Client Alert – September 2019

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Warning to watch out for myGov and ATO tax scams

The government’s Stay Smart Online website warns there has been a surge in scammers impersonating myGov and the ATO to trick people into giving them money or personal details. These scams can take the form of emails, text messages and fake myGov login pages.

In June 2019, the ATO received 6,444 reports of tax-time scams impersonating the ATO. Emails with links to fake myGov login pages were the most widespread email scam.

The myGov system will never send texts, emails or attachments with links or web addresses that ask for your login or personal details. Never click on links in emails or text messages claiming to be from myGov.

Always log into your official myGov account to lodge your return and check if you owe a debt or are due a refund. You can do this by typing https://my.gov.au/ into your internet browser’s address bar.

Unfortunately, ATO and other scams continue well beyond the 30 October deadline for tax returns, as scammers know many people are waiting for a refund or information about debts. It’s important to watch out for scams throughout the year.

Tax time updates

ATO has refunded $10 billion so far

The ATO says that $10 billion has been refunded to Australian taxpayers so far this tax time, an increase of over $2 billion from the same time last year, with most returns processed in under two weeks. The ATO aims to process returns as soon as possible, and has announced that over four million refunds have already been sent out, compared to over three million refunds issued this time last year.

ATO watching for undisclosed foreign income

The ATO has reminded Australians who receive any foreign income from investments, family members or working overseas to make sure they have reported it this tax time.

New international data-sharing agreements allow the ATO to track money across borders and identify people who aren’t meeting their obligations. Under the new Common Reporting Standard (CRS), the ATO has shared data on financial account information with over 65 tax jurisdictions across the globe. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income.

Unusual claims disallowed

The ATO has published information about some of the most unusual claims it has disallowed. Around 700,000 Australians have claimed almost $2 billion of “other” expenses, including non-allowable items such as child care and even Lego sets.

Assistant Commissioner Karen Foat says a systematic review of claims found and disallowed some very unusual expenses. “A couple of taxpayers claimed dental expenses, believing a nice smile was essential to finding a job, and was therefore deductible. It isn’t!”

ATO contacting small employers about Single Touch Payroll

From 1 July 2018, employers with more than 20 employees have been required to provide real-time reports to the ATO of salary and wage payments, super guarantee contributions, ordinary time earnings of employees and PAYG withholding amounts.

From 1 July 2019, this Single Touch Payroll (STP) reporting system has extended to all employers.

The ATO is now writing to small employers who haven’t yet started reporting or applied for a deferral, to remind them of their STP obligations.

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

Disclosing business tax debt information: ATO consultation

In its Mid-Year Economic and Fiscal Outlook in 2016–2017, the government announced it would change the law to let the ATO report business tax debt information to credit reporting bureaus (CRBs) where a business consistently avoids engaging with the ATO to manage a tax debt.

The ATO has said it “recognises the important role businesses play in the Australian economy [but] when an entity avoids paying its tax debts it can have a significant impact on other businesses, employees, contractors and the wider community.” It has released a consultation paper to facilitate consultation between the ATO, businesses and CRBs.

If passed in its current form, the amended law would allow taxation officers to disclose information about business tax debts when certain conditions are met. A business would need to have debts of at least $100,000 overdue by more than 90 days, and have not effectively engaged with the ATO to manage that debt.

Cross-border recovery of tax debts

The ATO has also reissued Practice Statement Law Administration PS LA 2011/13 Cross border recovery of taxation debts. This statement outlines options available for the ATO to recover a tax debt where the debtor is outside Australia, and sets out how the ATO deals with requests from other countries for assistance in recovering tax debts owing to the other country.

ATO superannuation focus areas

Lost super

As at July 2019, the ATO held 5.39 million super accounts worth $3.98 billion. It will aim to reunite $473 million with 485,000 fund members using the new Protecting Your Super measures.

Pension cap indexation

The pension transfer balance cap (TBC) of $1.6 million could increase on 1 July 2020 or 1 July 2021, depending on movement in the consumer price index (CPI). The general TBC is indexed in increments of $100,000 when the indexation rate reaches prescribed figures (calculated using a formula set out in Australian tax law). Once indexation happens, there will no longer be a single TBC that applies to all super members with a retirement phase income stream. Instead, there could be a personal TBC for each member, depending on their individual situation and arrangements.

Compassionate release of super only available in limited cases

The ATO has recently seen a significant increase in queries about compassionate release of super (CRS). In most cases, the people concerned were ineligible because they were looking to use their super to pay for general expenses.

CRS is an option only for very specific unpaid expenses such as medical treatment and transport costs, palliative care costs, loan payments to prevent the loss of your home, the costs of home or vehicle modifications related to a severe disability and expenses associated a dependant’s death.

