Client Alert – September 2021

Single Touch Payroll update

Phase 2 coming soon

The ATO is expanding the information that businesses send through Single Touch Payroll (STP). From 1 January 2022, most employers will be required to send additional information such as the commencement date of employment and cessation date of employment for employees, their reasons for leaving employment and work type. The basic information about salary and wages and super liability information in Phase 1 of the STP rollout will also be further drilled down in Phase 2, moving away from just reporting the gross amounts.

According to the ATO, the Phase 2 report will also include a six-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments.

STP was originally introduced in 2016 as a way for employers to report their employees’ tax and super information to the ATO in real time. Most employers, regardless of the number of their employees, were required to start reporting from 1 July 2021.

Employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP, and small employers that make payments to closely held payees are exempt from reporting these payees through STP for the 2019–2020 and 2020–2021 financial years.

While the Phase 2 increase in information will be automatically taken care of in most STP software solutions, the increased stratification of reporting may require you to pay more attention to your business’s payroll, to ensure all the information you enter into the system is correct.

Tax time 2021: rental property pitfalls

This tax time, the ATO is again closely monitoring claims in relation to rental properties. The ATO has data-matching programs in place that collect detailed information about properties and owners for income years all the way from 2018–2019 to the 2022–2023. These programs expand the rental income data collected directly from third-party sources, including sharing economy platforms, rental bond authorities and property managers.

In the 2019–2020 financial year over 1.8 million taxpayers owned rental properties and claimed $38 billion in deductions. While most taxpayers do the right thing and are able to justify their claims, the ATO notes that over 70% of the 2019–2020 returns selected for review of rental information needed adjustments.

The most common mistake that rental property owners and holiday homeowners make is not declaring all their income, and their capital gains from selling property.

Another area of concern involves claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (eg to buy a car or pay off the mortgage of the house you’re living in), then you can’t claim interest on that part of the loan.

You should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear are immediately deductible if you’re replacing or fixing an existing item (eg a broken toilet), the cost of upgrading the property or areas of the property is considered capital works and any deductions need to be spread over a number of years.

New sharing economy reporting regime proposed

The government is seeking to legislate compulsory reporting of information for sharing economy platforms in order to more easily monitor the compliance of participants, while at the same time reducing the need for ATO resources.

As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term “sharing economy”, it’s usually taken to involve two parties entering into an agreement for one to provide services, or to loan personal assets, to the other in exchange for payment. Examples of platforms include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer, to name a few.

With the rapid expansion of various sharing economy platforms, the government’s Black Economy Taskforce has noted that without compulsory reporting, it is difficult for the ATO to gain information on compliance without undertaking targeted audits. Putting formal reporting requirements in place will align Australia with international best practice.

The government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO.

This new compulsory reporting regime would apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply.

Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if they relate to a ride-sourcing or a short-term accommodation service, unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report, unless an exemption applies.

The initial reporting is expected to be biannual (1 July to 31 December, and 1 January to 30 June) with electronic service operators required to report the relevant information by 31 January and 31 July respectively.

Reminder: super changes for the 2021 financial year

The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute it without hitting their non-concessional cap.

Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year.

The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.

More support for NSW businesses as Premier declares ‘national emergency’

Projections from earlier in the week by the Population Interventions Unit at the University of Melbourne estimated that Sydney’s stay-at-home orders would need to be extended into September to get the latest outbreak under control, meaning businesses could be facing prolonged closure.

On Friday, facing yet another day of rising case numbers, NSW Premier Gladys Berejiklian declared the situation as a “national emergency”.

While some business owners have said the new federal and state support grants are not sufficient to weather lockdown losses, with many calling for the reinstatement of JobKeeper, new details have emerged about the payroll tax reduction and the deferral scheme announced by the state government earlier this month.

According to a new statement issued by the state treasurer, any business that carries a payroll tax liability now has the option to defer lodgement and payment of their 2020–21 annual reconciliation until 7 October 2021.

Payroll tax customers who are ordinarily required to lodge monthly returns will also have the option of deferring their returns due in August and September until 7 October 2021.

Moreover, anyone who chooses to defer their payments is eligible for an interest-free payment plan of up to 12 months.

Additionally, businesses with annual wages between $1.2 million and $10 million that can prove a 30 per cent decline in turnover over a similar period in 2019 are set to receive a 25 per cent reduction in their 2021–22 payroll tax.

Businesses across NSW are eligible for the reductions and deferrals.

Parliament Passes Bill on Tax-Free COVID-19 Support Payments

The Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 finally passed both houses without amendment on Monday after the Senate agreed not to insist on a transparency measure which would have forced businesses to disclose how much they received in JobKeeper wage subsidies.

Under the new law, COVID-19 Disaster Payments dating back to its introduction on 3 June will now be non-assessable non-exempt income, meaning recipients will take home more than they did under the $90 billion JobKeeper wage subsidy program, which was taxed.

Workers who lose 20 or more hours of work a week will receive $750 a week, while those who lose between 8 and 20 hours will receive $450.

COVID-19 Disaster Payment recipients can now expect to be better off by $90 a week compared with the JobKeeper wage subsidy, based on an annualised $39,000 income of $750 each week.

The newly passed bill will also ensure that COVID-19 business support payments will be treated as non-assessable non-exempt income.

Business support payments will only be tax-free if they are made under a program declared eligible by Treasurer Josh Frydenberg and were received in the 2021–22 financial year.

Entities must also have an aggregated turnover of less than $50 million to be eligible for the concessional tax treatment, putting it at odds with NSW’s JobSaver program which was recently expanded to businesses with an annual turnover of up to $250 million.

Information and data from the ATO will also now be shared with the relevant states and territories administering COVID-19 business support programs.

Finally, the bill will also give Treasurer Josh Frydenberg powers to authorise additional COVID-19 payments to businesses affected by state or territory lockdowns between 1 July 2021 and 31 December 2022.

Michael Croker, tax leader at Chartered Accountants Australia and New Zealand, believes the Treasurer now has ace up his sleeve as states continue to enter snap lockdowns to combat the spread of COVID-19.

 

Source: https://www.accountantsdaily.com.au/tax-compliance/16021-parliament-passes-bill-on-tax-free-covid-19-support-payments

Client Alert – August 2021

ATO tax time support: COVID-19 and natural disasters

The ATO has a range of year-end tax time options to support taxpayers who have been affected by the COVID-19 pandemic and recent natural disasters.

Income statements can be accessed in ATO online services through myGov accounts from 14 July.

The ATO also reminds those who may have lost, damaged or destroyed tax records due to natural disasters that some records can be accessed through their myGov account or their registered tax agent. For lost receipts, the ATO can accept “reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents”. A justification may be required on how a claim is calculated.

JobKeeper

Payments received as an employee will be automatically included in the employee’s income statement as either salary and wages or as an allowance. However, sole traders who received JobKeeper payment on behalf of their business will need to include the payment as assessable income for the business.

JobSeeker

Payments received will be automatically included in the tax return at the Government Payments and Allowances question from 14 July.

Stand down payments

Employees receiving one-off or regular payments from their employer after being temporarily stood down due to COVID-19 should expect to see those payments automatically included in their income statement as part of their tax return.

COVID-19 Disaster Payment

The Australian Government (through Services Australia) COVID-19 Disaster Payment for people affected by restrictions is taxable. Taxpayers are advised to ensure they include this income when lodging their returns.

Other assistance

The tax treatment of assistance payments can vary; the ATO website outlines how a range of disaster payments impact tax returns and includes guidance on COVID-19 payments, including the taxable pandemic leave disaster payment.

Early access to superannuation

Early access to superannuation under the special arrangements due to COVID-19 is tax free and does not need to be declared in tax returns.

Hardship priority processing of tax returns

If your business is experiencing financial difficulties due to the latest lockdowns, the ATO may be able to help by processing your tax return faster and expediting the release of any refund to you. To be eligible for priority processing, you’ll need to apply to the ATO and provide supporting documents (within four weeks of your submission) outlining your circumstances. “Financial difficulty” may include many situations such as disconnection of an essential service, pending legal action or repossession of a business vehicle.

