What Does “Retirement” Mean For Super Access Purposes?

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Recently, AMP reported that its superannuation support team has seen a surge in questions about the rules for accessing super. It says people are especially unaware about the retirement rules that apply in the 60-to-64 age range. Here, we break down the requirements by age group and clarify what you must do to “retire” and access your benefits.

Under preservation age

Before you’ve reached your preservation age, you can’t access super on any “retirement” grounds. Your preservation age depends on your date of birth, as shown below:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

 

If you need to access your super before preservation age, speak to your adviser about whether you might qualify on other grounds such as severe financial hardship, compassionate grounds, terminal medical condition or permanent or temporary incapacity.

Preservation age to age 59

Once you’ve reached preservation age you can potentially access your benefits on “retirement” grounds, but if you’re under 60 you must have the intention of permanently retiring. Specifically, two things need to occur:

  • an arrangement under which you were gainfully employed must come to an end (eg you leave a job); and
  • the trustee of your super fund must be reasonably satisfied that you intend never to again become gainfully employed (either on a full-time or part-time basis).

For these purposes, “part-time” gainful employment means at least 10 hours a week. This means you can “retire” even if you intend to work a small amount each week.

If you don’t meet the retirement test, but need to access some of your benefits, consider starting a “transition to retirement income stream” (TRIS). The only eligibility requirement is that you’ve reached preservation age. However, you’ll be limited to withdrawing a maximum of 10% of your account balance each financial year, and you won’t qualify for an income tax exemption on pension asset earnings. Once you’ve met a release ground such as retirement or reaching age 65, these restrictions will no longer apply.

Age 60 to 64

Once you reach age 60, you can potentially access your super without permanently retiring (although you can, of course, retire permanently if you choose.)

All that’s required is that an arrangement under which you were gainfully employed comes to an end (eg you leave a job) after you reached age 60.

That means it’s okay to start another job, or if you were previously working two jobs, it’s sufficient that you leave only one of them. In these cases, you can access a full pension (with an income tax exemption on pension asset earnings, and no 10% maximum annual withdrawal limit) or a lump sum.

Importantly, the Australian Prudential Regulation Authority (APRA) recognises that this is a valid way to access your super, but says that in its view, any future superannuation benefits you then accrue from an ongoing or new job wouldn’t be accessible. To access those benefits, you’d need to meet a further release ground (eg reaching 65 years or “retiring” again).

Age 65 and over

Once you reach age 65, all of your superannuation benefits become accessible. There’s no need to meet any “retirement” or other release grounds.

Need to access your super?

Contact our office and we can guide you through the requirements for “retirement” and other release grounds.

 

ATO tweaks ABN application process

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The tax office has amended its Australian business number application process to ensure applicants are entitled to an ABN, giving it greater visibility over an applicant’s history.

According to an ATO spokesperson, the tax office has implemented changes to the ABN application process to make it easier for applicants to determine that they are entitled to an ABN.

Specifically, the ATO has restructured and simplified the ‘Important Information’ page to make it easier for applicants to understand; developed nudge messaging for minors—i.e. under 14 years of age—to ensure they are using the correct entity type; and highlighted the penalty disclaimer on the ‘Declaration’ page, alerting applicants that penalties can apply for making false or misleading statements in their application.

The tax office has also re-ordered the application so they know who is applying and have all the information about the business before they receive an entitlement decision.

“This change enables us to make a more informed decision and to identify those applicants who are applying multiple times so we can provide them, or their tax practitioners, with better support,” said the ATO spokesperson.

The government also recently announced changes for ABN holders that will see them required to lodge an income tax return from 1 July 2021, and confirm the accuracy of their details on the ABR annually from 1 July 2022.

ABN holders are currently able to retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.

Source: www.accountantsdaily.com.au

 

SMSF Benchmark Report – Class

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Class provides detailed analysis of newly established SMSFs, delivering revealing insights on key characteristics and trends.

Background-

The Class SMSF Benchmark Report, released for March 2019, is a statistical analysis of approximately 170,000 Self Managed Super Funds administered on Class Super, representing around 28% of the estimated number of SMSFs in Australia today. The quarterly Report is compiled using a selection of de-identified data extracted from across the Class Super user base.