Personal services income rules: unrelated clients test

The Federal Court has set aside an Administrative Appeal Tribunal decision that income a business analyst derived through a company was subject to the personal services income (PSI) rules.

According to the Court, simply because an individual or personal services entity is able to provide services through an intermediary, such as a recruitment or similar agency, this does not constitute the making of an offer or invitation for the purposes of the relevant legislation. More than that is required for the purposes of the unrelated clients test.

 

ATO provides voluntary disclosure update

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The ATO has encouraged SMSFs and their auditors to voluntarily disclose contraventions of superannuation law to avoid administrative penalties, stating that over 900 funds have used its voluntary disclosure service in the past three years.

 In an update published on Monday, the ATO said trustees should work with auditors and other professionals to rectify a contravention as soon as possible once they became aware it had occurred.

“If you and your SMSF professionals together cannot rectify the contravention, our SMSF early engagement and voluntary disclosure service is available,” it said.

“The SMSF early engagement and voluntary disclosure service offers a single-entry point for SMSF trustees and professionals to engage early with us in relation to unrectified contraventions.”

The ATO added that if funds voluntarily disclosed a known contravention before an audit commenced, this would be taken into account when determining what percentage of an administrative penalty would be remitted to the trustee.

“Since this service was introduced in May 2016, we have had over 920 applications where we have been able to work with these trustees and their professionals,” it said.

“This includes accepting rectification proposals to get the SMSF back on track or allowing the SMSF to wind up.”

The ATO advised funds wishing to voluntarily disclose a contravention to make use of the contravention disclosure form and include all relevant facts, supporting documentation and a rectification proposal or proposed enforceable undertaking.

It added that if funds had outstanding annual returns, these needed to be lodged before they could make use of the service.

Source: https://www.smsfadviser.com

 

Capital Gains Tax And Death: It’s Not The End Of The World

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There is enough pain and anguish when someone dies, so fortunately there is, in most cases at least, no duty on assets that form part of the deceased’s estate and are passed to a beneficiary, or their legal personal representative (LPR). But as with life, the rules regarding death and CGT are not meant to be easy, particularly when that asset is a “dwelling”.

This article will explore the CGT consequences for the deceased estate and the beneficiary of:

  • the transmission on death, of an asset, specifically a dwelling
  • the subsequent sale of that dwelling.

CGT on the inheritance of a dwelling

Generally, the law says that there is no CGT liability for the deceased on the transmission of an asset to a beneficiary.

The beneficiary is considered to be the new owner of the inherited asset on the day the deceased person died and CGT does not apply to that asset.

This applies to all assets, including a dwelling.

The exception is where the beneficiary is a “tax advantaged entity” (TAE), such as a charity, foreign resident or complying superannuation entity. In this case the deceased estate (not the TAE) is liable for any capital gain or loss attached to the asset. This will need to be taken into account in the deceased’s final tax return in the year in which he or she died.

CGT on the sale of an inherited dwelling

If the beneficiary subsequently sells the bequeathed asset, this may create a CGT “event”, depending on the status of the property, when it was purchased, when the deceased died and whether the sale qualifies for the CGT “main residence” exemption.

CGT liability on the sale will be determined by whether:

  • the deceased died before, on or after 20 September 1985 (when CGT was introduced); and
  • the dwelling was acquired before, on or after 20 September 1985; and if acquired post-CGT, whether the deceased died before, on or after 20 August 1996.

The following table identifies when CGT applies to the sale of an inherited dwelling and the relevant cost base. It refers to these two conditions:

Condition 1: Dwelling was sold (note that this means settlement must have occurred) within two years of the person’s death. This exemption applies regardless of whether the beneficiary used the dwelling as their main residence or produced income from it during this period. The two-year period can be extended at the Commissioner’s discretion. New safe harbour rules allow executors and beneficiaries to self-assess this discretion provided a number of conditions are met.

Condition 2: From the deceased’s death until the sale, the dwelling was not used to produce income, and was the main residence of one or more of the following:

  • the deceased’s spouse;
  • an individual who had a right to occupy it under the deceased’s will; or
  • the beneficiary.
CGT on the sale of an inherited dwelling

 
Dwelling acquired by deceased (D) Date of death  Subsequent disposal by beneficiary (B)
Pre-CGT (ie before 20 September 1985) Pre-CGT No CGT

Exception: dwelling subject to major capital improvements post-CGT and used to produce assessable income
Pre-CGT Post-CGT No CGT if: Condition 1 or 2 is satisfied
If CGT applies, B’s cost base is the dwelling’s cost base in D’s hands at the date of death
Post-CGT Before 20 August 1996 No CGT if:

Condition 2 is satisfied; and D always used dwelling as main residence (MR) and did not use it to produce assessable income
If CGT applies, B’s cost base is the cost base of the dwelling in D’s hands at the date of death
On or after

21 August 1996

 No CGT if:

Condition 1 or 2 is satisfied; and

just before D died dwelling was used as MR and was not being used to produce assessable income
If CGT applies, B’s cost base is the market value of the dwelling at the date of death

In calculating the CGT, the beneficiary or the LPR cannot use any of the deceased’s unapplied net capital losses against the net capital gains.

