if the associated withholding obligations have not been complied with were passed.

Payments that are impacted includes salary, wages, commissions, bonuses or allowances to an employee; director’s fees; payments under a labour hire arrangement; payments to a religious practitioner; and payments for a supply of services.

The deduction is only denied where no amount has been withheld at all or no notification is made to the commissioner.

BDO partner Mark Molesworth said accountants should advise their clients on the importance of on-time lodgment of BAS if they want to hold on to their deductions.

“The on-time lodgement of BASs is now even more important than ever, because a failure to lodge the BAS on time may result in a business permanently its tax deduction for wages paid,” said Mr Molesworth.

Mr Molesworth said the new law will also mean businesses have to take particular care in obtaining a valid ABN from their suppliers and to withhold at the top marginal rate of tax if an ABN is not provided.

“While this requirement has been part of the law since 2000, many businesses have ceased to focus on it… a renewed focus on obtaining a valid ABN from all suppliers is suggested.” he said.

“An exemption is available for voluntary notification to the ATO of mistakes in relation to compliance with withholding requirements. Therefore, provided a business rectifies its mistake before the ATO asks them about it (e.g. where a business lodges their BAS late, but before the ATO initiates an enquiry) they will still get their tax deduction.

“Businesses should not intend on relying on this exemption however, because the ATO’s data collection systems are sophisticated at picking up non-compliance in real time and launching enquiries.”

RSM senior manager Tracey Dunn had previously said that businesses should take the opportunity to review payments made to employees and contractors to ensure withholding obligations are being met.

Source: Article by Jotham Lian – www.acccountantsdaily.com.au

Statement from Commissioner Chris Jordan about transition to Single Touch Payroll for small employers

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The ATO has provided a tailored approach to comply with STP for small employers.

Parliament has now passed legislation to extend Single Touch Payroll (STP) reporting to include all small employers (those with fewer than 20 employees) from 1 July 2019. STP is pay day reporting by employers to the ATO as it happens, this reporting having started on 1 July 2018 for large employers (20 or more employees).

Extending STP to all employers will help ensure all Australians get their full superannuation entitlements, give greater transparency and help ensure a level playing field for small business. This initiative is also an important step in streamlining business reporting and keeping pace with the digital age.

We understand the move to real-time digital reporting may be a big change for employers, especially small business, so the ATO will adopt a supportive, tailored approach to help them undertake this change.

  • We understand that many small businesses and other small employers do not currently use commercial payroll software and they will not be required to purchase such software to report under STP.
  • The ATO is working with software providers to develop low and no-cost reporting solutions including simple payroll solutions, portals and mobile apps. We will publish a list of providers on our website at ato.gov.au/stpsolutions.

I want to reassure small business and give my personal guarantee that our approach to extending Single Touch Payroll will be flexible, reasonable and pragmatic. In particular, the ATO understands there will be circumstances where more time is needed to implement STP or lodge reports.

  • We will offer micro employers (1 to 4 employees) help to transition to STP and a number of alternative options – such as allowing those who rely on a registered tax or BAS agent to report quarterly for the first two years, rather than each time payroll is run.
  • Small employers can start reporting any time from the 1 July start date to 30 September 2019. We will grant deferrals to any small employer who requests additional time to start STP reporting.
  • There will be no penalties for mistakes, missed or late reports for the first year.
  • We will provide exemptions from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.

Pleasingly, many small employers have already taken up STP reporting and they have provided positive feedback that STP makes payroll reporting easier.

The best thing to do is contact us if you have any questions or concerns about STP or any other tax matters, on 13 28 61 or at ato.gov.au/stp.

Chris Jordan

Commissioner of Taxation

Source: https://www.ato.gov.au/Media-centre/Articles/Transition-to-Single-Touch-Payroll-for-small-employers/

Downsizer Superannuation Contributions

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In an effort to reduce pressure on housing affordability, the government wants to encourage older Australians to sell their home in order to improve housing stock. To achieve this, the government has introduced a new opportunity for older Australians to contribute some of the proceeds from the sale of their home into superannuation.

Under the new measure, which took effect in July 2018, individuals aged 65 years and over who sell their home may contribute capital proceeds from the sale of up to $300,000 per member as a “downsizer” superannuation contribution.