This quarter’s special feature casts a spotlight on the characteristics and trends of newly established SMSFs, including the average number of members, establishment age, fund balances and asset allocations.

The analysis for the feature was based on a significant data set of 26,100 funds comprising 46,943 members, which were newly established on Class within a 5-year period from 2014 to 2018.

Some of the revealing insights include:

  • Over 72% of SMSFs are established as two-member funds from the outset, making it important to consider overall fund balance when determining the viability of setting up an SMSF
  • Males have a 42% higher average balance than females when funds are established, which compares with a significantly lower gap of 21% overall across all SMSFs
  • The average establishment age for newly established funds is 48.9, with a small difference occurring between gender.

Glenn Day, acting CEO at Class comments: “The Class SMSF Benchmark Report has become a key reference document for the industry, providing timely data and insights to support SMSF accountants, administrators and advisers.

“The insights on average total fund balances in this quarter’s feature were particularly interesting, in light of recent debate around how much money is needed to set up an SMSF.”

The Benchmark Report can be downloaded here.

Single Touch Payroll – Do it Once, do it Right

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IN BRIEF

  • The new Australian Single Touch payroll system is coming into effect in 2019, making way for a more efficient and secure system of payroll filing.
  • While the impact for businesses already using online accounting software will be minimal, those employing desktop software or spreadsheets will notice the difference.

Australia’s Single Touch Payroll (STP) mandate comes into effect on 1 July 2019, affecting the nation’s 749,000 businesses with under 20 employees. This follows last year’s requirement for businesses with 20 or more employees to use STP from 1 July 2018.

If a business is already using online accounting software the impact is minimal. However, for businesses using desktop accounting software or spreadsheets, the payroll mandates will likely force them to move to the cloud.

One of the biggest triggers of this migration is MYOB’s decision to not update its popular MYOB AccountRight Classic (version 19) for STP. (MYOB’s AccountRight 2018 and later versions do support STP.) There are several hundred thousand businesses using MYOB’s desktop software, according to MYOB.

“Desktop software is going to be very hard to keep compliant because you need to keep connecting to the portal to convey the information,” says Peter Thorp CA, director of the Australian Bookkeepers Network and director of PT Partners, an accounting firm based in Springwood, south of Brisbane.

“You need to upload the file manually, it’s just not going to work. That’s why the online programs are promoted as the way to go,” Thorp says.

A good percentage of a firm’s customer base could turn up this year asking for help migrating to cloud accounting software. However, there are some good reasons as to why firms may not experience this.

“I think they’re going to go through their bookkeeper rather than their accountant,” Thorp says.

Who decides – bookkeeper or accountant?

Kelly Chard CA is a director of GrowthMD, a practice in Brisbane’s Chermside that provides accounting services to medical and dental practices across Australia.

Even though most of her clients use cloud accounting software, she knows plenty of other medical centres that will need to change. “Many have traditional bookkeepers using MYOB desktop software for the past 20 years and they are scared of changing,” she says.

Chard recognises that doctors’ bookkeepers will strongly influence the choice of software. “It would be easy to say, ‘Let’s just move you to MYOB cloud version’, and the bookkeeper might be happy because it tends to look the same. But it may not be the best solution.”

Some small to medium enterprises remaining on desktop accounting software may have been waiting for the cloud to catch up. MYOB’s M-Powered Services for payments is only now coming to its cloud software under the name MYOB PayBy.

The cloud version of MYOB AccountRight recently added multi-currency, but while importers are supported today, exporters will need to wait a couple more months.

AccountRight Classic also has a more capable inventory than Xero or standard versions of QuickBooks Online. Inventory-heavy businesses wanting to move to these two programs may need to buy a dedicated inventory app that integrates into the cloud accounting software.

Chard recommends Xero to most of her clients and encourages them to look at other tools, such as expense management apps Receipt Bank and Hubdoc.

The payroll migration is likely to redistribute market share among the major accounting software companies. Xero and Intuit are eyeing the trove of several hundred thousand MYOB desktop users and anticipating that a good chunk will move away from MYOB.

But rather than redrawing boundaries, STP and Payday Filing may be an opportunity to expand the market for accounting software. “Think about all those businesses that still use spreadsheets,” says Trent Innes, managing director of Xero Australia.