You can apply for ATO priority processing over the phone or through your tax professional after the lodgment of the tax return in question. Once the initial request for priority processing is received, you’ll be notified and contacted if more information is required. Processing will take more time for businesses that have lodged several years’ worth of income tax returns of amendments at the same time, and those that have unresolved tax debts.

Before lodging any priority processing request, check the progress of your return through online services, over the phone or by contacting us as your tax professional. If the return is in the final stages of processing, you may not need to lodge a priority processing request – the return will be finalised before the ATO has an opportunity to consider the request.

Workplace giving versus salary sacrifice donations

Have you made donations either through workplace giving or salary sacrifice arrangements with your employer? If so, and you want to claim a deduction in your tax return, it’s important to know that the tax treatment differs depending on which method you used to make the donation.

Essentially, workplace giving is a streamlined way for employees to regularly donate to charities and deductible gift recipients (DGRs). Usually a fixed portion of your salary is deducted from your pay each pay cycle and your employer forwards the donation on to the DGR. However, the amount of your gross salary remains the same and, depending on your employer’s payroll systems, the amount of tax you pay each pay period may or may not be reduced to take into account the donation.

On the other hand, under a typical salary sacrificing donation arrangement, you agree to have a portion of your salary donated to a DGR in return for your employer providing you with benefits of a similar value. Your gross salary is reduced by the salary sacrificed amount and the amount of tax you pay each pay period will be reduced. Your employer makes the donation to the DGR.

If you’ve made a donation under workplace giving, you can claim a deduction in your tax return. This is regardless of whether or not your employer reduced the amount of tax you paid each pay cycle to account for the amount of the donation. Your employer will give you a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made. Alternatively, your employer will provide the total amount of donations you made for the year in your tax time payment summary, under the “Workplace giving” section.

If you’ve made a donation to a DGR under a salary sacrifice arrangement, however, you’re not entitled to claim a deduction in your tax return, since it’s your employer that is making the donation to the DGR – not you.

If you make donations outside the workplace, remember that for a donation to be deductible it must be made to a DGR and truly be a gift or donation of $2 or more. You can still claim a deduction if you receive a token item in recognition of your donation (eg a lapel pin, wristband or sticker).

Employers beware: increase in super guarantee

From 1 July 2021, the rate of super guarantee increased from 9.5% to 10%. Businesses using manual payroll processes should be careful that this change doesn’t lead to unintended underpayment of super, which may attract penalties.

The new rate of 10% is the minimum percentage now required by law, but employers may pay super at a higher rate under an award or agreement.

Most payroll and accounting systems will have incorporated the increase in their super rate, but it’s always good to check. If your business is still using a manual process to pay your employees, you’ll need to work out how much super to pay under the new rate.

This latest increase to 10% is by no means the last time the super guarantee rate will change over the next few years. From 1 July 2022 to 30 June 2023 (ie next financial year) the rate will increase to 10.5%, followed by another 0.5% point increase to 11% in the 2023–2024 financial year. So, employers will need to be on their toes to make sure the right amount of super guarantee is paid for the next few years.

COVID-19 lockdown support: NSW, Vic and SA

If your business or employment income has been affected by recent COVID-19 related lockdowns in New South Wales, Victoria and South Australia, financial help is available from both the state and Federal governments. Depending on the length of the lockdown, businesses may be eligible to receive a co-funded small and medium business support payment, as well as various cash grants.

Federal support

For small and medium businesses, depending on the length of the lockdown, the Federal government will fund up to 50% small and medium business support payments to be administered by the states.

Non-employing businesses (eg sole traders) will also be eligible.

The Federal government will also seek to make various state business grants tax exempt and provide support for taxpayers through the ATO with reduced payment plans, waiving interest charges on late payments and varying instalments on request.

For individuals, the COVID-19 Disaster Payment will be available in any state or territory where a lockdown has been imposed under a state public health order.

New South Wales

Eligible businesses will be able to claim state government grants under the business grants program. Smaller and micro businesses that experience a specified decline will be eligible for a payment per fortnight of restrictions.

Payroll tax waivers will be available for certain businesses, as well as payroll tax deferrals and interest free payment plans.

Commercial, retail and residential landlords who provide rental relief to financially distressed tenants will be able to claim land tax relief. Residential landlords that are not liable for land tax may be able to claim a capped grant where they reduce rent for tenants.

The NSW government will also be protecting tenants with a short-term eviction moratorium for rental arrears
where a residential tenant suffers a loss of income due to COVID-19 and meets a range of other criteria. There will also be no recovery of security bonds, lockouts or evictions of impacted retail/commercial tenants prior to mediation.

Victoria

Businesses in Victoria will be provided with cash grants from the state government. These payments will be automatically made to eligible businesses and sole traders to minimise delays. The state government estimates that up to 90,000 business that previously received assistance payments in relation to previous lockdowns will receive the new cash grants.

South Australia

Small and medium-sized businesses that suffer a significant loss of income or were forced to close as a result of South Australia’s seven-day lockdown are being offered an emergency cash grant as part of a $100 million business support package. The package also includes a new cash grant for eligible small businesses that don’t employ staff.

In addition, the SA government will provide fully-funded income support payments for eligible workers in regional SA who live or work outside of the Commonwealth-declared “hotspot” local government areas, and are therefore not entitled to the Federal COVID-19 Disaster Payment.

Lost paper receipts see 1 in 4 SMEs miss out by thousands

A new report conducted by Aussie fintech company Slyp and big four bank NAB surveyed over 300 businesses to identify the impact paper receipts have on SMEs come tax time.

According to the research, 25 per cent of those surveyed have lost up to $10,000 by simply misplacing receipts. A further 8 per cent of those said they’ve lost between $10,000 and $100,000.

A whopping 62 per cent of SMES surveyed said they lose paper receipts at tax time, with those that do collate them noting it’s the most time-consuming part of the tax process (42 per cent). A further 39 per cent said fact-checking paper receipts is the most time-consuming part.

“Australian small business owners are incredibly hard working and the data shows that, for many, paper receipts can add undue stress and complication to tax time,” Tania Motton, NAB executive for business banking, said.

“81.1 per cent of small businesses say the availability of digital receipts would improve their tax-time process.”

Commenting further, CEO and co-founder of Slyp Paul Weingarth said: “The tax-time process is time-consuming for small businesses and it’s clear that there’s a disconnect between the current manual process and the tools that small businesses are using.

“Three-quarters (75 per cent) of Australian small businesses say they’d like to change the way that they process paper receipts in the next financial year and more than two-thirds (69.6 per cent) say they’d be more inclined to purchase through a retailer that provided digital receipts.”

Please ask our office about the use of Dext (previously Receipt Bank) software and how to process this software within your xero accounting system. Clients that currently use Dext have described this software as an invaluable tool.

 

Source: https://www.mybusiness.com.au/tax-accounting

 

Explanatory Memorandum – July 2021

Temporary COVID Disaster Payment now available

The Federal Government has announced a temporary COVID Disaster Payment to assist workers who reside or work in a Commonwealth declared hotspot, who are unable to attend work and earn an income as a result of state-imposed health restrictions that last for longer than one week.

The payment, available for Australian citizens, permanent residents and eligible working visa holders, is up to $500 per week for recipients who lose 20 hours or more of work, and $325 per week those who lose under 20 hours of work.

The payment is available in respect of the second and any subsequent weeks of restrictions to workers who:

  • have liquid assets of no more than $10,000;
  • have exhausted any leave entitlements (other than annual leave) or other special pandemic leave; and
  • are not already receiving income support payments, business support payments, or the Pandemic Leave Disaster Payment.

Access to the payment is available through Services Australia from 8 June 2021.

Source: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/temporary-australian-government-assistance-workers.

Private health insurance rebates frozen

The Federal Government has once again quietly sought to freeze the private health insurance income thresholds for the private health insurance incentive, this time for another two years, with indexation of the thresholds to start up again from 1 July 2023. Most people with private health insurance takes the private health insurance incentive in the form of reduced premiums, although it can also be taken as a tax offset.

The income thresholds for private health insurance were originally meant to be indexed annually; however, since the government implemented the freezing of indexation, the income thresholds have remained at 2014–2015 levels for the various tiers. While the rebate percentages were adjusted annually on 1 April, the rebate percentage for the current year have remained the same as in the 2019–2020 year.