This means an eligible couple can potentially contribute up to $600,000 from the sale of their home. Downsizer contributions:

  • do not count towards the member’s non-concessional contributions cap;
  • are not subject to the “work test” that usually applies to voluntary contributions by members aged 65 years and over; and
  • may be made even if the member’s total superannuation balance (TSB) exceeds $1.6 million.

However, downsizer contributions, once made, will increase the member’s TSB. The usual limit on transferring benefits into the tax-free retirement phase also applies. This means that if you have already met your $1.6 million transfer balance cap, any downsizer contribution you make will need to stay in accumulation phase where the earnings will be subject to income tax of 15%.

To qualify for downsizer contributions, a member or their spouse must have owned the home for 10 years prior to the sale and the sale must qualify for the CGT main residence exemption, either partially or in full. For pre-CGT assets (i.e. those acquired before 20 September 1985), it is required that the sale would have qualified for the CGT main residence exemption had the home not been a pre-CGT asset. Despite the name, “downsizer” contributions can be made even if the member does not purchase another replacement property.

Additionally, the member must make the downsizer contribution within 90 days of receiving the sale proceeds, and must complete a specific form and provide it to their superannuation fund when, or before, they make the contribution. Members should therefore plan their downsizer contribution carefully before transferring any proceeds into superannuation to ensure the contribution is valid. The ATO says that downsizer contributions that are later identified as ineligible will be re-reported as personal contributions, which may result in the member exceeding their non-concessional contributions cap.

Could this affect my Age Pension entitlements?

Yes. Broadly, while the family home is not assessable for the purposes of determining Age Pension eligibility, superannuation savings are. This means that selling the family home and placing the proceeds into superannuation may result in either a complete loss of entitlement to the Age Pension or reduced pension entitlements.

This will be a key consideration for many members. These individuals should seek advice to weigh up the loss of Age Pension benefits against the expected return on their superannuation investments (and taking into account the expected long-term capital growth of the main residence if retained).

Looking to downsize your home?

If you are thinking of selling your home and implementing a “downsizer” contribution, talk to us about whether you will qualify and whether you may require financial advice about this strategy. It is important that this contribution forms part of a long-term retirement plan that covers the relevant taxation, superannuation and Age Pension issues.

 

Explanatory Memorandum March 2019

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Single Touch Payroll reporting for small businesses: get ready!

Parliament has now passed legislation – the Treasury Laws Amendment (2018 Measures No 4) Bill 2018 – to bring in Single Touch Payroll (STP) reporting for all small employers (that is, employers with fewer than 20 employees) from 1 July 2019. STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. For large employers (with 20 or more employees), STP reporting started gradually from 1 July 2018, and until now it has been optional for small employers.

The basics of STP reporting
  • Each employer needs to report their employees’ tax and super information to the ATO on or before each payday, or authorise a third party such as a registered agent or payroll service provider to report on their behalf. They need to send the information from STP-enabled payroll software.
  • When STP reporting is in place, employers no longer need to provide payment summaries to their employees for the payments reported and finalised through STP. Payments not reported through STP, such as employee share scheme (ESS) amounts, still need to be reported on a payment summary.
  • Employers no longer need to provide payment summary annual report (PSARs) to the ATO at the end of the financial year for payments reported through STP.
  • Employees can view their year-to-date payment information using the ATO’s online services, accessible through their myGov account. They can also request a copy of this information from the ATO.
  • Employers need to complete a finalisation declaration at the end of each financial year. The information reported through STP will not be tax-ready for employees or their tax agents until the employer makes this declaration.
  • Employers need to report employees’ superannuation liability information – as usually provided to the employees on their payslips – for the first time through STP. Super funds will then report to the ATO when the employer pays the super amounts to employees’ funds.
  • From 2020, the ATO will pre-fill activity statement labels W1 and W2 for small to medium withholders with the information reported through STP. Employers that currently lodge an activity statement will continue to do so.
ATO offers support during the transition

ATO Commissioner Chris Gordon has said he wants to “reassure small business and give my personal guarantee that our approach to extending Single Touch Payroll will be flexible, reasonable and pragmatic”. The ATO understands that many small businesses and other small employers don’t currently use commercial payroll software and “they will not be required to purchase such software to report under STP”. The ATO is working with software providers to develop low- and no-cost reporting solutions including simple payroll solutions, portals and mobile apps, and will publish a list of providers at www.ato.gov.au/stpsolutions.