MYOB’s general manager – product, David Weickhardt, agrees. “There are a lot of small businesses that are using very manual processes. Our biggest competitors are Microsoft Excel and Word.”

What if a client wants to stay on desktop?

It is possible to ignore the push to the cloud and keep using desktop accounting software.

A business can lodge its payroll information manually through the Australian Taxation Office’s (ATO) website. However, these manual methods increase the chance of error and are far less efficient than the automated process common to online accounting software.

An alternative is to use an online payroll software just to lodge your payroll details.

MYOB has launched a standalone payroll program for micro-businesses that is compliant with Single Touch Payroll (STP). The program is in effect the automated payroll module from MYOB Essentials and costs A$10 a month for four employees or less.

Xero announced an identical standalone solution for up to four employees at about A$10 a month. The payroll product integrates with Xero’s ledger and GST cashbook.

 

Solicitors Trust Account Audit March 2019

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For any Law Practitioner, the Law Society requires an audit of the trust records at 31st March each year under the Law Professional Uniform Law (NSW).

The Law Society website sets this out as follows:

Appointing an external examiner

Your law practice must appoint an external examiner to complete a written external examiner’s report on your trust records, which the examiner then forwards to the Law Society by 31st May each year.

Notification

Law practices are required to notify the Law Society of the person appointed as their external examiner and must also notify the Law Society when they terminate an appointment.

To notify the Law Society complete the Notification of appointment or cessation of external examiner form and return it completed to the Trust Accounts Department. Further, prior to terminating the appointment of an external examiner the law practice is required to seek the approval of the designated local regulatory authority – the Law Society. To request approval, complete the Request for Approval for Termination of External Examiner form.

If you require an audit of a Trust account prior to the date of 31 May 2019, please notify our office as we are currently conducting the audit for practitioners.

ATO Benchmarks A Handy Business Check-up

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The ATO has released its latest benchmark data to help businesses in over 100 industries compare their performance against competitors. These valuable benchmarks can help you assess measures like your cost of sales or total expenses, among others, which can greatly assist in gauging business performance and spotting tax compliance risks.

How can I use this data?

Businesses can use the data to help them assess their performance against the standards for their industry. For example, if your expenses seem high compared to your industry’s benchmark range, this may prompt you to explore ways you can improve profitability. Additionally, if your figures are outside the benchmark range, you might consider reviewing your records to ensure your business is accurately recording all income and expenses.

Naturally, the ATO also uses this data for compliance purposes. By identifying businesses that are “outliers” compared to their industry benchmarks, the ATO is better able to select businesses for audit. This might include businesses that are reporting significantly less income than competitors relative to expenses or claiming significantly more expenses relative to income.

Being outside a benchmark range does not necessarily mean that something is wrong, but it may lead the ATO to ask questions. ATO Assistant Commissioner Peter Holt likens the benchmarks to the red and yellow flags at the beach: “If you stay between the flags, you’ll be less likely to attract our attention.”

What benchmarks are available?

The ATO calculates the benchmarks using data from the tax returns and activity statements of over 1.5 million small businesses. The latest updated benchmarks are sourced from the 2016–2017 income year. The types of benchmarks that the ATO publishes for each industry vary, but often include useful benchmark information such as:

  • cost of sales as a percentage of turnover (and average cost of sales);
  • total expenses as a percentage of turnover (and average total expenses);
  • non-capital purchases as a percentage of total sales;
  • labour as a percentage of turnover;
  • rent as a percentage of turnover; and
  • motor vehicle expenses as a percentage of turnover.

Most of these benchmarks are expressed as a range (eg “23% to 33%”), and for each industry the ATO provides different benchmark ranges for different annual turnover ranges.

Data is available for over 100 industries across the following categories:

  • Accommodation and food.
  • Building and construction trade services.
  • Education, training, recreation and support services.
  • Health care and personal services.
  • Manufacturing.
  • Automotive electrical services.
  • Machinery and equipment repair and maintenance.
  • Architectural services.
  • Veterinary services.
  • Retail trade.
  • Transport, postal and warehousing.

How to access the benchmarks

An easy and quick way to access the data is to use the “business performance check” tool on the ATO app. After entering a few details about your business, the app will show you how your business compares to your industry’s benchmark ranges. The ATO will not record the information that you enter when using this tool.