For individuals and families with private health insurance, this means that the rebate adjustment factor will remain the same as in the 2019–2020 income year, translating into a real-life cut in the rebated amount. This will be the case until the government completes its review into the MLS Medicare Levy Surcharge (MLS) Policy Settings.

According to the Commonwealth Ombudsman, private health insurance offerings for basic (Bronze) hospital cover plus extras for two adults and two young children range from $300 to $600 per month for the current year. Going with an average figure of $450 per month, the annual cost of the insurance would equate to roughly $5,400. Assuming the adults are under 65 and earning less than $180,000 as a family, the total rebate on the yearly premium would be: $5,400 × 25.059% = $1,354.

If the family applies the rebate in the form of reduced premiums for their cover, it would mean that instead of paying $450 per month they would pay $337 per month. However, because indexation is now frozen until 1 July 2023, if private health insurance prices increase next year in line with previous average increases, the same family earning the same amount of money will end up paying more for their private health insurance, because the rebate percentage will stay the same.

The average 2021 price increase for health insurance premiums was 2.74%, which was the lowest increase since 2001. However, most large insurers increased their prices above the average rate, with the maximum increase by a fund listed as 5.47%. According to some figures, health insurance premiums have increased by 57% in the last decade, while the consumer price index (CPI, or inflation) has only grown by 20%.

Extending from our example, if the average price of $450 per month increases by 5% for 2022, the family will be paying $22 extra per month before the rebate is applied. The total annual premium would be $5,670 and the total rebate on the yearly premium would be: $5,670 × 25.059% = $1,420.

Again, if the hypothetical family applies the rebate in the form of reduced premiums, they will end up paying $354 per month in 2022, which equates to $17 a month extra for the same policy with the same benefits, while they are earning substantially the same amount due to stagnant wages growth. Remember, this simple calculation doesn’t take in the fact of singles or families moving between tiers which would reduce their rebate even more.

Cryptocurrency trading is subject to tax: new ATO data-matching program

According to ATO estimates, over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, in fact this is not the case – capital gains tax (CGT) does apply where gains or losses are in the form of crypto-assets.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a license to ignore their tax obligations”, ATO Assistant Commissioner Tim Loh has said. Mr Loh added that while it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.

This year the ATO will be writing to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.

“Gains from cryptocurrency are similar to gains from other investments, such as shares”, Mr Loh explained. “Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax and must be reported.”

“The best tip to nail your cryptocurrency gains and losses is to keep accurate records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address”, Mr Loh said.

Alongside these communications to taxpayers, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.

The data items will include:

  • client identification details (names, addresses, date of birth, phone numbers, social media accounts and email addresses); and
  • transaction details (bank account details, wallet addresses, transaction dates, transaction time, transaction type, deposits, withdrawals, transaction quantities and coin type).

The ATO says that the objectives of the program are to:

  • promote voluntary compliance by communicating how the ATO uses external data with its own “to help encourage taxpayers to comply with their tax and superannuation obligations”;
  • identify and educate those individuals and businesses that may be failing to meet their registration and/or lodgment obligations and “assist them to comply”;
  • gain insights from the data that may help to develop and implement treatment strategies to improve voluntary compliance (including educational or compliance activities, as appropriate);
  • gain insights from the data to increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that have bought, sold or accepted payment via cryptocurrency;
  • help ensure that individuals and businesses that trade or accept cryptocurrency as payment are fulfilling their taxation lodgment, reporting and payment obligations; and
  • help ensure that individuals and businesses are fulfilling their tax and superannuation reporting obligations.

Source: www.ato.gov.au/Media-centre/Media-releases/Cryptocurrency-under-the-microscope-this-tax-time/;

www.legislation.gov.au/Details/C2021G00417.

ATO compliance: economic stimulus measures

Businesses that have accessed government economic stimulus measures need to take extra care this tax time. The ATO has announced that it will increase its scrutiny, conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation. While the ATO said it will continue to support businesses, most of whom are doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. All taxpayers that have used the schemes are encouraged to review their claims to ensure they are eligible, and that the amounts claimed are correct.

The loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020–2021 and 2021–2022 company tax returns. In essence, companies get to “carry back” losses to earlier years in which there were income tax liabilities, which may result in a cash refund or a reduced tax liability.

The temporary full expensing measure allows eligible businesses to immediately deduct the business portion of the cost of eligible new depreciating assets or improvements held and ready for use between 6 October 2020 and 30 June 2022. Eligible businesses also have access to the accelerated depreciation measure for the 2019–2020 and 2020–2021 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate.

Specifically, in relation to loss carry-back, the ATO will looking for businesses that are deliberately inflating their deductions or omitting some of their income to generate the appearance of losses. It will also look for signs of businesses entering into contrived schemes to obtain a benefit of the loss carry-back tax offset, such as shifting or creating losses through non-arm’s length dealings or shifting franking credits to a corporate entity (either directly or indirectly).

In relation to temporary full expensing and/or accelerated depreciation, the ATO notes the following behaviours which will attract its attention:

  • entering into contrived schemes to obtain a benefit of a temporary full expensing deduction, including schemes involving:
  • manipulation of aggregated turnover;
  • non-commercial transactions involving the transfer of an asset between related entities;
  • artificially inflating the cost of assets (including inappropriate valuations) through non-arm’s length dealings;
  • claiming deductions for assets acquired solely for a non-business purpose or failing to take into account any portion of non-business use;
  • deliberately misclassifying or reclassifying excluded assets (eg reclassifying capital works and buildings as eligible assets under temporary full expensing or Div 43 capital works and buildings as eligible assets under accelerated depreciation);
  • deliberately inflating the amount of accelerated depreciation deduction by applying the incorrect adjustable value or effective life;
  • failing to take into account the car limit when calculating the deduction; and
  • lacking evidence to substantiate the claim (including the cost of assets) such as invoices, contracts, supplier agreements or independent valuations.

The ATO notes that it will review claims for loss-carry back, temporary full expensing and accelerated depreciation as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. Where cases of concerning or fraudulent behaviours are identified, it will actively pursue the claims including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

Personal use assets and collectables in SMSFs

Contrary to some popular beliefs, a self managed superannuation fund (SMSF) can invest in collectables such as artworks, jewellery and wine, as well as personal use assets such as boats, classic cars and other vehicles. However, investment in these assets must occur in keeping very strict and specific rules in order to qualify, and thus care should be taken to avoid breaches of super rules in relation to owning collectables and personal use assets in SMSFs.

To start with, collectables and personal-use assets encompass a wide range of assets, including:

  • artworks (paintings, sculptures, drawings, engravings, photographs etc);
  • jewellery;
  • antiques;
  • artefacts;
  • coins, medallions or bank notes in certain circumstances (eg coins, bullion coins and bank notes are considered collectables if their value exceeds their face value);
  • postage stamps or first-day covers;
  • rare folios, manuscripts or books;
  • memorabilia;
  • wine/spirits etc;
  • motor vehicles and motorcycles;
  • recreational boats; and
  • memberships of sporting or social clubs.

The SMSF is allowed to invest in any of these collectable or personal use assets, provided such items are acquired for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. In addition, the investment must also satisfy the following criteria:

  • it must comply with all other relevant investment restrictions, including the sole purpose test;
  • the decision on where the item is stored must be documented and a written record kept;
  • the item(s) must be insured in the fund’s name within seven days of the fund acquiring it;
  • where an item is subsequently transferred to a related party, it must be at the market value as determined by a qualified, independent valuer; and
  • the items must be unencumbered.

First and foremost, these rules mean that whatever collectable or personal use asset is purchased by the SMSF, it cannot be used by members or related parties in any capacity. To show how far this rule goes, the ATO cites an example of a classic car: if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain the car or to perform restoration work.

These rules also mean that any collectable or personal use asset owned by the SMSF cannot be stored on or in the private residence of any member or related party (this includes all parts of a private dwelling, as well as the land on which the private residence is situated and all other buildings on that land, such as garages or sheds). However, the asset can be stored – but not displayed – in premises owned by a related party that are not their private residence.

For example, an artwork that is an SMSF investment cannot be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard or another similar storage area. Additionally, the artwork (or other collectable/personal use asset) can be leased to unrelated parties on arm’s length terms.