Guidance at hand

If you have inherited a dwelling and are in the dark about the CGT impact of hanging onto it or selling it, we can guide you through the minefield and minimise any tax consequences.

 

 

Explanatory Memorandum – August 2019

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ATO will inform certain tax agent clients their information is “Tax ready”

If tax agent clients’ employers report through Single Touch Payroll (STP) and the clients are linked to ATO online services through myGov, the ATO will send them a myGov Inbox message to let them know:

  • their end of year payment summary (income statement) has been marked by their employer as “Tax ready” and can be used in their tax return;
  • if they have more than one job, their other employers may still need to provide them with a payment summary;
  • they need to include all income in their tax return;
  • they can access their income statement in ATO online services through myGov, or the tax agent can give them the information;
  • they do not need to give the tax agent their personal myGov login details to access their information.
  • If tax agent clients do not already have myGov accounts, the ATO says agents should let them know they do not need one for the agent to lodge their tax return. Tax agents can access their employment data and lodge for them once their information is “Tax ready”.

Source: https://www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Informing-your-clients-their-information-is–Tax-ready-/

Top mistakes to avoid this tax time: ATO

The ATO has revealed some of the most common mistakes people make at tax time. Assistant Commissioner Karen Foat said that errors range from honest mistakes to people deliberately over-claiming to increase their refund.

The ATO says the top four mistakes to avoid are:

  • lodging before all prefill data is available or failing to report all income. Ms Foat said “we know from previous years that the early birds who lodge in the first weeks of July are far more likely to make mistakes or submit incomplete data”;
  • claiming the wrong thing – work-related expenses is one area where people commonly make mistakes. To help taxpayers work out what they can claim, the ATO has developed 30 occupation guides for specific occupations;
  • forgetting to keep receipts; and
  • claiming for something never paid for – The Assistant Commissioner said the ATO often sees people “making claims at the record-keeping limit, thinking that the ATO will never question a claim if we don’t require receipts. But you still need to have spent the money yourself and be able to show us how you’ve worked out your claim”.

Source: https://www.ato.gov.au/Media-centre/Media-releases/How-to-nail-your-return/

Pension deeming rates cut from 1 July 2019

The Government has announced that it will lower the social security deeming rate from 1.75% to 1.0% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate of 3.25% will be cut to 3.0% for balances over these amounts.

The Minister for Families and Social Services, Senator Anne Ruston, said the changes would benefit about 630,000 age pensioners and almost 350,000 people receiving other payments. Under the new rates, age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples ($1053 extra a year) and $31 a fortnight for singles ($804 extra a year), Senator Ruston said.

The deeming rate changes will also benefit people receiving other income tested payments including the Disability Support Pension and Carer Payment, and income support allowances and supplements such as the Parenting Payment and Newstart.

The Minister made a determination – the Social Security (Deeming Threshold Rates) Determination 2019 – to give effect to the announcement. The Determination is effective from 1 July 2019. Retrospective commencement of the Determination means the reduced below threshold rate of 1% and the above threshold rate of 3% will apply to income from financial investments from 1 July 2019. As a result, any increase that may apply to the rate at which individuals receive social security and veterans’ affairs pensions and allowances will apply from this date.

Level of financial assets Deeming rate – 1 July 2019
Single ($) Couple ($) Current New rate
0 – 51,800 0 – 86,200 1.75% 1%
51,801+ 86,201+ 3.25% 3%

Despite concerns from some industry groups that the deeming rate cuts didn’t go far enough, the Minister’s Determination states that “consultation for this Determination is not necessary” as it is of a “machinery nature”. “Existing arrangements are not substantially altered; the Determination does not change the operation of the deeming provisions. Rather, deeming rates are being changed, informed by returns available in the market for financial investments.”

Date of effect

The reduced deeming rates have been backdated to 1 July 2019. Any additional pension payment will flow through into pensioners’ bank accounts from the end of September 2019 in line with the regular indexation of the pension.

Source: https://ministers.dss.gov.au/media-releases/5006

Personal tax cuts Bill passed without amendment, now law

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 was introduced on 2 July 2019 and then passed all stages without amendment and received Royal Assent on 5 July 2019 as Act No 52 of 2019. The Bill fully implements the personal tax cuts measures announced in this year’s 2019-20 Federal Budget. While Labor has consistently argued against the Stage 3 tax cuts that would apply from 1 July 2024 (see table below), it agreed to pass the Bill but said it will review Stage 3 closer to the next election.