Alternatively, you can manually view your industry’s data on the ATO website, where it is arranged both alphabetically (A to Z list of industries) and by industry category.

How is your business performing?

Contact us today for expert advice to help your business succeed. We can help you assess how your business measures up against industry benchmarks, review record-keeping for tax compliance and develop effective strategies for improving your business’ profitability.

 

Compulsory Super: How Can You Speed Up Your Retirement Savings?

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“Superannuation guarantee” (SG) contributions are the minimum superannuation contributions that employers must make for their employees. The SG rate is currently 9.5%, which means employers must make contributions equal to 9.5% of the employee’s salary or wages.

SG contributions are capped for high-income earners. Effectively, an employer is only required to make SG contributions to the extent the employee earns up to $216,120 per annum (indexed); earnings above this threshold don’t attract SG contributions.

In line with long-term government policy to help Australians build retirement savings, the SG rate is scheduled to gradually rise to 12% over several years, as shown in the following table:

Financial year SG percentage
2018–2019 9.5%
2019–2020 9.5%
2020–2021 9.5%
2021–2022 10%
2022–2023 10.5%
2023–2024 11%
2024–2025 11.50%
2025–2026 onwards 12%

But while this timetable is currently set down in legislation, it’s possible these rate increases could take a different path in coming years – either to slow down, speed up or stall indefinitely. Ongoing differences between the two major political parties mean there is significant disagreement about the optimal SG rate, with the Coalition tending to slow SG increases down (having twice passed laws to delay the previous Labor government’s planned increases) and Labor pushing towards a higher rate (with an official long-term goal of increasing the rate not only to 12% but eventually to 15%). There is also a diverse range of opinions among policy researchers and interest groups, adding to the complexity of this issue.

What should Australian workers make of this? Politics around the SG rate may be beyond our control, but individually, workers can help themselves by looking for additional ways to boost their savings, regardless of their income status. As each person has different financial circumstances, retirement plans, lifestyle needs and capacity to make extra contributions, it makes sense to seek professional advice to identify ways to build your savings that are appropriate for your situation.

Some ways that workers can boost their retirement savings might include:

  • Super co-contributions: Workers aged under 71 years with an income of $52,697 or less may be eligible for a government “co-contribution” when they make their own extra after-tax contributions to super.

If you earn $37,697 or less, the government will match your own contributions by 50% (up to a maximum government contribution of $500 for your $1,000 personal contribution). The matching rate then tapers down for incomes up to $52,697.

  • Salary-sacrificed contributions: If you can handle a reduction in your take-home pay, arranging for your employer to pay part of your salary as an extra superannuation contribution can both boost your superannuation and save you tax; you will not pay personal income tax on the amount as it will instead be taxed at 15% when received by your superannuation fund. Just remember that both your SG contributions and salary-sacrificed amounts count towards your $25,000 annual concessional contributions (CC) cap, and exceeding this cap can result in penalty taxes.
  • Deductible personal contributions: If your employer does not offer a salary-sacrifice program, you can make extra contributions from your own after-tax income and then deduct these amounts in your tax return, provided you complete some extra paperwork. These amounts also count towards your CC cap, so take care.

Take control of your super

Talk to us today about building your retirement savings. As well as the tips above, we can help you explore the full range of measures available, including strategies to boost your spouse’s super (through “splitting” and other arrangements), “downsizer” contributions (relating to proceeds from the sale of your home) and more.

 

Three Common CGT Obstacles For Homeowners

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In straightforward cases, a property owned by individuals and used as a main residence throughout the period of ownership will receive a full exemption from capital gains tax (CGT) when the home is sold. But this “main residence exemption” has a number of caveats. Here, we highlight three common scenarios in which a homeowner may face some CGT liability when it is time to sell.

  1. Using your home to generate income

If you use your residence to produce assessable income, you will generally only be eligible for a partial exemption from CGT. Many homeowners will understand that this includes activities like running a business from your home, or leasing the home to long-term tenants. But did you know that this also includes renting out your home – or even just a room – through short-term sharing economy platforms such as Airbnb and Stayz?

The size of your CGT exemption will generally depend on how long you used the home to produce assessable income and the proportion of total floor space that this activity related to.

You may still be eligible for a full main residence exemption if you move out of the home before you start using it to produce income, and choose to continue treating the home as your main residence for CGT purposes. However, you can only choose to do this for a maximum of six years, and it means you cannot treat any other property you live in during that time as your main residence.