In particular, the ATO understands there will be circumstances where small businesses need more time to implement STP or lodge reports. Small employers can start reporting any time from the 1 July start date to 30 September 2019. The ATO will grant deferrals to any small employer who requests additional time to start STP reporting.

There will be help available for micro employers (with one to four employees) transitioning to STP, and the ATO will offer a number of alternative options – such as allowing those who rely on a registered tax or BAS agent to report quarterly for the first two years, rather than each time payroll is run.

There will be no penalties for mistakes, or missed or late reports, for the first year, and employers experiencing hardship or who are in areas with intermittent or no internet connection will be able to access exemptions.

Source: www.ato.gov.au/Media-centre/Articles/Transition-to-Single-Touch-Payroll-for-small-employers/; www.ato.gov.au/stpsolutions.

Super guarantee compliance: time to take action

The government’s latest initiatives targeting non-compliance with superannuation guarantee obligations give businesses plenty to think about. With Single Touch Payroll (STP) on the way for small businesses and a proposed 12-month “amnesty” for disclosing underpayment of contributions, all employers should take time to review their arrangements – both historical and prospective.

The government is getting tough on employers who fail to make compulsory superannuation guarantee (SG) contributions. A host of measures are being implemented, ranging from improved reporting systems through to proposed employer penalties of up to 12 months’ imprisonment.

New reporting standard

On 1 July 2018, Single Touch Payroll (STP) reporting became mandatory for employers with 20 or more employees. STP is a real-time electronic reporting system that requires employers to submit payroll information such as salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO directly through their payroll software (or third-party service provider) at the time they pay their employees.

Importantly for small businesses, the government wants to extend STP reporting to all employers from 1 July 2019. It says that mandatory STP reporting for all businesses, regardless of their size, will improve the ATO’s ability to monitor compliance and take action when required.

Although the legislation to implement this measure is still before Parliament, we should assume the changes will proceed and plan early. Businesses should ask their current payroll solution provider what software updates (or new products) are required in order to become STP-compliant.

Small businesses without any current payroll software should not panic. The ATO says that over 30 software providers propose to release a low-cost STP solution (costing less than $10 per month) from early 2019, which may include simple solutions such as mobile apps or portals.

Amnesty for underpayments

The government is proposing a 12-month “amnesty” to allow employers to voluntarily disclose and correct any historical underpayments of SG contributions for any period up to 31 March 2018 without incurring penalties or the usual administration fee ($20 per employee per quarter). This is provided the ATO has not already commenced (or given notice of) a compliance audit of that employer. Additionally, employers will be entitled to claim deductions for the catch-up payments they make under the amnesty. (Under the usual rules, such payments are not deductible.) Employers will, however, still need to pay the usual interest charges.

While these are welcome incentives for employers to make a disclosure, there is one problem: legislation to enable the amnesty is still before Parliament, with the amnesty slated to apply from 24 May 2018 to 23 May 2019. There is no guarantee the legislation will pass, so what does this mean for employers wishing to take advantage of the amnesty?

If an employer discloses now and the amnesty legislation is not passed, the ATO will be required to administer the usual laws. This means catch-up payments will be non-deductible and penalties and administration fees will apply. However, the ATO may view the employer’s prompt disclosure favourably when deciding whether to use its discretion to reduce the penalties.

Proposed increase for small business instant asset write-off

In a speech on 29 January 2019, Prime Minister Scott Morrison announced the government’s intention to increase the instant asset write-off already available for small businesses from $20,000 to $25,000. Mr Morrison also said that the instant write-off, due to revert to $1,000 on 1 July 2019, would be extended by another 12 months to 30 June 2020.

Mr Morrison said these measures are expected to benefit more than three million eligible small businesses (with turnover of up to $10 million a year) to access the expanded accelerated depreciation rules for assets costing less than $25,000. The government’s intention is that, from 29 January 2019, small businesses will be able to instantly deduct each and every business asset costing under $25,000.

The government introduced the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 in Parliament on 13 February to implement the higher $25,000 threshold. At the time of writing, the Bill was still before the House of Representatives.

Labor’s proposal

In contrast, Labor has previously proposed an “investment guarantee” that would provide all businesses with an immediate 20% tax deduction from 1 July 2020 for any new eligible asset worth more than $20,000. Under this measure, the balance of the asset would be depreciated in line with normal depreciation schedules from the first year. Labor’s investment guarantee would be a permanent accelerated depreciation measure so that businesses could continue to take advantage of an immediate 20% tax deduction whenever they made a new investment in an eligible asset.