The Bill amends the income tax law to:

  • increase the base and maximum amounts of the low and middle income tax offset (LMITO) to $255 (up from $200) and $1,080 (up from $530), respectively, for the 2018-19, 2019-20, 2020-21 and 2021-22 income years:
  • The LMITO is increased from a maximum amount of $530 to $1,080 per annum and the base amount is increased from $200 to $255 per annum.
  • Taxpayers with a taxable income that does not exceed $37,000 will receive a LMITO of up to $255.
  • Taxpayers with a taxable income that exceeds $37,000 but is not more than $48,000 will receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080.
  • Taxpayers with a taxable income that exceeds $48,000 but is not more than $90,000 will be eligible for the maximum LMITO of $1,080.
  • Taxpayers with a taxable income that exceeds $90,000 but is not more than $126,000 will be eligible for a LMITO of $1,080, less an amount equal to 3% of the excess.
  • increase the amount of the low income tax offset (LITO) from 2022-23;
  • reduce the tax payable by individuals in 2022-23 and later income years by increasing income tax rate thresholds and in 2024-25 and later income years by lowering income tax rates:
  • For the 2022-23 income year and later income years, the Bill increases the amount of taxable income subject to the 19% rate to include taxable income between $18,201 and $45,000 (rather than the current $41,000).
  • For the 2024-25 income year and later income years, the Bill reduces the second personal rate of income tax to 30% (from 32.5%). This would leave just three tax rates – 19%, 30% and 45%.
  • Foreign resident and holiday maker (backpacker) rates also change accordingly.
  • With the changes, Australian resident individuals (and certain trustees) with taxable income that does not exceed $126,000 would be entitled to the LMITO for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
  • For 2022-23 and later income years, individuals with taxable income that does not exceed $66,667 (as well as certain trustees taxed on behalf of individuals) would be entitled to the new LITO.
  • Schedule 1 to the Bill enhances the current LMITO by increasing the base offset from $200 to $255 and the maximum benefit from $530 to $1,080 for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
  • Schedule 1 also increases the amount of the LITO from $645 to $700 from 2022-23. Schedule 2 to the Bill increases the top threshold of the 19% tax bracket from $41,000 to $45,000 from 1 July 2022, and reduces the 32.5% rate to 30% from 1 July 2024.
Date of effect

The changes to the LMITO apply in the 2018-19, 2019-20, 2020-21 and 2021-22 income years. The changes to income tax thresholds, as well as to the LITO, apply to the 2022-23 income year and later income years. The changes to income tax rates apply to the 2024-25 income year and later income years.

Rates and threshold tables

The following table reflects the Government’s changes:

Tax rates and income thresholds
Rate 2017-18 2018-19 to 2021-22 2022-23 to 2023-24 From 1.7.2024
Nil $0 – $18,200 $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 – $37,000 $18,201 – $45,000 $18,201 – $45,000
30% $45,001 – $200,000
32.5% $37,001 – $87,000 $37,001 – $90,000 $45,001 – $120,000
37% $87,001 – $180,000 $90,001 – $180,000 $120,001 – $180,000
45% $180,001 + $180,001 + $180,001 + $200,001 +
LMITO – Up to $1,080 –
LITO Up to $445 Up to $445 Up to $700 Up to $700

The Treasurer said that, starting immediately, low and middle income earners with an income up to $126,000 will receive up to $1,080 in LMITO, or $2,160 for dual income couples, with the increased tax relief to apply from the 2018-19 income year.

As a result of the amendments, the Treasurer said around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less in 2024-25.

Foreign residents

For 2018-19 to 2021-22, the tax rates for foreign residents are:

  • $0 – $90,000 – 32.5%;
  • $90,001 – $180,000 – 37%;
  • $180,001+ – 45%.

For 2022-23 and 2023-24, the tax rates for foreign residents are:

  • $0 – $120,000 – 32.5%;
  • $120,001 – $180,000 – 37%;
  • $180,001+ – 45%.

For 2024-25 and later income years, the tax rates for foreign residents are:

  • $0 – 200,000 – 30%;
  • $200,001+ – 45%.

Working holidaymakers

For 2022-23 and 2023-24, the rates of tax for working holiday makers are:

  • $0 – $45,000 – 15%;
  • $45,001 – $120,000 – 32.5%;
  • $120,001 – $180,000 – 37%;
  • $180,001+ – 45%.

For 2024-25 and later income years, the rates of tax for working holiday makers are:

  • $0 – $45,000 – 15%;
  • $45,001 – $200,000 – 30%;
  • $200,001+ – 45%.