If you use the home to generate income before you move out, you will not get a full exemption. Homeowners who use their property to generate income should get tax advice to understand the CGT implications for their specific circumstances.

  1. Land greater than two hectares

Farmers and large property owners should be aware that the main residence exemption covers:

  • your dwelling (and the land directly beneath it); and
  • adjacent land used primarily for private or domestic purposes in association with the dwelling, provided the total area of the dwelling and adjacent land does not exceed two hectares.

This means a residential property (or a residential area of an income-producing farm) greater than two hectares will not be completely exempt from CGT. In this case, the owner can choose which two hectares will attract the exemption and obtain an expert property valuation to substantiate the value of that selected area. If that two-hectare area cannot be separately valued, the exemption is calculated on a proportionate area basis.

  1. Moving home

When buying a new home and selling your old one, you generally have a six-month grace period in which both the old and new homes are treated as your main residence. However, if you are unable to sell your old home within six months of purchasing the new property, the main residence exemption only applies to both homes for the six months before you dispose of the old home. There will be an “excess” period beyond the six-month window that creates a CGT liability. This works as follows:

  • If you choose to claim the main residence exemption for your new home from the time you first move in, you will have a CGT liability to pay in respect of the old home when you sell it.
  • Alternatively, you can choose to continue claiming the exemption for the old home until you sell it, which will not create an immediate CGT liability but will mean your new home only attracts a partial exemption when you eventually sell it.

Plan ahead

The key to maximising your main residence exemption is to be aware of potential traps and to plan ahead, where possible. Contact our office today to discuss your plans for your home and to develop a tax-effective CGT strategy.

 

Increased Super Thresholds For 2019-20

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While the concessional and non-concessional contributions caps will remain unchanged for the 2019-20 financial year, certain other important superannuation thresholds are set to increase from 1 July 2019.

The “CGT cap amount” for non-concessional contributions will increase by $35,000 to $1.515 million for 2019-20, up from $1.480 million for 2018-19. The CGT cap amount is an important concession that allows people to make a personal contribution to super from the disposal of small business assets that qualify for the CGT small business concessions.

The CGT cap is not counted towards the non-concessional cap so it enables further contributions above the $1.6 million total superannuation balance limit. The increase in the CGT cap means that eligible individuals will be able to squeeze an extra $35,000 per person into their superannuation from 1 July 2019.

The concessional contributions cap of $25,000 will remain unchanged for 2019-20. This cap is now only indexed in $2,500 increments. At this current rate of wages growth, the concessional cap is not expected to increase to $27,500 until 2023.

The non-concessional contributions cap is also unchanged at $100,000 for 2019-20 (or $300,000 over 3 years, subject to transitional rules).

While the super guarantee is frozen at 9.5% until 1 July 2021, the “maximum contribution base” will rise to $55,270 per quarter from 2019-20, up from $54,030 for 2018-19. An employer is not required to provide the minimum super guarantee support for that part of an employee’s ordinary time earnings (OTE) above the quarterly maximum contribution base. This quarterly maximum represents a per annum equivalent of $221,080 for 2019-20.

The Government co-contribution “lower income threshold” is set to increase to $38,564 for 2019-20, while the “higher income threshold” is $53,564. A maximum co-contribution of $500 is payable for people with incomes up to the lower income threshold, phasing down for incomes up to the higher income threshold. That is, a Government co-contribution up to a maximum of $500 is payable for a $1,000 personal super contribution.

The “lump sum low rate cap” will increase to $210,000 for 2019-20 (up from $205,000). This is an individual’s lifetime cap on the amount of taxable components of any lump sums they receive that are eligible for a lower, concessional tax rate. Another cap affecting how much tax you pay on lump sum benefits, the concessionally taxed “untaxed plan cap”, will increase to $1.515 million.

The “ETP cap”, which allows concessional tax treatment of part of an employment termination payment, will increase to $210,000 for 2019-20 (up from $205,000). The tax-free amount for a genuine redundancy will increase to $10,638 (base amount) for 2019-20 plus $5,320 for each whole year of service.

The general transfer balance cap will remain at $1.6 million for 2019-20. This also means that the “defined benefit income cap” of $100,000 pa is unchanged.