The ability to obtain insurance must also be considered where an SMSF is going to invest in collectables or personal use assets. It is a requirement that the items are insured within seven days, under either separate policies or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but is unable to obtain insurance, the ATO will need to be notified.

Client Alert – July 2021

Temporary COVID Disaster Payment now available

The Federal Government has announced a temporary COVID Disaster Payment to assist workers who live or work in a Commonwealth declared hotspot, who are unable to attend work and earn an income as a result of state-imposed health restrictions that last for longer than one week.

The payment, available for Australian citizens, permanent residents and eligible working visa holders, is up to $500 per week for recipients who lose 20 hours or more of work, and $325 per week those who lose under 20 hours of work.

Access to the payment is available through Services Australia from 8 June 2021.

Private health insurance rebates frozen

Is your private health insurance getting more expensive every year? Part of the reason could be that the government has once again introduced legislation to freeze the related income thresholds, which were originally meant to be indexed with inflation on 1 April each year.

While the government likes to blame the funds for hikes adding to the cost of living, the reality is that the income thresholds for the private health insurance incentive have also not been indexed to keep pace with inflation since the 2014–2015 income year, and the rebate percentage is staying the same this year as for the 2019–2020 income year.

Most people with private health insurance take the private health insurance incentive in the form of reduced premiums on their cover, although it can also be taken as a tax offset.

For individuals and families with private health insurance, the rebate adjustment factor remaining the same as in the 2019–2020 income year will translate into a real-life cut in the rebated amount.

For example, private health insurance for basic (Bronze) hospital cover plus extras for two adults and two young children ranges from $300 to $600 per month. At an average figure of $450 per month, the annual cost of the insurance would equate to roughly $5,400. Assuming the adults are under 65 and earning less than $180,000 as a family, the total rebate on the yearly premium would be $1,354.

If the family applies the rebate to reduce the premiums for their cover, instead of paying $450 per month they would pay $337 per month. However, because indexation is now frozen until 1 July 2023, if private health insurance prices increase next year in line with previous average increases, the same family earning the same amount of money will end up paying more for their private health insurance, because the rebate percentage will stay the same.

The average 2021 price increase for health insurance premiums was 2.74%, the lowest increase since 2001. However, most large insurers increased their prices more, with the maximum increase by a fund listed as 5.47%. According to some figures, health insurance premiums have increased by 57% in the last decade, while the consumer price index (CPI, or inflation) has only grown by 20%.

Extending from our example, if the average price of $450 per month increases by 5% for 2022, the family will pay $22 extra per month before the rebate is applied. The total annual premium would be $5,670 and the total rebate on the yearly premium would be $1,420.

Again, if the family applies the rebate to reduce their premiums, they will end up paying $354 per month in 2022, which equates to $17 a month extra for the same policy with the same benefits, while they are earning substantially the same amount due to stagnant wages growth.

Cryptocurrency trading is subject to tax: new ATO data-matching program

Over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, this is not the case – capital gains tax (CGT) does apply to crypto-asset gains or losses.

While it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.

This year the ATO will write to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.

Alongside these communications, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.

ATO compliance: economic stimulus measures

Businesses that have accessed government economic stimulus measures need to take extra care this tax time. The ATO has announced that it will increase its scrutiny, conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation.

While the ATO will continue to support businesses, most of whom are doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. All taxpayers who’ve used the schemes should review their claims to ensure they are eligible, and that the amounts claimed are correct.

The loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020–2021 and 2021–2022 company tax returns. In essence, companies get to “carry back” losses to earlier years in which there were income tax liabilities, which may result in a cash refund or a reduced tax liability.

The temporary full expensing measure allows immediately deducting the business portion of the cost of eligible new depreciating assets or improvements. Eligible businesses also have access to the accelerated depreciation measure for the 2019–2020 and 2020–2021 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate.

The ATO will review claims as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. The ATO will actively pursue concerning or fraudulent behaviours, including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

Personal use assets and collectables in SMSFs

Would you like to hold a wine collection, artworks, or a classic car in your self managed superannuation fund (SMSF)? Well, you can if you follow some strict rules.

Firstly, the investment in collectibles or personal use assets must be for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. Secondly, the assets cannot be used by members or related parties in any capacity. Thirdly, the asset must be insured in the fund’s name within seven days of acquisition. All of these requirements, plus other rules, need to be met to avoid falling afoul of super rules.

This means that whatever collectable or personal use asset your SMSF purchases, it can’t be used by members or related parties in any capacity. Consider a classic car: if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain it or to perform restoration work.

The rules also mean that any collectable or personal use asset owned by your SMSF can’t be stored at the private residence of any member or related party. However, the asset can be stored – not displayed – in non-private-residence premises owned by a related party. For example, an artwork can’t be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard. It could also be leased to unrelated parties on arm’s length terms.

The ability to insure must also be considered where your SMSF is investing in collectables or personal use assets. The items must be insured within seven days, under either separate policies or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but cannot to obtain insurance, the ATO must be notified.

 

Superannuation Guarantee Changes from 1 July 2021

Superannuation Guarantee rate increases to 10% on 1 July 2021

The Superannuation Guarantee (SG) rate as currently legislated will increase from 9.5% to 10% with effect from 1 July 2021 with further increases of 0.5% per year to come from 1 July 2022 until it reaches 12% from 1 July 2025 onwards. The SG rate increases were not affected by the 2021-22 Federal Budget. Accordingly, from 1 July 2021 not only will employers need to update their payroll settings to reflect the 0.5% increase in the SG rate, but importantly both employers and employees will need to consider the potential increased SG costs of these changes going forward.

Impact on employers and employees

The financial impact of the 0.5% increase in the SG rate will depend on the terms of existing and new salary and wage packages.

The effect of the increase on particular salary packages needs to be carefully considered to determine whether the additional 0.5% SG contribution needs to be added on top of the existing salary package (i.e., no change to the employee’s take home pay) or incorporated into the existing salary package amount (i.e. resulting in a reduction of the employee’s take home pay). In addition, employers will need to consider the effect of the increase in the SG rate on relevant employee awards.

Salary sacrifice arrangements

Employers also need to be aware that they cannot use an employee’s salary sacrifice contributions to account for the extra 0.5% of SG. The ordinary time earnings (OTE) base for SG purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement are not treated as employer contributions which reduce an employer’s charge percentage.

Maximum super contribution base and opt-out for multiple employers

The increase in the SG rate to 10% from 1 July 2021 means the maximum super contribution base (i.e. earnings that employers do not have to pay SG on above this limit) will increase on 1 July 2021 to $58,920 per quarter ($235,680 per annum), up from $57,090 per quarter ($228,360 per annum).

The increase in the SG rate to 10% from 1 July 2021 also means that the SG opt-out income threshold will increase to $275,000 from 1 July 2021 (up from $263,157). This allows high-income earners with multiple employers to opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap.

Concessional contributions cap increase

In addition, from 1 July 2021 the annual concessional contributions cap (which effectively limits the annual concessional super contributions for employees) will increase from $25,000 to $27,500. Correspondingly, the total maximum super contribution base will also increase to $275,000 (i.e., $27,500 dividend by 0.10). Employers and employees should ensure concessional contributions are not made beyond this amount as excess contributions may attract higher tax rates and an excess charge.

Employers should review employee agreements and contracts and determine any expected future employee costs. Once determined, employers should then review and update all payroll settings and systems ahead of the increase in the SG rate on 1 July 2021.

Source: bdo.com.au

Explanatory Memorandum – June 2021

Are you ready for Tax Time 2021?

Don’t jump the gun and lodge too early

Tax time 2021 is almost here, but it’s likely to be anything but routine. Many individuals on reduced incomes or who have increased deductions may be eager to lodge their income tax returns early to get their hands on a refund. However, as always the ATO is warning against lodging too early, before all your income information becomes available. It’s important to remember that employers have until the end of July to electronically finalise their employees’ income statements, and the same timeframe applies for other information from banks, health funds and government agencies.

With so many different types of incomes and expenses affecting tax obligations this income year, the ATO is taking a range of different approaches to support taxpayers and the community through tax time. In addition to updating published information on its website, the ATO encourages taxpayers to search its online “ATO community” forum, which operates 24 hours a day and contains “ATO-endorsed” responses.