Source: www.liberal.org.au/latest-news/2019/01/29/stronger-economy-its-about-people; www.chrisbowen.net/media-releases/australian-investment-guarantee-to-deliver-jobs-tax-relief/.

ATO warns about new scams in 2019

The ATO is warning taxpayers to be alert for scammers impersonating the ATO, as they may change tactics in 2019.

Assistant Commissioner Karen Foat says scammers have been developing new ways to get taxpayers’ money and personal information over the summer break. “We are seeing the emergence of a new tactic, where scammers are using an ATO number to send fraudulent SMS messages to taxpayers asking them to click on a link and hand over their personal details in order to obtain a refund”, she said. “Taxpayers should be wary of any phone call, text message or email asking you to provide login, personal or financial information, especially if you weren’t expecting it.”

While the ATO regularly contacts people by phone, email and SMS, there are some tell-tale signs that you’re being contacted by someone who isn’t with the ATO. The ATO will never:

  • send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
  • use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
  • request payment of a debt using iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
  • ask you to pay a fee in order to release a refund owed to you.

Source: www.ato.gov.au/Media-centre/Media-releases/New-year,-new-scam/.

ATO refers overdue lodgements to external collection agencies

The ATO has recently started referring taxpayers with overdue lodgement obligations to an external collection agency to obtain lodgements on the ATO’s behalf. External collection agencies will focus on income tax and activity statement lodgements. Referral to an external collection agency doesn’t affect a taxpayer’s credit rating.

If a case is referred to an agency to obtain overdue lodgements, the ATO will notify the taxpayer in writing before phoning them or their authorised contact. Letters issued by an external collection agency will include:

  • their company name and contact details; and
  • details of lodgement obligations the taxpayer needs to give priority.

After the agency has notified the taxpayer in writing, they will phone the taxpayer (or their authorised contact) to negotiate lodgement of the overdue documents and request payment of any debt. When an agency contacts a taxpayer, they will work with them to reach agreement on how they can lodge and subsequently pay any debt.

The ATO assures taxpayers that when it works with agencies:

  • the ATO doesn’t “sell” the lodgement and payment obligations – the lodgement and payment remain due and payable with the ATO; and
  • the agencies aren’t paid commissions – they are paid on a fee-for-service basis.

Source: https://www.ato.gov.au/General/Gen/If-you-don-t-lodge/?page=1#External_collection_agencies.

Government consultation on sharing economy reporting

The Federal Government has released a consultation paper seeking views on the possible characteristics of a reporting regime to provide information on Australians who receive an income from sharing economy websites.

As part of the 2018–2019 Federal Budget, the government announced that it would consult stakeholders on how it could implement the Black Economy Taskforce recommendation for a sharing economy reporting regime. The Taskforce heard that as the sharing economy grows, there is an increasing risk that sellers (participants selling goods and services via sharing economy platforms) may not be paying the right amount of tax.

The consultation paper notes that the ATO has limited information about the income of sharing economy sellers. This transparency gap, where many sellers are not familiar with their tax obligations, is “not a desirable outcome”. In Australia’s self-assessment tax system, while education and guidance on tax obligations is important, “the absence of a comprehensive reporting framework for workers poses risks of non-compliance”.

Some of the questions posed in the paper include:

  • Do there need to be changes to existing reporting requirements as they relate to sellers in the sharing economy? Is a separate reporting regime required?
  • In what circumstances would it be appropriate to require sharing economy platforms to regularly report information about the activities of platform sellers to the ATO?
  • Should marketplaces, including those for goods, be included in a reporting regime for the sharing economy?
  • Are there reporting regimes or elements of reporting regimes from other countries that should be considered in the Australian context? If so, why?

The Taskforce’s report recommended that a compulsory reporting regime be established. “Operators of designated sharing (“gig”) economy websites should be required to report payments made to their users to the Australian Taxation Office (ATO), Department of Social Services (DSS) and other government agencies as appropriate”, the report said.

A reporting regime like this would require gig platforms like Uber, Airtasker and Menulog to provide sellers’ identification and transaction data in a standard format. The platforms would also need to ensure accuracy of the collected data. This may require infrastructure changes and impose other compliance costs on businesses, and data privacy issues will need to be carefully considered.