Explanatory Memorandum April 2019

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Things to get right this FBT season

Fringe benefits tax (FBT) returns will soon be due and with the FBT season now in full swing, it’s vital for tax professionals and managers to have the latest information. FBT expert Stephen O’Flynn has outlined some things to get right with 2019 FBT returns.

FBT rate updates

While there have been no major changes to the FBT rules, the following rates have been updated for the 2019 FBT year:

  • The cents per-kilometre-rate for vehicles (other than cars) between zero and 2500cc and vehicles over 2500cc have increased to 54c/km and 65c/km, respectively.
  • The car parking threshold has increased to $8.83.
  • The statutory/benchmark interest rate has been reduced to 5.2%.
  • The FBT recordkeeping exemption threshold has increased to $8,552.
  • The housing indexation values for states and territories have been updated.

Car parking valuations

If you have been using car parking rates advertised online to calculate the taxable value of your car parking fringe benefits, you may not be using the lowest value available. Car parking rate valuers generally have access to cheaper rates than found online.

In general, rates advertised online include various taxes (eg congestion levy) that inflate the parking rate. Car parking valuers can analyse and exclude these taxes (which are not separately identified) to provide you with a lower daily parking rate.

In practice, employers with five or more car parking spaces should consider obtaining a private valuation of their car parking spaces, as any reduction in the daily rate would reduce the overall car parking FBT liability.

Travel expenses

The ATO is yet to finalise Draft Taxation Ruling 2017/D6, which provides guidance on the tax treatment of many common travel expenses. The draft ruling considers when travel expenses such as transport and accommodation would be considered otherwise deductible and, as such, not subject to FBT. When final, the ruling will clarify when deductions are available for work-related travel expenses.

While the ruling is still a draft, the principles discussed in it are an indication of the ATO’s view of the matter and therefore can be referred to when considering whether travel expenses should be treated as being otherwise deductible.

Contractors and FBT

The ATO has continued to crack down on employers incorrectly engaging employees as independent contractors. As it seems to be a focus point for tax authorities, it is important that employers make accurate determinations of whether contractors engaged are in fact genuine contractors or are common law employees. This is because pay as you go (PAYG) withholding, the superannuation guarantee and FBT would apply to common law employees.

Entertainment benefits

Entertainment benefit rules are often misunderstood by both employees and employers. It is an area that can both pose an FBT risk and provide saving opportunities.

It is common for employers to adopt the 50/50 split method for administrative convenience, but this method takes away the ability to use the minor and infrequent benefits exemption and the on-premises exemption.

In addition, employers should be aware of the distinction between sustenance and meal entertainment. If it is sustenance, it does not have to be included as an entertainment benefit and you do not have to apply the 50/50 split to them.

‘Minor, infrequent and irregular’ use of vehicles

The private use of vehicles is another issue to keep an eye on.

Under subss 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986, a fringe benefit is an exempt benefit where the private use of eligible vehicles (eg vans, utes, four-wheel drives) by current employees during an FBT year is limited to work-related travel, and other private use that is ‘minor, infrequent and irregular’. For the 2019 FBT year, the ATO has released guidance in the form of Practical Compliance Guideline PCG 2018/3. If employers rely on this guideline, they do not have to keep records about their employee’s use of the vehicle to demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular’. Under the guideline, employees are allowed up to 1,000 km of private travel in the vehicle as long as no single return journey exceeds 200 km. Other conditions for this concession to apply include that:

  • the vehicle is provided to the employee for business use to perform their work duties;
  • the vehicle had a GST-inclusive value less than the luxury car tax threshold at the time it was acquired;
  • the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle; and
  • the employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than 2 km to the ordinary length of that trip.

Tax concierge service available to small businesses

The Small Business Ombudsman, Kate Carnell, has announced that taxpayers wanting an external review of an adverse tax decision by the ATO through the Administrative Appeals Tribunal (AAT) can contact the office of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) for assistance from 1 March 2019.

Mrs Carnell said, “Small business owners without legal representation will be offered one hour with an experienced small business tax lawyer at a cost of just $100, as we fund the difference. The lawyer will review relevant documents and provide advice on the viability of the appeal. Should an appeal progress, our case managers will help the small business owner with the process.”