For most people, income statements have replaced payment summaries. So, instead of receiving a payment summary from each employer, the income statements will be finalised electronically and the information provided directly to the ATO. The income statement can be accessed through myGov and the information is automatically included in the tax return for people who use myTax. Tax agents also have access to this information.

According to the ATO, it is important to wait until the income statement is finalised before lodging a tax return to avoid either delays in processing or a tax bill later on. The income statement will be marked “tax ready” on myGov if it is finalised. Other information from banks, health funds and government agencies is also expected to be ready by the end of July and will be automatically inserted into the tax return.

If you still choose to lodge early, the ATO advises carefully reviewing any information that is pre-filled so that you can confirm it is correct and that you wish to use it. Early lodgers will also be required to acknowledge that their employers may finalise their income statement with different amounts, meaning that the lodger may need to amend the tax return and additional tax may be payable.

The ATO will start full processing of 2020–2021 tax returns on 7 July 2021, and expects to start paying refunds from 16 July 2021.

How COVID-19 has changed work-related expenses

COVID-19 has changed many people’s work situations, and the ATO expects their work-related expenses will reflect this during tax time in 2021. In 2020 tax returns, around 8.5 million Australians claimed nearly $19.4 billion in work-related expenses.

Last year, the value of car and travel expenses decreased by nearly 5.5%, but there was a slight increase (around 2.6%) in clothing expenses. This increase was driven by front-line workers’ first-time need for things like hand sanitiser and face masks.

“Our data analytics will be on the lookout for unusually high claims this tax time”, Assistant Commissioner Tim Loh has said. “We will look closely at anyone with significant working from home expenses, that maintains or increases their claims for things like car, travel or clothing expenses. You can’t simply copy and paste previous year’s claims without evidence.”

The ATO does know that some of these “unusual” claims may be legitimate, and wants to reassure people who have evidence to explain their claims that they have nothing to fear. It also recognises that tax rules can be confusing and sometimes people make mistakes on their returns while acting in good faith.

During 2020, the ATO had to shift its focus to getting stimulus benefits out the door as quickly as possible to support the many Australian businesses in need. In 2021 it will continue supporting individuals and businesses through this challenging time, while recommencing its focus on addressing unreasonable work-related expenses claims.

Working from home expenses

The temporary shortcut method for working from home expenses is available for the full 2020–2021 financial year. This allows an all-inclusive rate of 80 cents per hour for every hour people work from home between 1 July 2020 and 31 June 2021, rather than needing to separately calculate costs for specific expenses.

All employees need to do is multiply the hours they worked at home by 80 cents, keeping a record such as a timesheet, roster or diary entry that shows the hours worked at home.

Remember – the shortcut method is temporary. To claim part of an expense over $300 (such as a desk or computer) in future years, people still need to keep their receipts.

The temporary shortcut method can be claimed by multiple people living under the same roof and (unlike the existing methods) doesn’t require people to have a dedicated work area at home.

The shortcut is all-inclusive. A person can’t claim the shortcut and then claim for individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.

People who choose not to use the shortcut method for working from home expenses can instead:

  • claim 52 cents per work hour at home for the heating, cooling, lighting and cleaning of a dedicated work area and the decline in value of office furniture and furnishings, then calculate the work-related portion of telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device; or
  • claim the actual work-related portion of all home running expenses, which needs to be calculated on a reasonable basis.

Remember, to claim any work-related expense, the employee must have spent the money themselves and not been reimbursed by their employer. The expense must be directly related to earning income (not a private expense), and the employee must have kept any necessary records (a receipt is best).

If claiming working from home expenses using the fixed rate or actual cost methods (rather than the shortcut method), employees cannot claim:

  • personal expenses like coffee, tea and toilet paper – while they might usually be supplied by an employer at the office, they aren’t directly related to earning the employee’s income;
  • expenses related to children’s education, such as online learning courses or laptops;
  • large expenses up-front – any asset that costs over $300 (either in total or per item), such as a computer, can’t be claimed immediately but should be spread out over a number of years.

Employees also generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. Working from home doesn’t mean the home is a place of business for tax purposes. Claiming occupancy expenses may mean having to pay capital gains tax when selling the home, even if it is the main residence.

Personal protective equipment

If a person’s specific work duties require physical contact or close proximity to customers or clients, or their job involves cleaning premises, they may be able to claim personal protective equipment (PPE) items such as gloves, face masks, sanitiser or anti-bacterial spray.

This includes industries like healthcare, cleaning, aviation, hair and beauty, retail and hospitality.

To claim PPE, the employee needs to have bought the item for use at work, paid for it themselves, kept a record (such as a receipt) and not been reimbursed by their employer.

Car and travel expenses

If an employee is working from home due to COVID-19 but needs to travel to their regular office sometimes, they cannot claim the cost of travel from home to work, because these are still private expenses.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-warns-on-copy-pasting-claims/;

www.ato.gov.au/Media-centre/Media-releases/Working-from-the-kitchen-bench—Here-s-how-you-sort-your-tax/;

www.ato.gov.au/Tax-professionals/Prepare-and-lodge/Tax-Time-2021/Overview-of-key-changes/.

ATO data-matching targets rental property owners

The ATO has announced that it will run a new data-matching program to collect property management data for the 2018–2019 to 2022–2023 financial years, and will also extend the existing rental bond data-matching program through to 30 June 2023.

Each year the ATO conducts reviews of a random sample of tax returns to calculate the difference between the amount of tax it has collected and the amount that should have been collected – this is known as a “tax gap”. For the 2017–2018 year the ATO estimated a net tax gap of 5.6% ($8.3 billion) for individual taxpayers, with rentals making up 18% of the gap amount. The new and extended data-matching programs are intended to address this gap, making sure that property owners are reporting their rental income correctly and meeting their related tax obligations.

In comparison, the net tax gap in 2018–2019 for high wealth groups was 7.4%, for medium businesses it was 6.2% and for medium businesses it was 11.5%.

The information obtained under the two data-matching programs will include property owner identification details such as unique IDs, individual/non-individual names, addresses (residential and postal), email addresses, contact numbers, BSB numbers, bank account numbers, bank account names, and business contact names and ABNs (if applicable).

Rental property details will include addresses, dates that properties were first available for rent, periods of leases, commencement and expiration dates of leases, amounts of rental bond held, numbers of weeks each rental bond represents, amounts of rent payable for each period, periods of rental payments (weekly, fortnightly or monthly), types of dwellings, numbers of bedrooms, rental income categories, rental income amounts, rental expense categories, rental expense amounts and net rent amounts.

The programs will also obtain details of the property managers involved, including business names, managing agents’ full names, business addresses (including internet addresses), email addresses, contact numbers, ABNs and licence numbers.

Rental bond data will be acquired biannually from state and territory rental bond regulators, and property management data will be acquired from property management software providers.

It is expected that records relating to around 1.6 million individuals will be obtained each financial year as part of the property management program, and records of an estimated 350,000 individuals will be obtained under the rental bond program. Due to the nature of the data collected, the ATO expects some overlap.

The ATO will use the vast amount of data collected to perform detailed analytics for its compliance programs, ensuring that taxpayers who own income-producing property are meeting their obligations to report the correct amount of income in their tax returns. It will also identify taxpayers disposing of income-producing properties, which will trigger a CGT event. The ATO notes that it will use historical rental bond data to support CGT cost base calculations if necessary.

While the data collected from the programs will be retained for seven years from receipt of the final instalment of verified data from data providers, the ATO’s general compliance approach will align with the standard periods for review (commonly two years for individuals and small businesses) and recordkeeping (usually five years). In cases of fraud or evasion, however, there is no time limit for amending an assessment.

Source: www.ato.gov.au/General/Gen/Property-management—2018-19-to-2022-23-financial-years/.

Can I be released from my tax debts?

As the economy adjusts to the removal of most COVID-19-related government support measures, coupled with the slow national vaccination rollout and mostly closed international borders, there is no doubt that many Australians are facing financial difficulties in the immediate short term. If your clients have a tax debt that is compounding their financial difficulties, there may be a solution – they may be able to apply to be permanently released from the debt, provided they meet certain criteria.

According to the ATO, to be released from a tax debt a taxpayer needs to be in a position where paying those debts would leave them not able to provide for themselves, their family or others that they’re responsible for. This includes providing items such as food, accommodation, clothing, medical treatment and education.