ATO statement on administration of the low and middle income tax offset (LMITO)

In the 2019-20 Federal Budget, the Government announced its intention to change and build on the Personal Income Tax Plan. The ATO says these changes, including tax rate and threshold changes and low income tax offset changes, are now law following the passage through Parliament without amendment and Royal Assent on 5 July of the Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019.

The ATO announced on 5 July 2019 that it is implementing the necessary system changes so taxpayers that have already lodged their 2018-19 tax returns will receive any increase to the low and middle income tax offset (LMITO) they are entitled to. Any tax refund will be deposited in the taxpayers nominated bank account.

Assessments for returns already lodged are expected to start to issue from Friday 12 July and into the following week, which is in line with the normal processing of refunds for this time of year, the ATO said. Those who are yet to lodge their tax return will have any offset they are entitled to taken into account during the normal processing of their return.

The amount of the offset taxpayers may be entitled to, and the amount of any refund, will differ for everyone depending on individual circumstances such as income level and how much tax was paid throughout the year.

Source: https://www.ato.gov.au/Media-centre/Media-releases/Statement-on-administration-of-the-low-and-middle-income-tax-offset/

STP reporting irregularities: ATO contacting businesses

The ATO has advised tax agents that it is currently emailing Single Touch Payroll (STP) enabled employers who have either:

  • ceased reporting for over 45 days; or
  • have submitted employees under multiple payroll or BMS IDs.

Some of these businesses may be tax agent clients.

These reporting irregularities may cause their employees to see incorrect, incomplete or multiple entries in their income statements.

The ATO also advises tax agents that for their business clients who have been contacted by the ATO:

  • agents should encourage them to check that their data is accurate; and
  • agents should remind them that they must finalise their employees’ end of year payroll information before 31 July – even if employees have ceased working for them or they have dropped below the threshold for reporting.

Source: https://www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Contacting-your-clients-about-STP-reporting-irregularities/

Employees guide for work expenses: ATO

The ATO has released an employees’ guide for work expenses to help employees decide whether their expenses are deductible, and what records they need to keep to substantiate them.

The Guide says that not all expenses associated with employment are deductible and explains:

  • how to determine if an expense is deductible against an employment income;
  • how to apportion expenses if they are only partly deductible;
  • how to work out whether an employee can claim a deduction in the year incurred the expense or whether he or she needs to claim a deduction for a decline in value over a number of years; and
  • what records an employee needs to keep.

The Guide also debunks some myths about work expense deductions.

Source: https://www.ato.gov.au/law/view/view.htm?docid=%22SAV%2FEGWE%2F00001%22

FBT, taxi travel and ride sourcing – ATO clarifies

The ATO has clarified a number of issues around FBT and taxi travel.

For businesses, taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work. The ATO says taxi travel can also be an exempt benefit if it is a result of sickness or injury and the whole or part of the journey is directly between:

  • the employee’s place of work;
  • the employee’s place of residence;
  • any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.

For Not-For-Profits, depending on the type of NFP organisation, certain benefits they provide to employees may receive concessional treatment from FBT. However, some benefits may be exempt from FBT altogether. For example, taxi travel by an employee is an exempt benefit if it’s a single trip that begins or ends at the employee’s place of work. It will also be exempt if it’s the result of sickness or injury, as above.

The exemptions for businesses and NFPs are limited to travel undertaken in a vehicle that is licensed to operate as a taxi by the relevant State or Territory. The ATO says they do not extend to travel undertaken in a ride-sourcing vehicle or other vehicle for hire that do not hold such a licence.

Source: https://www.ato.gov.au/Business/Business-bulletins-newsroom/Employer-information/FBT-and-taxi-travel/

New ATO data-matching program: overseas movement data and HELP debt

In a Gazette notice on 5 July 2019, the ATO said it will acquire overseas movement data from the Department of Home Affairs (DHA) for individuals with an existing HELP, VSL or TSL debt. The data matching program will be conducted for the 2019-20, 2020-21 and 2021-22 financial years.

Those living and working overseas with a Higher Education Loan Program (HELP), Vocational Education and Training Student Loan (VSL) and/or Trade Support Loans (TSL) are required to:

  • update their contact details and submit an overseas travel notification if they have an intention to, or already reside overseas, for 183 days or more in any 12 months;
  • lodge their worldwide income or a non-lodgment advice.

The ATO says the data-matching program will identify HELP, VSL and TSL debtors to whom the HELP, VSL and TSL overseas obligations apply. The ATO will assess their status against ATO records and other data it holds to identify debtors that may not be meeting their registration, lodgment and/or payment obligations.