Under another option, the paper says an alternative model to requiring reporting by platform operators would be to place a requirement on financial institutions such as banks or payment processors to provide sharing economy platform transaction data to the ATO for data matching and pre-filling purposes. While this option might result in lower compliance costs for sharing economy platforms, costs would be incurred by financial institutions.

Source: https://treasury.gov.au/consultation/c2018-t350194/.

Extra 44,000 taxpayers face Div 293 superannuation tax

An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017–2018.

Individuals with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their “low tax contributions” (i.e. concessional contributions). Concessional contributions include all employer contributions, such as the 9.5% super guarantee (SG) and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.

The maximum Div 293 tax payable is $3,750 ($25,000 x 15%). Despite this extra 15% tax, there is still an effective tax concession of 15% (i.e. the top marginal rate – excluding the Medicare levy – less 30%) on concessional contributions.

Higher numbers of taxpayers are facing the additional tax because the Div 293 income threshold was reduced to $250,000 for 2017–2018 (it was previously $300,000). This income threshold has a broad tax definition and includes concessional super contributions (up to $25,000). This means that the Div 293 tax can be triggered for taxpayers with incomes below $250,000 (although the additional tax only applies to amounts above the $250,000 threshold).

Taxpayers have the option of paying the Div 293 tax liability using their own money, or by electing to release an amount from an existing super balance (which means completing a Div 293 election form). When someone makes such an election, the ATO will direct their nominated super fund to release the amount to the ATO. Although the election can be made within 60 days using the ATO approved form, taxpayers still need to pay the additional tax by the due date to avoid interest charges.

Negative gearing and many salary packaging arrangements generally will not assist in bringing your income under the $250,000 threshold. However, the following may be useful to know:

  • If you expect to exceed the high-income threshold, you may wish to consider scaling back your super contributions to only the mandatory 9.5% super guarantee contributions.
  • Reconsider making additional contributions for a financial year if you’re also anticipating a large one-off amount of taxable income during an income year. For example, an employment termination payment or a large net capital gain will flow through into your taxable income and may push you above the high-income threshold, triggering the Div 293 tax for that income year.
  • Labor has proposed, if elected in the imminent Federal election, to further reduce the Div 293 income threshold to $200,000 and catch more taxpayers in the Div 293 net.

Source: https://www.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Additional-tax-on-concessional-contributions-(Division-293)-notices/

Company losses “similar business test” Bill passes

The Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 has finally been passed. The tax law changes under this Bill, which was originally introduced on 30 March 2017, will supplement the “same business test” with a “similar business test” for the purposes of working out whether a company’s tax losses and net capital losses from previous income years can be used as a tax deduction in a current income year.

As with the same business test, the business continuity test applies to the deductibility of tax losses, capital losses and bad debts. It also is relevant to whether a company joining a consolidated group can transfer its losses to the head company of the consolidated group.

Like the same business test, the focus of the similar business test is on the identity of the business. It is not sufficient for the current business to be of a similar “kind” or “type” to the former business. For example, it is not enough to say that the former business was in the hospitality industry and the current business is also in the hospitality industry. Instead, the test looks at all of the commercial operations and activities of the former business and compares them with all of the commercial operations and activities of the current business to work out if the businesses are “similar”.

As with the same business test, whether the current business is similar to the former business is a question of fact. The following four factors must be taken into account when considering the businesses’ similarity:

  • Same assets used to generate income – the extent to which the assets (including goodwill) used in the current business to generate assessable income were also used in the company’s former business to generate assessable income.
  • Assessable income from same activities – the extent to which the activities and operations that generate the current business’s assessable income were also the activities and operations that generated the former business’s assessable income.
  • Identity of the business – a close comparison between the identities of the former and the current business.
  • Development of former business – the extent to which any changes to the current business result from the development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business.

The changes will apply to income years starting on or after 1 July 2015. The proposal was previously announced on 7 December 2015 as part of the government’s National Innovation and Science Agenda.

Source: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5850%22.

 

Client Alert March 2019

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Single Touch Payroll reporting for small businesses: get ready!

Legislation has recently passed to bring in Single Touch Payroll (STP) reporting for all small employers (with fewer than 20 employees) from 1 July 2019.

STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. For large employers (with 20 or more employees), STP reporting started gradually from 1 July 2018, and until now it has been optional for small employers.

ATO Commissioner Chris Gordon has said he wants to “reassure small business and give my personal guarantee that our approach to extending Single Touch Payroll will be flexible, reasonable and pragmatic”.