Debts that the ATO can consider for release include income tax, PAYG instalments, FBT and FBT instalments, Medicare levy and surcharge amounts, certain withholding taxes, and some penalties and interest charges associated with these debts.

This type of debt release only applies to individuals and trustees of the estate of a deceased person. Other entities such as companies, trusts and partnerships are not eligible and would need to apply for other ATO support, such as negotiating a payment plan or extra time to lodge or pay the tax owed. In addition, only certain tax can be considered for release; for example, the ATO cannot release debts in relation to GST, PAYG withholding, excess contributions tax, Div 293 liabilities and director penalty notices.

When someone applies to be released from a tax debt, the ATO will look at their household fortnightly income and expenditure to determine if they have the ability to pay all or part of the debt, and will set up a payment plan if required. It will also look at the person’s household assets and liabilities including their residential home, motor vehicle, household goods, tools of trade, savings for necessities, collections etc. and identify whether the sale of a particular asset could repay all or part of the tax debt.

Even when the ATO has established that the payment of a tax debt would cause the taxpayer serious hardship, it will nevertheless look at other factors within that person’s control that may have contributed to this hardship. For example, it will consider how the tax debt arose and whether the person has disposed of funds or assets without providing for tax debts, as well as their compliance history. It will also check whether the person may have structured their affairs to place themselves in a position of hardship (eg by placing assets in trusts or related entities).

One important thing to note is that, in the ATO’s view, if a person has other debts (either business or private) that they are not able to pay, then releasing them from a tax debt will not improve their financial hardship situation; therefore, the ATO will likely decide against granting a release from the tax debt.

Source: www.ato.gov.au/General/Support-to-lodge-and-pay/In-detail/Release-from-your-tax-debt/.

ATO’s discretion to retain refunds extends to income tax

As a part of a suite of measures introduced by the government to combat phoenixing activities, the ATO now has the power to retain an income tax refund where a taxpayer (including both businesses and individuals) has outstanding notifications. The discretion to retain refunds previously only applied in relation to notifications under the business activity statement (BAS) or petroleum resources rent tax (PRRT) but has now been expanded.

This new extension of powers applies to all notifications that must be given to the Commissioner of Taxation under Australian tax law (eg income tax returns) but does not include outstanding single touch payroll (STP) or instances where the Commissioner requires verification of information contained in a notification.

The ATO notes that its new powers to retain refunds will not be taken lightly and will only be exercised where the taxpayer has been identified as engaged in “high-risk” behaviour and/or phoenixing activities.

Examples of high-risk behaviours include (but are not limited to):

  • poor past and/or current compliance with tax and superannuation obligations (registration, lodgment, reporting, recordkeeping and on-time payments);
  • poor behaviours and governance in managing tax and super risks;
  • the number of, and the circumstances around, any bankruptcies or insolvencies;
  • tax-related penalties and sanctions imposed including director penalty notices;
  • connection with advisers who are subject to disciplinary actions or sanctions relating to tax and super laws;
  • past information provided which reasonably indicated fraud or evasion, intentional disregard or recklessness; and
  • the likelihood of participation in or promotion of aggressive tax planning arrangements, tax avoidance schemes, fraud or evasion or criminal activity.

Illegal phoenix activity is when a company shuts down to avoid paying its debts. A new company is then started to continue the same business activities, without the debt.

Indicators of phoenix behaviour by the taxpayer, and its associates or controllers, include (but are not limited to):

  • cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements;
  • assets being dissipated, stripped, transferred and/or other actions with the intention to defeat creditors ahead of abandonment, winding-up or deregistration;
  • a director associated with prior liquidations and/or deregistrations or prior instances of insolvency;
  • transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements;
  • backdating of the resignation of a director, appointment of “straw” directors, or abandonment of a company without a resident director;
  • the concealment of the role of a shadow or de facto director; and
  • the concealment or destruction of company records.

The ATO will consider the totality of the circumstances when it exercises the discretion to retain a refund. It will also weigh the seriousness of the behaviour identified against any potential adverse consequences for the taxpayer.

In general, the ATO advises its officers to consider exercising the discretion to retain a refund where there are reasonable grounds to believe that a taxpayer:

  • has a running balance account (RBA) surplus or other credit that has not been applied against a tax debt of the taxpayer;
  • has an outstanding notification that they are required to give under a tax law (other than the BAS or PRRT provisions) and the outstanding notification affects or may affect the amount of the refund; and/or
  • is engaged in high-risk and/or phoenix behaviour.

Once the ATO decides to use its discretion to retain a refund, it will be retained until either the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever event happens first. There are also circumstances where the taxpayer can apply to have the retained amount refunded and/or apply to have the decision reviewed.

2021 FBT returns are due

Businesses that have provided fringe benefits to their employees should be aware that the 2021 FBT return (for the period 1 April 2020 to 31 March 2021) is due, and payment of any associated FBT liability is required immediately.

For businesses that prepare their own returns, lodgment of the return can be made up until 25 June 2021 without incurring a failure to lodge on time penalty. However, the associated FBT liability must have been paid by 21 May 2021, and a general interest charge will apply to any payments made after that date.

Businesses that have not paid FBT before are required to make the payment in a lump sum for the year on 21 May. This also applies where a business paid FBT in the previous year, but the liability was less than $3,000. For those that paid $3,000 or more in the previous year, the FBT liability will be paid in quarterly instalments with the business’s activity statements in the following year, with the balancing payment to be made on 21 May.

A business is required to lodge an FBT return if it had an FBT liability for the year, or if the business did not vary FBT instalments to nil for the year and did not have an FBT liability. Lodging the return will ensure that any FBT instalment credits the business paid during the year will be refunded. If the business is registered with the ATO as an FBT payer and its FBT taxable amount is nil with no instalments paid during the year, the business can lodge a Notice of non-lodgment – fringe benefits tax instead of the FBT return.

This non-lodgment form will not only notify the ATO that the business’s FBT liability is nil, but also avoid the ATO seeking an FBT return from the business later on. In addition, the form can be used to notify the ATO that a business will not be required to lodge an FBT return for future years, and/or to cancel the business’s FBT registration.

Businesses should be aware that while there have been a lot of recent announcements about changes to FBT, many of these proposed changes are not yet law. In those instances, businesses are required to apply the current legislation at the time, and make the appropriate amendments later when the changes do become law.

For example, the government recently announced an FBT exemption for retraining and reskilling benefits that employers provide to redundant (or soon to be redundant) employees where the benefits may not be related to their current employment. While this change is intended to apply from the date of the announcement once the legal change is enacted, the ATO notes that businesses are required to apply the current legislation to this latest FBT return and amend it later if necessary.

Similarly, businesses should be aware of the application dates of recently enacted law changes. The change to allow businesses with less than $50 million in turnover to access certain existing FBT small business concessions do not apply for the 2021 FBT year; rather, they apply to benefits provided to employees from 1 April 2021 onwards (ie the 2022 FBT year).

In addition, at the time of writing, the ATO has not yet finalised its ruling on car parking fringe benefits that deals with changes to contemporary commercial car parking arrangements and various decisions of the Federal Court. This means that the view from the withdrawn ruling will continue to apply until the new ruling is issued. The ATO estimates that a final ruling will be published by mid-June 2021, with the changes to apply from 1 April 2022.

Beware: phishing and investment scams on the rise
Emails impersonating myGov

The ATO and Services Australia have issued a warning about a new email phishing scam doing the rounds. The emails claim to be from “myGov” and include screenshots of the myGovID app. myGovID can be used to prove who you are when accessing Australian government online services.

The scam emails ask people to click a link to fill in a “secure form” on a fake myGov page. The form requests personal identifying information and banking details.

This new phishing scam contains classic warning signs that it is not legitimate, including spelling errors and the request to “verify your identity” by clicking a link. The ATO has confirmed this scam is all about collecting personal information rather than gaining access to live information via myGov or myGovID. ATO systems, myGov and myGovID have not been compromised.

The ATO and myGov do send emails and SMS messages, but they will never include clickable hyperlinks directing people to a login page for online services.

“In the lead up to tax time, we expect to see more of these malicious attempts to harvest identity details. So we encourage everyone to be on alert and take the time to remind family and friends to be on the lookout and stay safe online”, said ATO Assistant Commissioner Ben Foster.

