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The Treasurer has handed down his first Budget, an “election Budget”. Labor has made it clear that it will reject some of the key revenue measures announced in the Budget. A number of Bills containing important tax changes have been enacted and some other Bills have lapsed. With less than two months for an election campaign for the two main political parties, now is a good time to recap what has happened so far.

Budget night

On 3 May 2016, Treasurer Scott Morrison delivered his first Budget. Mr Morrison said the Budget was a national economic plan for jobs and growth, for a stronger economy.

“It’s not a typical Budget,” he said. “This is not a time to be throwing money around, you have to spend money wisely, you have to target it and the ultimate test is will it drive jobs and growth.”

The Treasurer said that the people making the economy work were small-to-medium enterprises (SMEs). The Budget announced a number of changes to support small businesses, with some changes starting on 1 July 2016.

The Budget contained a number of significant taxation and superannuation announcements. These included a modest reform of the tax brackets by increasing the $80,000 tax bracket threshold to $87,000, in an attempt to address tax bracket creep; major superannuation changes (balance cap on retirement accounts, lifetime non-concessional contributions cap, transitional to retirement change); a further crackdown on multinational enterprise (MNE) tax avoidance; and GST changes on the importation of low-value goods.

The Government also confirmed that the 2% temporary budget deficit levy (on incomes over $180,000) would expire at the end of the 2016–2017 financial year, as currently legislated.

While the Budget itself was relatively quiet on GST changes, in a pre-Budget interview on Sky News on 1 May 2016, the Prime Minister said there would be no change to the GST in the next Parliament.

“We’ve looked very carefully at the proposal to raise the GST…but we’ve rejected it,” Mr Turnbull said. “I can give you this absolute undertaking: there will be no change to the GST in the next Parliament,” he said. [Note: presumably this means there would be no change to the GST rate or base in the next term of a Coalition Government.]

The major revenue measures announced in the Budget include the following:

• increasing the tax bracket at which the 37% tax rate starts from $80,001 to $87,001 from 1 July 2016;
• a phased reduction in the company tax rate to 25% by 2026–2027;
• major SME tax changes – small business threshold to be increased to $10 million and reduced tax rates for small businesses;
• new measures directed at MNE tax avoidance, eg a diverted profits tax, hybrid mismatch measures, strengthened transfer pricing rules and a significant increase in administrative penalties;
• superannuation:
  • $1.6 million transfer balance cap for retirement accounts;
  • Non-concessional contributions: $500,000 lifetime cap from Budget night;
  • Concessional contributions cap cut to $25,000 from 1 July 2017;
  • Concessional contributions catch-up for account balances less than $500,000;
  • Superannuation contributions tax (extra 15%) for income more than $250,001;
  • Transition to retirement income streams – integrity proposal.
• The Government is to impose GST on goods imported by consumers regardless of value. The new rules will commence on 1 July 2017.

The Opposition’s Budget reply

On 5 May 2016, Federal Opposition Leader Bill Shorten delivered his reply speech stating that Labor will not support the Government’s 10-year plan to reduce the company tax rate to 25% for all companies by 2026–2027. However, Labor will support a tax cut for small businesses with a turnover of less than $2 million per year. He also confirmed that Labor is opposed to any increase in the GST rate.

On the superannuation front, Mr Shorten said Labor’s policies would only ever be prospective. As such, Labor does not support the Government’s proposed $500,000 lifetime cap for non-concessional contributions from Budget night. [Note: the Government’s proposed $500,000 lifetime cap would take into account all non-concessional contributions made on or after 1 July 2007 – although contributions made before the 3 May 2016 Budget night would not result in any tax penalty.]

Instead, Mr Shorten said Labor would support its own policies to reduce the superannuation tax concessions for the top end. [Note: presumably, this means that Labor does not support the Government’s proposed $1.6 million transfer balance cap for retirement accounts from 1 July 2017. If elected, Labor would run with its policy to cap the tax exemption for earnings on a superannuation fund’s pension at $75,000 per annum per person (roughly equivalent to earnings at 5% from a $1.5 million account balance) from 1 July 2017.]

Mr Shorten said Labor would support the Government’s proposed bracket creep measure to increase the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016. However, Labor does not support the removal of the 2% temporary budget deficit levy (on incomes over $180,000) which is legislated to expire at the end of the 2016–2017 financial year.