The data items that will be obtained are:

  • identifying particulars for the HELP, VSL and TSL debtor population (name, date of birth, ATO/DHA identifiers);
  • DHA overseas movement details (Passport number, passport country of issue, offshore status, departure and return dates) held on DHA system.

The HELP, VSL and TSL debtor population affected by this data collection is expected to involve approximately three million individuals each financial year.

Source: https://www.legislation.gov.au/Details/C2019G00590

GST on low value goods – “very successful initiative”, says ATO

The ATO says it has now collected over $250 million in additional GST since the GST on low value goods measure began on 1 July 2018, outstripping forecasts by $180 million.

The legislation requires overseas businesses to charge Australian GST on their sales of low value goods to consumers in Australia. Over 1,000 overseas businesses have registered for GST, which includes all the known major suppliers and international platforms, the ATO said. This includes platforms that are collecting GST when these goods are sold through them – reducing the number of individual businesses that need to register.

According to the ATO, “GST collections on low value imported goods have exceeded initial expectations thanks to strong partnerships with the international business community and high levels of compliance”. The measure resulted in $81 million of GST being raised in the first quarter, which surpasses the $70 million projected for the full year. These figures reflect a very strong overall level of compliance and the ATO says it is confident that the system is working well.

As businesses do not need to register unless they meet the A$75,000 GST turnover requirements, most small independent operators do not need to register and have not been affected by this measure.

Source: https://www.ato.gov.au/Media-centre/Articles/GST-on-low-value-goods-measure-continues-to-exceed-expectations/

Super downsizer contributions reach $1 billion: Minister

The Assistant Treasurer, Michael Sukkar, has announced that older Australians downsizing from their family homes have contributed $1 billion to their superannuation funds. He said key recent data shows:

  • 4,246 individuals have utilised the downsizer measure;
  • 55% of contributions have been made by females and 45% from males;
  • individuals from every state and territory have made downsizer contributions with the top three states being, NSW (31%), Vic (26%) and Qld (24%).

The downsizer measure, which commenced on 1 July 2018, allows older Australians choosing to sell their home and downsize or move from homes that no longer meet their needs, to contribute the proceeds from the sale of their home into superannuation up to $300,000.

Key features of the measure
  • From 1 July 2018, people who are 65 years old or older and who meet the eligibility requirements (see below), may be able to choose to make a downsizer contribution into their superannuation of up to $300,000 from the proceeds of selling their home.
  • The downsizer contribution is not a non-concessional contribution and will not count towards their contributions caps. The downsizer contribution can still be made even if a person has a total super balance greater than $1.6 million.
  • The downsizer contribution will not affect a person’s total super balance until their total super balance is re-calculated to include all their contributions, including their downsizer contributions, on 30 June at the end of the financial year.
  • The downsizer contribution will count towards a person’s transfer balance cap, currently set at $1.6 million.
  • A person can only make downsizing contributions for the sale of one home. They can’t access it again for the sale of a second home.
  • Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the Age Pension.
  • If a person sells their home, is eligible and chooses to make a downsizer contribution, there is no requirement for them to purchase another home.
Eligibility criteria

A person will be eligible to make a downsizer contribution to super if they can answer yes to all of the following:

  • they are 65 years old or older at the time they make a downsizer contribution (there is no maximum age limit);
  • the amount they are contributing is from the proceeds of selling their home where the contract of sale exchanged on or after 1 July 2018;
  • their home was owned by them or their spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale;
  • their home is in Australia and is not a caravan, houseboat or other mobile home;
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from CGT under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset;
  • the person has provided their super fund with the downsizer contribution into super form either before or at the time of making their downsizer contribution;
  • the person makes their downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement;
  • the person has not previously made a downsizer contribution to their super from the sale of another home.

Source: http://mss.ministers.treasury.gov.au/media-release/004-2019/

Reasonable travel and overtime meal allowance amounts for 2019-20

Taxation Determination TD 2019/11, issued on 3 July 2019, sets out the amounts the Commissioner treats as reasonable for the 2019-20 income year in relation to employee claims for:

  • overtime meal expenses – the reasonable amount is $31.25;
  • domestic travel expenses. Reasonable amounts are given for three salary levels for: (i) short-stay accommodation in commercial establishments like hotels, motels and serviced apartments; (ii) meals (breakfast, lunch and dinner). Separate reasonable amounts are given for truck drivers (see below); and (iii) deductible expenses incidental to travel;
  • overseas travel expenses. Reasonable amounts are provided for three salary levels for: (i) meals (breakfast, lunch and dinner); and (ii) deductible expenses incidental to travel. These reasonable amounts are shown for cost groups to which a country has been allocated. Where travel is to a country that is not listed, the employee can use the reasonable amount for Cost Group 1 in the table for the relevant salary range.
Truck drivers – meal expenses

For employee truck drivers who receive a travel allowance and are required to sleep (take their major rest break) away from home, TD 2019/11 provides separate meal expense amounts for breakfast ($25.20), lunch ($28.75) and dinner ($49.60). These amounts cannot be aggregated into a single daily amount because some of these meals may not have been consumed in the course of work travel. Further, amounts cannot be moved from one meal to another (eg, if the full amount for lunch is not spent). TD 2019/11 states that truck drivers can use their work diary to demonstrate when meal breaks are taken.