The basics of STP reporting

  • With STP reporting, employers no longer need to provide payment summaries to employees for payments reported through STP. Payments not reported through STP, like employee share scheme (ESS) amounts, still need to be reported on a payment summary.
  • Employers no longer need to provide payment summary annual report (PSARs) to the ATO at the end of the financial year for STP reported payments.
  • Employees can view their year-to-date payment information using the ATO’s online services, accessible through their myGov account, or can ask the ATO for a copy of this information.
  • Employers need to complete a finalisation declaration at the end of each financial year.
  • Employers need to report employees’ super liability information for the first time through STP. Super funds will then report to the ATO when the employer pays the super amounts to employees’ funds.
  • From 2020, the ATO will pre-fill some activity statement information for small to medium withholders with the information reported through STP. Employers that currently lodge an activity statement will continue to do so.

Super guarantee compliance:

time to take action

The government’s latest initiatives targeting non-compliance with superannuation guarantee (SG) obligations give businesses plenty to think about. With Single Touch Payroll on the way for small businesses, all employers should take time to review their arrangements for paying employees’ super.

The government is proposing a 12-month “amnesty” for employers to voluntarily disclose and correct any historical underpayments of SG contributions for any period up to 31 March 2018 without incurring penalties or the usual administration fee. This is provided the ATO hasn’t already commenced a compliance audit of that employer. Additionally, employers will be entitled to claim deductions for the catch-up payments they make under the amnesty.

Proposed increase for small business instant asset write-off

Prime Minister Scott Morrison recently announced the government’s intention to increase the instant asset write-off already available for small businesses from $20,000 to $25,000. Mr Morrison also said that the instant write-off would be extended by another 12 months to 30 June 2020. These measures are expected to benefit more than three million eligible small businesses to access the expanded accelerated depreciation rules for assets costing less than $25,000.

Labor has previously proposed an “investment guarantee” giving all businesses an immediate 20% tax deduction from 1 July 2020 for any new eligible asset worth more than $20,000. This would be a permanent accelerated depreciation measure so that businesses could continue to take advantage of an immediate 20% tax deduction when investing in an eligible asset.

ATO warns about new scams in 2019

The ATO is warning taxpayers to be alert for scammers impersonating the ATO, using a range of new ways to get taxpayers’ money and personal information.

While the ATO regularly contacts people by phone, email and SMS, there are some tell-tale signs that you’re being contacted by someone who isn’t with the ATO. The ATO will never:

  • send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
  • use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
  • request payment of a debt using iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
  • ask you to pay a fee in order to release a refund owed to you.

ATO refers overdue lodgements to external collection agencies

The ATO has recently started referring taxpayers with overdue lodgement obligations to an external collection agency to obtain lodgements on the ATO’s behalf. External collection agencies will focus on income tax and activity statement lodgements, and referral to an external collection agency doesn’t affect a taxpayer’s credit rating.

If your case is referred to a collection agency, the ATO will notify you in writing before phoning you or your authorised contact to negotiate lodgement of the overdue documents and request payment of any debt.

Government consultation on sharing economy reporting

The government has released a consultation paper seeking views on a possible reporting regime to provide information on Australians who receive income from sharing economy websites like Uber, Airtasker, Menulog and Deliveroo.

The ATO and other government agencies currently have limited information about the income of “gig workers” in the sharing economy, and the government’s Black Economy Taskforce recently recommended designing and implementing a compulsory reporting regime. Although there are a lot of issues still to consider, including costs and data privacy, a new regime could mean gig platforms, payment processors or even banks may soon need to report to the ATO and other agencies on gig workers’ income.

Extra 44,000 taxpayers face Div 293 superannuation tax

An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017–2018. This is because the Div 293 income threshold was reduced to $250,000 for 2017–2018 (it was previously $300,000).

Individual taxpayers with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their concessional contributions.

Taxpayers have the option of paying the Div 293 tax liability using their own money, or electing to release an amount from an existing super balance, which means completing a Div 293 election form.

Company losses “similar business test” Bill passes

Legislation originally introduced in March 2017 to supplement the “same business test” with a more relaxed “similar business test” has finally been passed. The test will be used to work out whether a former company’s tax losses and net capital losses from previous income years can be used as a tax deduction for a new business in a current income year. It also is relevant to whether a company joining a consolidated group can transfer its losses to the head company of the consolidated group.