Bills that received Royal Assent and those that have lapsed

A number of Bills containing important tax changes have received Royal Assent (just before the 2016 Federal Election was announced). These Bills include the following:

• the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 which contains the following amendments:
  • ?amends the ITAA 1997 to encourage new investment in Australian early-stage innovation companies with high growth potential by providing investors in such companies with tax incentives. These incentives include a 20% carry-forward non-refundable offset and specific CGT exemptions; and
  • ? amends the early-stage venture capital limited partnership (ESVCLP) and venture capital limited partnership (VCLP) regimes within the Venture Capital Act 2002 and ITAA 1997 to improve access to venture capital investment and make the regimes more attractive to investors.
• the Tax and Superannuation Laws Amendment (2016 Measures No 1) Bill 2016 which contains the following amendments:
  • ? amends the GST Act to ensure that digital products and other imported services supplied to Australian consumers by foreign entities are subject to GST in a similar way to equivalent supplies made by Australian entities;
  • ?amends the GST Act to better target the way Australia’s GST rules apply to cross-border supplies that involve non-resident entities; and
  • ?amends the tax law to increase the flexibility of Farm Management Deposits to assist primary producers.

With the issue of writs on 9 May 2016 for the holding of the 2016 Federal Election, all Bills that have not been passed by both Houses of Federal Parliament have lapsed. The Government is now in caretaker mode. These are the Bills:

• The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 which  proposes to establish a remedial power for the Tax Commissioner to allow the Commissioner to make, by disallowable legislative instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object.
• The Tax and Superannuation Laws Amendment (2015 Measures No 3) Bill 2015 which proposes to abolish the seafarer tax offset and to reduce the research and development (R&D) tax offset rates by 1.5 percentage points.
• The Superannuation Legislation Amendment (Choice of Fund) Bill 2016 which contains measures to enable employees under workplace determinations or enterprise agreements made from 1 July 2016 to choose their own superannuation fund.

Note that the lists above are not exhaustive.

Want to know more?

Please contact our office on (02) 9954 3534 or email admin@hurleyco.com.au for more information.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Australians with a Higher Education Loan Programme (HELP) debt and/or a Trade Support Loans (TSL) debt who are moving overseas for longer than six months will need to provide the ATO with their overseas contact details within seven days of leaving the country. The requirement follows recent legislative changes.

ATO Assistant Commissioner Graham Whyte has said that affected people can provide their international contact details using the ATO’s online services (for example, through their ATO account linked to myGov).

“Don’t worry if you don’t know your new international residential address yet. Just provide us with your best contact address while you’re away, like your parents’, and update your contact details when you’re settled. The most important thing is that you’re still able to receive correspondence from us while you’re overseas”, said Mr Whyte.

Australians who are already overseas need to update their details no later than 1 July 2017. From 1 July 2017, anyone living overseas and earning above the minimum repayment threshold will be required to make loan repayments, just as they would if they were living in Australia.

“We will be in touch closer to the time with more information about how to report income and make loan repayments”, Mr Whyte said. “For now, all travellers with a HELP and/or TSL debt need to do is update their details and factor in potentially making repayments from 1 July 2017”, he added.

Repayment income and rates

A notice has been gazetted specifying the 2016–2017 financial year HELP repayment income thresholds and rates. They are shown in the following table.

Getting help

From 1 July 2017, student debt holders will need to work out their worldwide income for the 2016–2017 financial year and report details to the ATO.

The arrangements will apply to both new and existing debts. Debts will continue to be indexed each year until paid off. Students can make additional voluntary repayments at any time to reduce their debt, and the debts can be repaid from overseas.

You may wish to seek professional tax advice to determine your residency status and assess your worldwide income. Please contact our office for further information on (02) 9954 3843.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Answer: 

The costs of establishing a superannuation fund would typically be classified as non-deductible capital expenditure. Clearly the SMSF trust – or any interest in the trust – does not qualify as a “depreciating asset” for the purposes of Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

A “blackhole” deduction under section 40-880 of the ITAA 1997 may be available (5-year write-off), but the key issue would be whether the SMSF proposes to carry on a business: see section 40-880(1). This is a complex issue, as typically superannuation funds are involved in passive investments rather than conducting a business.

However, a superannuation fund can carry on a business of investing or trading in shares – this is acknowledged in Taxation Ruling TR 93/17. (Whether an entity is carrying on a business is considered in Taxation Ruling TR 97/11.)