What to do

If you’ve opened an email that looks suspicious, don’t click any links, open any attachments or reply to it.

The best way to check if the ATO or another government service has actually sent you a communication is to visit the myGov site, my.gov.au, directly (without clicking an emailed link) or to download the myGovID app. You can then log in securely and check your myGov inbox and linked services.

If you’ve received a suspicious email and mistakenly clicked a link, replied and/or provided your myGov login details or other information, you should take immediate action.

Change your myGov password and if you’ve provided your banking details, contact your bank.

Advice and support, such as identity recovery services, are available by phone on Services Australia’s Scams and Identity Theft Helpdesk, 1800 941 126 (Monday to Friday, 8 am to 5 pm AEST).

Suspicious SMSs and emails that claim to be from myGov or government services can be reported to ScamWatch at www.scamwatch.gov.au/get-help/protect-yourself-from-scams.

Source: www.ato.gov.au/Media-centre/Media-releases/Warning-about-myGov-impersonation-email-scam/.

Cold calls and emails encouraging superannuation rollovers

The Australian Securities and Investments Commission (ASIC) has recently advised it is aware of scams that target Australians and encourage them to establish self managed superannuation funds (SMSFs).

People are cold-called or emailed, and scammers pretending to be financial advisers encourage the transfer of funds from an existing super account to a new SMSF, claiming it will lead to high returns of 8% to 20% (or more) per year.

In fact, people’s super balances are instead transferred to bank accounts controlled by the scammers.

Scammers use company names, email addresses and websites that are similar to legitimate Australian companies that hold an Australian financial services licence. They even use a “legitimate” company to ensure the SMSF is properly established and compliant with Australian laws, including creating a separate SMSF bank account set up in the investor’s name.

The scammers then transfer money from the existing super fund, either with or without the knowledge of the investor, and steal it by using the real identification documents the person has provided to set up the SMSF in an account fully controlled by the scammers.

What to look out for

If you’re contacted by any person or company who encourages you to open an SMSF and move funds, you should always make independent enquiries to make sure the scheme is legitimate. This is especially true if you weren’t expecting the phone call or email!

Always verify who you are dealing with before handing over your identification documents, personal details or money.

Be wary about providing your personal identification documents to people you don’t know. Red flags include things like the website containing spelling errors, changing addresses or disappearing; processes that involve speaking to different people who sound the same; and email addresses and contact details that change. Some scammers copy legitimate websites and use names lifted from the internet.

Source: https://asic.gov.au/about-asic/news-centre/news-items/scam-alert-self-managed-super-fund-rollover/.

Fake news articles touting cryptocurrency investments

ASIC has also received an increased number of reports from people who have lost money after responding to advertisements promoting crypto-assets (or cryptocurrency) and contracts for difference (CFD) trading, disguised as fake news articles.

Some advertisements and websites falsely use ASIC logos or misleadingly say the investment is “approved” by ASIC.

A common scam tactic is promoting fake articles via social media. They look realistic and impersonate real news outlets like Forbes Business Magazine, ABC News, Sunrise and The Project.

Once someone clicks on these advertisements or fake articles, they’re directed to a site that is not linked with the impersonated publication, and asked to provide their name and contact details. Scammers then get in contact, promising investments with unrealistically high returns.

Many of these scams originate overseas. Once money has left Australia it’s extremely hard to recover, and banks and ASIC are unlikely to be able to get it back.

What to look out for

Crypto-assets are largely unregulated in Australia and are high-risk, volatile investments. Don’t invest any money in digital currencies that you’re not prepared to lose, and always seek professional advice when making investment decisions.

Remember that most reputable news outlets, and especially government-funded broadcasters like the ABC, don’t offer specific investments as part of their news coverage.

ASIC does not endorse or advertise particular investments. Be wary of any website or ad that says the investment is approved by ASIC or contains ASIC’s logo – it’s a scam. ASIC does not authorise businesses to use its name and branding for promotion.

What to do

If you’ve transferred funds by bank transfer or credit card to someone you think may be a scammer, you should contact your financial institution immediately – they may be able to reverse the transaction. Unfortunately, however, your bank or credit union won’t be able to help if you’ve paid scammers via crypto-assets.

To help ASIC disrupt scammers and warn others, you can use the regulator’s website at https://asic.gov.au/about-asic/contact-us/how-to-complain/ to report any scams or suspicious investment offers you come into contact with.

Source: https://asic.gov.au/about-asic/news-centre/news-items/asic-warns-against-fake-news-articles-promoting-investment-scams/.

Client Alert – June 2021

Are you ready for Tax Time 2021?

Don’t jump the gun and lodge too early

Tax time 2021 is almost here, but it’s likely to be anything but routine. Many people on reduced incomes or who have increased deductions may be eager to lodge their income tax returns early to get their hands on a refund. However, as always the ATO is warning against lodging too early, before all your income information becomes available. It’s important to remember that employers have until the end of July to electronically finalise their employees’ income statements, and the same timeframe applies for other information from banks, health funds and government agencies.

For most people, income statements have replaced payment summaries. So, instead of receiving a payment summary from each employer, the income statements will be finalised electronically and the information provided directly to the ATO. The income statement can be accessed through myGov and the information is automatically included in the tax return for people who use myTax.

Although you may be eager to lodge as soon as possible, the ATO has warned against lodging too early, as much of the information on your income may not be confirmed until later. It’s generally important to wait until income statements are finalised before lodging a tax return to avoid either delays in processing or a tax bill later on. Your income statement will be marked “tax ready” on myGov when it’s finalised, and other information from banks, health funds and government agencies will be automatically inserted into your tax return when it’s ready towards the end of July.

If you still choose to lodge early, the ATO advises carefully reviewing any information that’s pre-filled so you can confirm it’s correct. When lodging early you’ll also have to formally acknowledge that your employer(s) may later finalise income statements with different amounts, meaning you may need to amend your tax return and additional tax may apply.

How COVID-19 has changed work-related expenses

COVID-19 has changed many people’s work situations, and the ATO expects their work-related expenses will reflect this during tax time in 2021. In 2020 tax returns, around 8.5 million Australians claimed nearly $19.4 billion in work-related expenses.

“Our data analytics will be on the lookout for unusually high claims this tax time”, Assistant Commissioner Tim Loh has said. “We will look closely at anyone with significant working from home expenses, that maintains or increases their claims for things like car, travel or clothing expenses. You can’t simply copy and paste previous year’s claims without evidence.”

The ATO does know that some “unusual” claims may be legitimate, and wants to reassure people who have evidence to explain their claims that they have nothing to fear. It also recognises that tax rules can be confusing and sometimes people make mistakes on their returns while acting in good faith.

Remember, to claim any work-related expense you must have spent the money yourself and not been reimbursed by your employer. The expense needs to be directly related to earning your income (not a private expense), and you need to keep relevant records (receipts are best).

Working from home

The temporary shortcut method for working from home expenses is available for the full 2020–2021 financial year. This allows an all-inclusive rate of 80 cents per hour for every hour people work from home between 1 July 2020 and 31 June 2021, rather than needing to separately calculate costs for specific expenses.

All you need to do is multiply the number of hours you worked at home by 80 cents, keeping a record such as a timesheet, roster or diary entry.

Remember – the shortcut method is temporary. To claim part of an expense over $300 (such as a desk or computer) in future years, you still need to keep your receipts.

The temporary shortcut method can be claimed by multiple people living under the same roof and (unlike the existing methods) doesn’t require you to have a dedicated work area at home.

The shortcut is all-inclusive. You can’t claim the shortcut and then claim for individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.

Personal protective equipment

If your specific work duties involve physical contact or close proximity to customers or clients, or your job involves cleaning premises, you may be able to claim personal protective equipment (PPE) items such as gloves, face masks, sanitiser or anti-bacterial spray.

This includes industries like healthcare, cleaning, aviation, hair and beauty, retail and hospitality.

Car and travel expenses

If you’re working from home due to COVID-19 but need to travel to your regular office sometimes, you can’t claim the cost of travel from home to work, because these are still private expenses.

