BUDGET – SPECIAL EDITION

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PERSONAL TAXATION

Personal tax cuts: low–mid tax offset increase now; more rate changes from 2022

In the 2019–2020 Federal Budget, the Coalition Government announced its intention to provide further reductions in tax through the non-refundable low- and middle-income tax offset (LMITO).

Under the changes, the maximum reduction in an eligible individual’s tax from the LMITO will increase from $530 to $1,080 per year. The base amount will increase from $200 to $255 per year for 2018–2019, 2019–2020, 2020–2021 and 2021–2022 income years. In summary:

  • The LMITO will now provide a tax reduction of up to $255 for taxpayers with a taxable income of $37,000 or less.
  • Between taxable incomes of $37,000 and $48,000, the value of the offset will increase by 7.5 cents per dollar to the maximum offset of $1,080.
  • Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.
  • From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

Individuals will receive the LMITO on assessment after lodging their tax returns for 2018–2019, 2019–2020, 2020–2021 and 2021–2022. This is designed to ensure that taxpayers receive a benefit when lodging returns from 1 July 2019.

Rate and threshold changes from 2022 and beyond

From 1 July 2022, the Government proposes to increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000.

Also, from 1 July 2022, the Government proposes to increase the low income tax offset (LITO) from $645 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated). LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Together, the increased top threshold of the 19% personal income tax bracket and the changes to LITO would lock in the tax reduction provided by LMITO, when LMITO is removed.

From 2024–2025, the Government intends to reduce the 32.5% marginal tax rate to 30%. This will more closely align the middle personal income tax bracket with corporate tax rates. In 2024–2025 an entire tax bracket – the 37% tax bracket – will be abolished under the Government’s already-legislated plan. With these changes, by 2024–2025 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Therefore, under the changes announced in the Budget, from 2024–2025 there would only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

The Government says these changes will maintain a progressive tax system. It is projected that in 2024–2025 around 60% of all personal income tax will be paid by the highest earning 20% of taxpayers – which is broadly similar to that cohort’s share if 2017–2018 rates and thresholds were left unchanged. The share of personal income tax paid also remains similar for the top 1%, 5% and 10% of taxpayers.

Under its Budget announcements, the Government says an individual with taxable income of $200,000 may be earning 4.4 times more income than an individual with taxable income of $45,000, but in 2024–2025 the higher-income person will pay around 10 times more tax.

Medicare levy low-income thresholds for 2018–2019

For the 2018–2019 income year, the Medicare levy low-income threshold for singles will be increased to $22,398 (up from $21,980 for 2017–2018). For couples with no children, the family income threshold will be increased to $37,794 (up from $37,089 for 2017–2018). The additional amount of threshold for each dependent child or student will be increased to $3,471 (up from $3,406).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $35,418 (up from $34,758 for 2017–2018). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385), plus $3,471 for each dependent child or student.

The increased thresholds will apply to the 2018–2019 and later income years. Note that legislation is required to amend the thresholds, so a Bill will be introduced shortly.

Social security income automatic reporting via Single Touch Payroll

The Government intends to automate the reporting of individuals’ employment income for social security purposes through Single Touch Payroll (STP).

From 1 July 2020, income support recipients who are employed will report income they receive during the fortnight, rather than calculating and reporting their earnings. Each fortnight, income data received through an expansion of STP data-sharing arrangements will also be shared with the Department of Human Services, for recipients with employers utilising STP.

This measure will assist income support recipients by greatly reducing the likelihood of them receiving an overpayment of income support payments (and subsequently being required to repay it).

The measure is expected to save $2.1 billion over five years from 2018–2019. The Government says the efficiencies from this measure will be derived through more accurate reporting of incomes. This measure will not change income support eligibility criteria or maximum payment rates. The resulting efficiencies will be redirected by the Government to repair the Budget and fund policy priorities.

STP expansion

The Government will provide $82.4 million over four years from 2019–2020 to the ATO and the Department of Veterans’ Affairs to support the expansion of the data collected through STP by the ATO and the use of this data by Commonwealth agencies.

STP data will be expanded to include more information about gross pay amounts and other details. These changes will reduce the compliance burden for employers and individuals reporting information to multiple Government agencies.

BUSINESS TAXATION

Instant asset write-off extended to more taxpayers; threshold increased

The Budget contains important changes to the instant asset write-off rules. These changes are in addition to the measures contained in a Bill currently before Parliament.