The factors that need to be considered include the following:

• the purpose and intention of the taxpayer in engaging in the activities (to be assessed objectively);
• an intention to make a profit from the activities (to be assessed objectively), even if only a small profit is made or a loss is incurred (although if a loss is incurred every year for a number of years, that suggests the activity may be more in the nature of a hobby);
• the size and scale of the activities – they must be in excess of domestic needs, but need not be the only activities of the taxpayer and can be carried on in a small way;
• repetition and regularity of the activities – however, the expression “carry on” does not necessarily require repetition (see FCT v Consolidated Press Holdings Ltd (2001) 207 CLR 235 at 81) and an isolated activity may constitute the commencement of a business;
• the activities being carried on in a systematic and business-like manner typical of that type of business (eg detailed and up-to-date records and accounts should be kept); and
• the existence of a business plan.

All relevant factors must be considered in combination and as a whole, and no one factor is likely to be decisive.

Sole purpose test

A significant issue would be whether a “business” element would trigger a breach of the sole purpose test that applies to SMSFs (s 62 of the Superannuation Industry (Supervision) Act 1993).

Establishing a business element to activate a blackhole deduction would not necessarily mean that the superannuation fund has breached the sole purpose test. Rather, a superannuation fund carrying on a business is just a possible indicator that the sole purpose test has been contravened. So if the trustee of an SMSF can demonstrate a business element, it may be possible to substantiate that there is no breach of the sole purpose test.

Other issues

While the costs of establishing a superannuation fund are not typically deductible, taxation advice may be deductible under section 25-5 of the ITAA 1997, to the extent that the advice is about the operation of tax laws or costs incurred are for managing the taxpayer’s “tax affairs”. However, in Drummond v FCT [2005] FCA 1129, a taxpayer was denied a deduction under section 25-5 for “taxation advice” when establishing a superannuation fund because the advice included matters outside the scope of managing the taxpayer’s tax affairs.

Also note that Taxation Ruling TR 93/17 discusses deductions that a superannuation fund may be able to claim.

Further advice

The above is a discussion only, and further advice should be obtained before implementing a new strategy. Please contact our office to discuss your circumstances and to obtain tailored advice.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Some of the key advantages of having a corporate trustee include:

Continuous succession – a company has an indefinite life span. A company makes succession to control more certain on death or incapacity.

Administrative efficiency – on the admission or cessation of membership, that person becomes or ceases to be a director of the company. Thus, the title to all assets remains in the trustee company’s name. The situation is vastly different with individual trustees. Each admission or exit of a member, who is also a trustee, involves considerable time and paperwork.

Sole member SMSF’s – you can have an SMSF where one individual is both the sole member and the sole director of the Trustee company; as opposed to sole member funds with individual trustees where you must have two individual trustees.

Greater asset protection – as companies have limited liability, they provide greater protection. The advantages of limited liabilities should never be underestimated.

Administrative penalties – there are a number of penalties that can be readily be imposed under s 166 of the Commonwealth Superannuation Industry (Supervision) Act 1993 by the ATO where no questions are asked. Each individual trustee is subject to a penalty of up to $18,000 per offence. In comparison, a company is only liable to one penalty amount per office.

Advisors should encourage clients to move to corporate trustees

Key steps involved with changing an SMSF trustee

1. A careful review of the prior document trail – preferably each prior deed and deed of change of trustee is carefully reviewed to determine what are the most appropriate provisions that apply to changing the trustee.
2. A review of applicable legislation such as the Trustee Act and stamp duty legislation of the relevant jurisdiction. In some cases the SMSF deed does not contain adequate power and a resort to the provisions in the Trustee Act of the relevant jurisdiction is required.
3. In cases where the deed is out of date and does not have clear power to undertake a change of trustee, updating the deed first is advisable to ensure there is clear and appropriate power.
4. Ensure that the SMSF deed have an appropriate ‘appointor’ power as the ability to appoint and remove trustees is one of the most important powers that can be exercised in relation to controlling an SMSF.

We advise our SMSF clients who currently have individual trustees to consider switching to a corporate trustee as soon as practicable, as not having a corporate trustee may result in costly disputes. We advise clients to seek advice on this from experienced advisers or solicitors specialising in this area.

If you would like more information how you can go about changing your SMSF from an individual trustee into a corporate trustee, please contact us on 02 9954 3843.

‘Getting your clients on board with having a corporate trustee’ SMSF Adviser Magazine written by Daniel Butler (March 2016): 10-11. Print