After lodging the application with the AAT, the small business owner will be assigned a case manager from the AAT’s new Small Business Taxation Division, and ASBFEO will offer an additional hour with a lawyer at no cost to the small business.

Small business taxation decisions will be finalised within a turnaround time of 28 days from the date of a hearing at the AAT.

Source: www.asbfeo.gov.au/news/news-articles/tax-concierge-service-open-small-businesses.

ATO small business benchmarks updated

The ATO has released its latest small business benchmarks, providing over 100 different industries with average cost of sales and average total expenses. Businesses can see clearly what the relevant benchmarks are for their industry. The benchmark data is drawn from over 1.5 million small businesses around Australia.

Assistant Commissioner Peter Holt said that businesses should use the benchmarks to gauge the strength of their business and keep an eye on their competition.

“We want small businesses to stay afloat, so our benchmarks are a great way to ensure your business is viable, competitive and not at risk of venturing into rough water”, he said.

The benchmarks also help the ATO identify small businesses that may be doing the wrong thing and not properly reporting some or all of their income.

“Think of the benchmarks like the red and yellow flags on the beach. If you stay between the flags, you’ll be less likely to attract our attention”, Mr Holt said.

Using the business performance check tool in the ATO app is the quickest and easiest way to work out how a taxpayer compares to the small business benchmarks.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-benchmarks-help-small-businesses–swim-between-the-flags-/.

Early recovery of small business tax debts: ATO to be scrutinised

Minister for Small and Family Business Michaelia Cash has asked the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, to look into the ATO’s practices in pursuing early recovery of tax debts from small businesses who are in dispute with the ATO.

The Minister said she was determined to make sure the ATO treats small businesses fairly.

“Early recovery can be devastating for a small business, and is particularly damaging when the small business disputes the recovery and then goes on to win the case,” she said.

The Minister has asked the Ombudsman to look into the extent of the problem and its impact on small businesses, to gather a holistic picture of how current systems impact people running small businesses. The scrutiny will focus on historical cases and will not include live cases currently before the AAT.

The ASBFEO’s 2018 research into unfair treatment by the ATO found some serious system-wide issues affecting the small business sector, including in the area of early debt recovery. The Ombudsman heard from a number of small businesses devastated financially by this practice, which is made all the worse if the ATO gets it wrong.

The Minister said that although she understands the ATO will not enforce recovery of a tax debt other than in exceptional circumstances, “there may be cases where the errors have occurred, and this has substantial consequences for these businesses, which needs to be avoided”.

Source: https://ministers.jobs.gov.au/cash/focus-tax-dispute-issues-and-impact-small-business.

Compensation for defective ATO administration: review announced

The Government has announced that Mr Robert Cornall, a former Secretary of the Attorney-General’s Department, will lead a review of the Scheme for the Compensation for Detriment Caused by Defective Administration (the CDDA Scheme).

The CDDA Scheme allows Commonwealth Government agencies (including the ATO) to pay discretionary compensation when a person or an organisation has suffered detriment as a result of defective administration, but when there is no legal requirement to make a payment.

The Government has commissioned the review to consider the operation by the ATO of the CDDA Scheme in relation to small business. Assistant Treasurer Stuart Robert has said the review will consider:

  • the consistency of the ATO’s CDDA Scheme processes for small businesses;
  • the timeliness of decisions;
  • how effectively findings are communicated to small business;
  • how independent decision-making can be best achieved in future; and
  • the adequacy of compensation for small businesses that have suffered an economic and/or personal loss as a consequence of the ATO’s actions.

Mr Cornall will report to the Government in early 2019.

Source: http://srr.ministers.treasury.gov.au/media-release/024-2019/

Single Touch Payroll: low-cost solutions now available

Single Touch Payroll (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 it will be required for all small employers (with fewer than 20 employees) from 1 July 2019.

Companies have put forward product proposals to offer no-cost and low-cost STP solutions in response to the ATO’s market request. The solutions are required to be affordable (costing less than $10 per month), take only minutes to complete each pay period and not require the employer to maintain the software.

A range of these no-cost and low-cost STP solutions are now coming into the market, and the ATO has updated its list of the current solution providers, as well as those currently developing solutions. They will best suit micro employers (with one to four employees) who need to report through STP but do not currently have payroll software.