There are two key changes.

First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.

The second important change is that the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.

The threshold increase will apply from 2 April 2019 to 30 June 2020.

Small businesses

Small business entities (ie those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current “lock out” laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium sized businesses

Medium sized businesses (i.e. those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

The asset purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Arrangements before 2 April 2019

The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was introduced in Parliament on 13 February 2019. It proposes to amend the tax law to increase the threshold below which amounts can be immediately deducted under these rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules (instant asset write-off). The Bill is still before the House of Representatives.

The changes in the Bill interact with the Budget changes. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 and first used or installed ready for use over the period from 29 January 2019 until 2 April 2019. The changes outlined above will take affect from then (with access extended to medium sized businesses).

Date of effect

The changes announced in the Budget will apply from 2 April 2019 to 30 June 2020.

Accordingly, the threshold is due to revert to $1,000 on 1 July 2020. Although it is not spelt out in the Budget papers, a Treasury official confirmed to Thomson Reuters on Budget night that from that time the concession will only be available to small business entities (ie the instant asset write-off will not be available to medium sized businesses).

REGULATION, COMPLIANCE AND INTEGRITY

Tax integrity focus on larger businesses’ unpaid tax and super

The Government will provide ATO funding of $42.1 million over four years to to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. However, the measure will not extend to small businesses.

Tax Avoidance Taskforce on Large Corporates: more funding

The Government will also provide the ATO with $1 billion in funding over four years from 2019–2020 to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.

The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure is intended to allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

The Government has also provided $24.2 million to Treasury in 2018–2019 to conduct a communications campaign focused on improving the integrity of the Australian tax system.

Black Economy Taskforce: strengthening the ABN rules

The Government intends to strengthen the Australian Business Number (ABN) system by imposing new compliance obligations for ABN holders to retain their ABN.

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

From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually.

These new requirements will make ABN holders more accountable for meeting their government obligations, while minimising the regulatory impact on businesses complying with the law.

This measure stems from the 2018–2019 Budget measure Black Economy Taskforce: consultation on new regulatory framework for ABNs.

Funding for Government response to Banking Royal Commission

The Government will provide $606.7 million over five years from 2018–2019 to facilitate its response to the Hayne Banking Royal Commission.

On 4 February 2019, the Government proposed measures to take action on all 76 of the Royal Commission’s final report recommendations, including:

  • designing and implementing an industry-funded compensation scheme of last resort for consumers and small business ($2.6 million over two years from 2019–2020);
  • providing the Australian Financial Complaints Authority (AFCA) with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018–2019);
  • paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations ($30.7 million in 2019–2020);
  • resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles in accordance with the recommendations of the Royal Commission ($404.8 million over four years from 2019–2020);
  • resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration ($145 million over four years from 2019–2020);
  • establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives ($7.7 million over three years from 2020–2021);
  • undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission ($1 million in 2018–2019);
  • establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and coordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee ($11.2 million in 2019–2020); and
  • providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government’s response ($0.9 million in 2019–2020).

The Government said these costs will be partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies.

ATO analytics: increased funding

The Government will also provide funding designed to increase the ATO’s analytical capabilities.

First, the Government will provide $70 million over two years from 2018–2019 to undertake preparatory work required for the ATO to migrate from its existing data centre provider to an “alternative data centre facility”. The funding will also be used to prepare a second-pass business case that will identify the full cost of activities required to complete the data centre migration project.

The Government will also provide $6.9 million over four years from 2019–2020 to support additional analytical capabilities within the Treasury and other agencies.

SUPERANNUATION

Super contributions work test exemption extended; spouse contributions age limit increased

The Budget confirmed the Treasurer’s announcement on 1 April 2019 that individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test. The age limit for making spouse contributions will also be increased from 69 to 74.

Super contributions work test

Currently, individuals aged 65–74 must work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the “work test”) in order to make voluntary personal contributions.

The proposed extension of the work test exemption means that individuals aged 65 or 66 who don’t meet the work test – because they may only work one day a week or volunteer – will be able to make voluntary contributions to superannuation, giving them greater flexibility as they near retirement. Around 55,000 people aged 65 and 66 are expected to benefit from this reform in 2020–2021.

The Treasurer said the proposed change will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.