ATO data-matching targets rental property owners

The ATO has announced it will run a new data-matching program to collect property management data for the 2018–2019 to 2022–2023 financial years, and will extend the existing rental bond data-matching program through to 30 June 2023.

Each year the ATO conducts reviews of a random sample of tax returns to calculate the difference between the amount of tax it has collected and the amount that should have been collected – this is known as a “tax gap”. For the 2017–2018 year the ATO estimated a net tax gap of 5.6% ($8.3 billion) for individual taxpayers, with rentals making up 18% of the gap amount. The new and extended data-matching programs are intended to address this gap, making sure that property owners are reporting their rental income correctly and meeting their related tax obligations.

The information will include property owner identification details, addresses, email addresses, contact numbers, bank account details, and business contact names and ABNs (if applicable).

Rental property details will include addresses, dates that properties were first available for rent, periods and dates of leases, rental bonds details, rent amounts and periods, dwelling types, numbers of bedrooms, rental income categories and amounts, rental expense categories, rental expense amounts and net rent amounts. The programs will also obtain details of the property managers involved.

Can I be released from my tax debts?

As the economy adjusts to the removal of most COVID-19-related government support measures, coupled with the slow national vaccination rollout and mostly closed international borders, there is no doubt that many Australians are facing financial difficulties in the immediate short term. If you have a tax debt that is compounding your financial difficulties, there may be a solution – you may be able to apply to be permanently released from the debt, provided you meet certain criteria.

To be released from a tax debt you need to be in a position where paying those debts would leave you not able to provide for yourself, your family or others you’re responsible for. This includes providing items such as food, accommodation, clothing, medical treatment and education.

When someone applies to be released from a tax debt, the ATO will look at their household income and expenditure to determine if they have the ability to pay all or part of the debt, and will set up a payment plan if required. It will also look at the person’s household assets and liabilities including their residential home, motor vehicle, household goods, tools of trade, savings for necessities, collections etc. and identify whether the sale of a particular asset could repay all or part of the tax debt.

Even when the ATO has established that the payment of a tax debt would cause the taxpayer serious hardship, it will look at other factors within that person’s control that may have contributed to this hardship. For example, it will consider how the tax debt arose and whether the person has disposed of funds or assets without providing for tax debts, as well as their compliance history. It will also check whether the person may have structured their affairs to place themselves in a position of hardship (eg by placing assets in trusts or related entities).

Debts that the ATO can consider for release include income tax, PAYG instalments, FBT and FBT instalments, Medicare levy and surcharge amounts, certain withholding taxes, and some penalties and interest charges associated with these debts.

ATO’s discretion to retain refunds extends to income tax

As a part of a suite of measures introduced by the government to combat phoenixing activities, the ATO now has the power to retain an income tax refund where a taxpayer (including both businesses and individuals) has outstanding notifications. The discretion to retain refunds previously only applied in relation to notifications under the business activity statement (BAS) or petroleum resources rent tax (PRRT) but has now been expanded.

This new extension of powers applies to all notifications that must be given to the ATO (eg income tax returns) but does not include outstanding single touch payroll (STP) or instances where the ATO requires verification of information contained in a notification.

The ATO notes that its new powers to retain refunds will not be taken lightly and will only be exercised where the taxpayer has been identified as engaged in “high-risk” behaviour and/or phoenixing activities.

Once the ATO decides to use its discretion to retain a refund, it will be retained until either the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever event happens first. There are also circumstances where the taxpayer can apply to have the retained amount refunded and/or apply to have the decision reviewed.

2021 FBT returns are due

If your business has provided fringe benefits to your employees, you should be aware that the 2021 FBT return (for the period 1 April 2020 to 31 March 2021) is due, and payment of any associated FBT liability is required immediately.

If you prepare your own return, it can be lodged up until 25 June 2021 without incurring a “failure to lodge on time” penalty. However, the associated FBT liability must have been paid by 21 May 2021, and a general interest charge will apply to any payments made after that date.

If your business hasn’t paid FBT before, you are required to make the payment in a lump sum for the year on 21 May. This also applies where your business paid FBT in the previous year, but the liability was less than $3,000. If you paid $3,000 or more in the previous year, the FBT liability will be paid in quarterly instalments with your business’s activity statements in the following year, with the balancing payment to be made on 21 May.

You also need to be aware that while there have been a lot of recent announcements about changes to FBT, many of these proposed changes are not yet law. In those instances, you need to apply the legislation current at the time of your return, and make the appropriate amendments later when the changes do become law.

For example, the government recently announced an FBT exemption for retraining and reskilling benefits that employers provide to redundant (or soon to be redundant) employees where the benefits may not be related to their current employment. While this change is intended to apply from the date of the announcement once the legal change is enacted, businesses need to apply the current legislation to this latest FBT return and amend it later if necessary.

Beware: phishing and investment scams on the rise

Emails impersonating myGov

The ATO and Services Australia have issued a warning about a new email phishing scam doing the rounds. The emails claim to be from “myGov” and include screenshots of the myGovID app. myGovID can be used to prove who you are when accessing Australian government online services.

The scam emails ask people to click a link to fill in a “secure form” on a fake myGov page. The form requests personal identifying information and banking details.

This scam is all about collecting personal information rather than gaining access to live information via myGov or myGovID. ATO systems, myGov and myGovID have not been compromised.

The ATO and myGov do send emails and SMS messages, but they will never include clickable hyperlinks directing you to a login page for online services.

If you’ve opened an email that looks suspicious, don’t click any links, open any attachments or reply to it.

The best way to check if the ATO or another government service has actually sent you a communication is to visit the myGov site, my.gov.au, directly (without clicking an emailed link) or to download the myGovID app. You can then log in securely and check your myGov inbox and linked services.

If you’ve received a suspicious email and mistakenly clicked a link, replied and/or provided your myGov login details or other information, change your myGov password and if you’ve provided your banking details, contact your bank.

Cold calls and emails encouraging superannuation rollovers

The Australian Securities and Investments Commission (ASIC) has recently advised it is aware of scams that target Australians and encourage them to establish self managed superannuation funds (SMSFs).

People are cold-called or emailed, and scammers pretending to be financial advisers encourage the transfer of funds from an existing super account to a new SMSF, claiming it will lead to high returns of 8% to 20% (or more) per year.

In fact, people’s super balances are instead transferred to bank accounts controlled by the scammers.

Scammers use company names, email addresses and websites that are similar to legitimate Australian companies that hold an Australian financial services licence. They even use a “legitimate” company to ensure the SMSF is properly established and compliant with Australian laws, including creating a separate SMSF bank account set up in the investor’s name.

The scammers then transfer money from the existing super fund, either with or without the knowledge of the investor, and steal it by using the real identification documents the person has provided to set up the SMSF in an account fully controlled by the scammers.

If you’re contacted by any person or company who encourages you to open an SMSF and move funds, you should always make independent enquiries to make sure the scheme is legitimate. This is especially true if you weren’t expecting the phone call or email!

Always verify who you are dealing with before handing over your identification documents, personal details or money.

Fake news articles touting cryptocurrency investments

ASIC has also received an increased number of reports from people who have lost money after responding to advertisements promoting crypto-assets (or cryptocurrency) and contracts for difference (CFD) trading, disguised as fake news articles.

Some advertisements and websites falsely use ASIC logos or misleadingly say the investment is “approved” by ASIC.

A common scam tactic is promoting fake articles via social media. They look realistic and impersonate real news outlets like Forbes Business Magazine, ABC News, Sunrise and The Project.

Once someone clicks on these advertisements or fake articles, they’re directed to a site that is not linked with the impersonated publication, and asked to provide their name and contact details. Scammers then get in contact, promising investments with unrealistically high returns.

Many of these scams originate overseas. Once money has left Australia it’s extremely hard to recover, and banks and ASIC are unlikely to be able to get it back.

Crypto-assets are largely unregulated in Australia and are high-risk, volatile investments. Don’t invest any money in digital currencies that you’re not prepared to lose, and always seek professional advice when making investment decisions.

Remember that most reputable news outlets, and especially government-funded broadcasters like the ABC, don’t offer specific investments as part of their news coverage.

ASIC does not endorse or advertise particular investments. Be wary of any website or ad that says the investment is approved by ASIC or contains ASIC’s logo – it’s a scam. ASIC does not authorise businesses to use its name and branding for promotion.