Date of effect

The Determination applies to the 2019-20 income year only.

 

Client Alert – August 2019

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ATO will inform certain tax agent clients their information is “Tax ready”

If tax agent clients’ employers report through Single Touch Payroll (STP) and the clients are linked to ATO online services through myGov, the ATO will send them a myGov Inbox message to let them know that their end of year payment summary (income statement) has been marked by their employer as “Tax ready” and can be used in their tax return and they can access their income statement in ATO online services through myGov, or the tax agent can give them the information.

If tax agent clients do not already have myGov accounts, agents should let them know they do not need one for the agent to lodge their tax return. Tax agents can access their employment data and lodge for them once their information is “Tax ready”.

Top mistakes to avoid this tax time: ATO

The ATO has revealed some of the most common mistakes people make at tax time. Top mistakes include lodging before all prefill data is available or failing to report all income and claiming the wrong thing – work-related expenses is one area where people commonly make mistakes. To help taxpayers work out what they can claim, the ATO has developed 30 occupation guides for specific occupations; forgetting to keep receipts; and claiming for something never paid for.

Pension deeming rates cut from 1 July 2019

The Government has announced that it will lower the social security deeming rate from 1.75% to 1.0% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate of 3.25% will be cut to 3.0% for balances over these amounts.

The Minister for Families and Social Services, Senator Anne Ruston, said the changes would benefit about 630,000 age pensioners and almost 350,000 people receiving other payments. Under the new rates, age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra a year, and $31 a fortnight for singles, $804 a year.

The reduced deeming rates have been backdated to 1 July 2019. Any additional pension payment will flow through into pensioners’ bank accounts from the end of September 2019 in line with the regular indexation of the pension.

Personal tax cuts Bill passed without amendment, now law

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 fully implements the personal tax cuts measures announced in this year’s 2019-20 Federal Budget. Starting immediately, low and middle income earners with an income up to $126,000 will receive up to $1,080 in low and middle income tax offset (LMITO), or $2,160 for dual income couples, with the increased tax relief to apply from the 2018-19 income year.

As a result of the amendments, the Treasurer said around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less in 2024-25.

ATO statement on administration of the low and middle income tax offset (LMITO)

The ATO announced on 5 July 2019 that it is implementing the necessary system changes so taxpayers that have already lodged their 2018-19 tax returns will receive any increase to the low and middle income tax offset (LMITO) they are entitled to. Any tax refund will be deposited in the taxpayers nominated bank account.

The amount of the offset taxpayers may be entitled to, and the amount of any refund, will differ for everyone depending on individual circumstances such as income level and how much tax was paid throughout the year.

STP reporting irregularities: ATO contacting businesses

The ATO has advised tax agents that it is currently emailing Single Touch Payroll (STP) enabled employers who have either ceased reporting for over 45 days; or have submitted employees under multiple payroll or BMS IDs. Some of these businesses may be tax agent clients. These reporting irregularities may cause their employees to see incorrect, incomplete or multiple entries in their income statements.

Employees guide for work expenses: ATO

The ATO has released an employee’s guide for work expenses to help employees decide whether their expenses are deductible, and what records they need to keep to substantiate them. The Guide says that not all expenses associated with employment are deductible and also debunks some myths about work expense deductions.

FBT, taxi travel and ride sourcing – ATO clarifies

For businesses, taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work. The ATO says taxi travel can also be an exempt benefit if it is a result of sickness or injury.

For Not-For-Profits, depending on the type of NFP organisation, certain benefits they provide to employees may receive concessional treatment from FBT. However, some benefits may be exempt from FBT altogether.

New ATO data-matching program – overseas movement data and HELP debt

The ATO said it will acquire overseas movement data from the Department of Home Affairs (DHA) for individuals with an existing HELP, VSL or TSL debt. The data matching program will be conducted for the 2019-20, 2020-21 and 2021-22 financial years.

Those living and working overseas with a Higher Education Loan Program (HELP), Vocational Education and Training Student Loan (VSL) and/or Trade Support Loans (TSL) are required to update their contact details and submit an overseas travel notification if they have an intention to, or already reside overseas, for 183 days or more in any 12 months; and lodge their worldwide income or a non-lodgement advice.