The tax law will also be amended to extend access to the bring-forward arrangements for non-concessional contributions to those aged 65 and 66. The bring-forward rules currently allows individuals aged less than 65 years to make three years’ worth of non-concessional contributions (which are generally capped at $100,000 a year) in a single year. This will be extended to those aged 65 and 66. Otherwise, the existing annual caps for concessional contributions and non-concessional contributions ($25,000 and $100,000 respectively) will continue to apply.

Spouse contributions age limit increase

The age limit for making spouse contributions will be increased from 69 to 74. Currently, those aged 70 and over cannot receive contributions made by another person on their behalf.

The proposed increased age limit for spouse contributions may enable more taxpayers to obtain a tax offset for spouse contributions from 1 July 2020. A tax offset is currently available up to $540 for a resident taxpayer in respect of eligible contributions made on behalf of their spouse. The spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions must be less than $37,000 in total to obtain the maximum tax offset of $540, and less than $40,000 to obtain a partial tax offset. Of course, if the spouse in respect of whom the contribution is made is aged 67–74 from 1 July 2020, the spouse may still need to satisfy the requisite work test in order for the super fund to accept the contribution.

Exempt current pension income calculation to be simplified for super funds

Superannuation fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating exempt current pension income (ECPI).

The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

Background

There are two methods to work out the ECPI for a complying superannuation fund:

  • segregated method – the segregation of specific assets (segregated current pension assets) which are set aside to meet current pension liabilities; or
  • proportionate method – a proportion of assessable income attributable to current pension liabilities is exempt.

Since 1 July 2017, SMSFs and small APRA funds (SAFs) are prevented from using the segregated method to determine their ECPI if there are any fund members in retirement phase with a total superannuation balance that exceeds $1.6 million on 30 June of the previous income year. Such SMSFs and SAFs with “disregarded small fund assets” are instead required to use the proportionate method. This is currently the case even if the fund’s only member interests are retirement phase superannuation income streams whereby an actuarial certificate will provide a 100% tax exemption for the income in any event.

Where a SMSF is 100% in pension phase for all or part of an income year, the ATO considers that all of the fund’s assets are “segregated current pension assets” and the fund cannot choose to use the alternative proportionate method. The ATO has previously acknowledged that this legal view is at odds with an industry practice whereby some SMSFs have used the proportionate method even if the fund was solely in pension phase. The ATO therefore granted an administrative concession whereby SMSF trustees did not face compliance action for 2016–2017 and prior years for ECPI calculations based on an industry practice. However, for 2017–2018 and later years, the ATO has expected funds that are 100% in pension phase to only use the segregated method.

Super insurance opt-in rule for low balances: delayed start date confirmed

The Government has confirmed that it will delay the start date to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

That delayed start day of 1 October 2019 was previously announced as part of the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, which was introduced in the House of Reps on 20 February 2019. That Bill (currently before Parliament) proposes to amend the super law to prevent insurance within superannuation from being provided on an opt-out basis for account balances less than $6,000 and members under 25 years old (who begin to hold a new product on or after 1 October 2019).

Members will still be able to obtain insurance cover within their superannuation by electing to do so (ie opting in). The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover.

The Putting Members’ Interests First Bill essentially re-introduced the Government’s policy proposal that was previously contained in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. That Bill received Royal Assent on 12 March 2019, after being passed with Greens’ amendments that removed aspects of the insurance opt-in rule for account balances less than $6,000 and members under 25. The Government agreed to those amendments in the Senate to ensure the prompt passage of the other measures in that Bill. As enacted, that Bill requires a trustee to stop providing insurance on an opt-out basis from 1 July 2019 to a member who has had a product that has been inactive for 16 months or more, unless the member has directed the trustee to continue providing insurance.

 

Client Alert – April 2019

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Things to get right this FBT season

Fringe benefits tax (FBT) returns will soon be due and as always, it’s vital to make sure you use the latest rates and rely on the correct information.

FBT rates have recently been updated for the year, and a range of other factors may be need to be considered, including using the best car parking valuations, correctly identifying which travel expenses are deductible, considering how FBT applies to your arrangements with employees and independent contractors, and making sure you keep within the entertainment benefits rules. Another issue to keep an eye on is employees’ private use of work vehicles.

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 now contact the office of the Australian Small Business and Family Enterprise Ombudsman for assistance.

From 1 March 2019, small business owners without legal representation can access an hour with an experienced small business tax lawyer at a significantly reduced cost, subsidised by the office of the Ombudsman. Lawyers can review relevant documents and provide advice on the viability of an appeal. And should an appeal progress, the Ombudsman’s case managers will help the small business owner through the process.