While the ATO says it will take all reasonable care to ensure information provided in its list is accurate, changes in circumstances may occur after the solutions are released which may affect the accuracy of the information.

Source: www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Low-cost-Single-Touch-Payroll-solutions/.

Super guarantee amnesty not yet law: ATO will apply existing law

The ATO reminds businesses to be aware that under the current law, if they have missed a superannuation payment or haven’t paid employees’ super on time, they are required to lodge a superannuation guarantee (SG) charge statement.

Until law giving effect to the proposed superannuation guarantee amnesty is enacted, the ATO says it will continue to apply the existing law, including applying the mandatory administration component ($20 per employee per period) to SG charge statements lodged by employers. The Bill containing the amnesty – the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018 – was introduced into Parliament on 24 May 2018, but had not been enacted when Parliament most recently concluded on 22 February 2019. It had been passed by the House of Representatives without amendment but was still before the Senate.

If it is eventually passed into law, the proposed amnesty will be a one-off opportunity for employers to self-correct their past SG non-compliance without penalty. It is intended to be available for 12 months from 24 May 2018 to 23 May 2019. The ATO will apply the new law (if it is passed) retrospectively to voluntary disclosures made during this period. Businesses will be entitled to the benefits of the amnesty for any SG shortfalls they have voluntarily disclosed to the ATO, subject to the eligibility criteria.

To be eligible for the proposed amnesty, an employer will need to:

  • have voluntarily disclosed amounts of SG shortfall or late payments that have not been previously disclosed for any period from 1 July 1992 up to 31 March 2018;
  • have made the voluntary disclosure within the proposed 12-month amnesty period (between 24 May 2018 and 23 May 2019); and
  • not be subject to an audit of its SG for the relevant periods.

Source: www.ato.gov.au/Business/Super-for-employers/Proposed-Superannuation-Guarantee-Amnesty/

ATO finds 90% error rate in sample of rental property claims

In a March 2019 address to the Tax Institute Convention, ATO Commissioner Chris Jordan spoke about the ATO’s release of the Individuals not in business tax gap information for the first time in July 2018, in which it found that work-related expenses are the main driver of the tax gap. Incorrect rental claims and not reporting cash wages also contribute.

Mr Jordan said that following ATO efforts to ensure people claim only what they are entitled to, for the first time in almost 25 years the average work-related claim has decreased, falling on average by about $130 over the past two years. The estimated revenue gain for that same period will be around $600 million.

The Commissioner said the ATO’s next focus is rental income and deductions. As part of the ATO’s broader random enquiry program, its auditors have now completed over 300 audits on rental property claims and “found errors in almost nine out of 10 returns reviewed”. The ATO is seeing incorrect interest claims for entire investment loans where the loan 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.

The Commissioner concluded, “when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk”.

As 85% of taxpayers with rental properties are represented by an agent, the Commissioner said, “there is work we [the ATO and tax agents] can do together in this space”.

Source: www.ato.gov.au/Media-centre/Speeches/Commissioner/Commissioner-s-address-to-the-Tax-Institute-National-Convention-2019/?page=1#Individuals_focus__the_tax_gap

Tribunal: property used for storage was an active business asset

The Administrative Appeals Tribunal (AAT) has decided that a property a small business owner used to store materials, tools and other equipment was an active asset for the purpose of the small business capital gains tax (CGT) concessions.

The taxpayer carried on a business of building, bricklaying and paving through a family trust. He owned a block of land on which there were two 4m × 3m sheds used to store work tools, equipment and materials. Bricks, pavers, scaffolding, mixers and other equipment were stored on open space on the property, and work vehicles and trailers were also parked there. On occasion, some preparatory work was done at the property in a limited capacity. There was no business signage on the property.

After the property was sold in October 2016, the ATO issued a private ruling that the taxpayer was not entitled to apply the small business CGT concessions to the capital gain because the property had not been an active asset within the meaning of s 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997).

The AAT, however, concluded that the extent of the use of the land was far from minimal, and its use was more than incidental to the carrying on of the business. Accordingly, the property was “used, or held ready for use, in the course of carrying on a business” and was an active asset in terms of s 152-40.

Source: Eichmann and FCT [2019] AATA 162, AAT, File No: 2017/5571, Hanger DP, 15 February 2019.