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

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.

Business owners can use the benchmarks to gauge the strength of their business and keep an eye on their competition.

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.

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

Minister for Small and Family Business Michaelia Cash has asked Australian Small Business and Family Enterprise Ombudsman 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 Ombudsman will look into the extent of the problem 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 Administrative Appeals Tribunal.

Compensation for defective ATO administration: review announced

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 suffers as a result of defective administration but there is no legal requirement to make a payment.

Mr Cornall’s review will consider the consistency of the ATO’s CDDA Scheme processes for small businesses, the timeliness of decisions, how effectively findings are communicated, 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.

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. 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.

A range of no-cost and low-cost STP solutions are now coming into the market. 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. They will best suit micro employers (with one to four employees) who need to report through STP but do not currently have payroll software.

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 was still before the Senate when Parliament most recently concluded on 22 February 2019.

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 eligible voluntary disclosures made during this period.

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

ATO Commissioner Chris Jordan has advised that as part of the ATO’s broad random enquiry program, its auditors have recently completed over 300 audits on rental property tax deduction 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 ATO’s next area of focus will be rental income and related deductions, to help taxpayers report the right information, claim only the amounts they are entitled to, and “close the tax gap”.

Property used for storage an active asset for small business CGT concession purposes

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 used to store work tools, equipment and materials, and to park work vehicles and trailers. 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 was not an “active business asset”.

However, the AAT concluded that the business use of the land was far from minimal, and more than incidental to carrying on the business. This meant the CGT concessions could be applied.

 

How Does Listing My Home On Airbnb Affect My Tax?

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Millions of Australians are now using the sharing economy to earn some extra money on the side. Thanks to smartphones and user-friendly app technology, people young and old are using peer-to-peer digital platforms to access sharing services like ride sharing, accommodation sharing, “odd jobs” networks and even pet minding.

The government is concerned that some Australians who receive income from sharing platforms may not be paying the right amount of tax – simply because they are unaware of their tax obligations.

While the government is currently thinking about introducing a compulsory reporting system that would require sharing platform operators to report all transactions to the ATO, for the time being taxpayers must self-report any amounts they earn.

In this installment of our ongoing series on the sharing economy, we focus on your tax obligations when earning money from a short-term residential accommodation sharing platform such as Airbnb or Stayz.

Do I have to pay tax on these amounts?

The income you earn from accommodation sharing platforms is assessable income that you must declare in your tax return. The ATO does not consider this to be “hobby” income, even if you only share your property occasionally.

You can claim deductions for relevant expenses you incur, such as:

  • fees or commissions charged by the digital platform;
  • interest payments you make on a loan to purchase the property;
  • utilities like gas and electricity;
  • council rates;
  • insurance premiums; and
  • professional cleaning costs.

However, in many cases you will only be able to claim part of an expense. Expenses that are purely related to renting the property (eg platform fees) are entirely deductible, but you will generally need to apportion an expense where:

  • the expense also relates to a private or personal use;
  • the property is rented out, or is available to rent, for only part of the year; or
  • you only rent out a room, rather than the whole property.

It is a good idea to get tax advice on your deductions to ensure you are calculating your claims correctly. You also need to keep thorough records so that you can substantiate your assessable income and deductions.

Goods and services tax

Goods and services tax (GST) in the sharing economy can be confusing. The good news is that for residential accommodation, GST does not apply. This means rental payments you earn are not subject to GST, even if you also earn income from another type of sharing platform where you are required to account for GST (eg ride sharing, such as Uber). However, it also means you cannot claim GST credits for the GST components of your expenses.

Capital gains tax

Usually, when a taxpayer sells their main residence, they are exempt from paying any capital gains tax (CGT). However, using your residence to produce assessable income – including renting it out through the sharing economy – means you may only be entitled to a partial exemption from CGT. The size of your exemption will depend on how long you rented out your home and the floor space that this rental activity relates to. Generally, the more often you rent out the property and the larger the proportion of floor space that is rented out, the more CGT you will have to pay.

Unsure about your tax position?

As with all rental properties, earning money through accommodation sharing sites requires careful record-keeping and documentary proof. Talk to us today to make sure you are claiming the full range of available deductions or to discuss how your main residence might be affected for CGT purposes.

 

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.