GST on low value goods – “very successful initiative”, says ATO

The ATO says it has now collected over $250 million in additional GST since the GST on low value goods measure began on 1 July 2018, outstripping forecasts by $180 million.

As businesses do not need to register unless they meet the A$75,000 GST turnover requirements, most small independent operators do not need to register and have not been affected by this measure.

Super downsizer contributions reach $1 billion: Minister

The Assistant Treasurer, Michael Sukkar, has announced that older Australians downsizing from their family homes have contributed $1 billion to their superannuation funds. The downsizer measure, which commenced on 1 July 2018, allows older Australians choosing to sell their home and downsize or move from homes that no longer meet their needs, to contribute the proceeds from the sale of their home into superannuation up to $300,000.

Reasonable travel and overtime meal allowance amounts for 2019-20

Taxation Determination TD 2019/11, issued on 3 July 2019, sets out the amounts the Commissioner treats as reasonable for the 2019-20 income year in relation to employee claims for overtime meal expenses; domestic travel expenses; and overseas travel expenses.

For employee truck drivers who receive a travel allowance and are required to sleep (take their major rest break) away from home, TD 2019/11 provides separate meal expense amounts for breakfast, lunch and dinner.

 

Tax Time 2019: Your Payment Summary Is Changing

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If you’re an employee, there are a few things you need to know this tax time about the ATO’s new “Single Touch Payroll” (STP) system. This system requires employers to report information like salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO electronically every time they pay their employees.

You’ve probably still been receiving payslips each cycle, but at tax time you’ll generally no longer receive a payment summary (sometimes known as a “group certificate”) from your employer.

Instead, you’ll be able to access a summary through the ATO’s online services. This will now be known as an “income statement”.

Because STP is new, we’re still in a transitional period. Here’s what you need to know:

  • For businesses with 20 or more employees, STP became compulsory last year on 1 July 2018.
  • For businesses with under 20 employees, STP applies from 1 July 2019, but these businesses still have a few months to get their systems working.

This means that for tax time 2019, some employers will still give their staff a payment summary while others will not because their reporting has already shifted online to the ATO. And if you have two employers, it’s possible you might receive a payment summary from one this year but not from the other.

How does it all work online?

Taxpayers with STP-compliant employers will access their new income statements through the “myGov” online portal. This is a central government portal where you can also access services like Centrelink, Medicare and others. To use this online service to view your income statement, you first need to have a myGov account, and then link your account up to ATO services.

Once your employer is using STP and your myGov account is linked to the ATO, you can access your information as follows:

  • Throughout the income year, you can log on to check your year-to-date income, tax and superannuation information at any time. Each time your employer pays you, this data will be updated (although it may take a few days for updated amounts to appear).
  • After the end of the income year, the ATO will send a message to your myGov inbox to let you know your annual income statement is finalised and ready.

If you log on in July to access your income statement, you should wait until your employer has marked your statement as “tax ready” before you lodge your tax return. Employers have until 31 July to do this. The data from your income statement will be pre-filled into the “myTax” online tax return system even if your income statement isn’t “tax ready” yet, so be careful when lodging.

It’s not compulsory to have a myGov account and you don’t need one to lodge your tax return. Your tax agent can access your income statement for you. However, not having a myGov account means you can’t check your information online yourself.

The ATO has recently reminded taxpayers that your tax agent can also view communications the ATO has sent you from within their own tax agent portal, so they don’t need to access your personal myGov account. Your tax agent can also tell whether your employer is using STP.

Let us do the hard work

Not sure whether your employer is using STP, or just want to keep tax time as stress-free as possible? Talk to us for expert assistance and advice this tax time for all of your lodgement needs.

 

 

Why didn’t my SMSF auditor check that?

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SMSF auditors are the last link in a long superannuation chain before the annual return gets lodged. And when things go wrong, SMSF auditors can often be an easy target to blame.

But not everything is as simple as it seems because it’s the auditing standards and SIS legislation that dictate the extent of the SMSF auditor’s responsibilities by providing a frame of reference for all parties involved.

Professional & Legal Obligations

It’s a legislative requirement to have an SMSF audited annually. And an SMSF audit can be a long drawn out affair when there’s a lack of understanding and unrealistic expectations regarding the audit process.

There’s a wide variety of circumstances that arise from the Auditing standards, SIS and ATO requirements that dictate what is required at audit and why.

There are over 30 auditing standards that apply to auditing an SMSF and 29 sections and regulations of the SIS legislation that must be audited.

SMSF auditors are also required to report on contraventions that may have occurred, are occurring or may occur in the future. And when an SMSF auditor finds compliance breaches, they must apply a series of 7 tests that determines whether a fund is reported to the ATO through an auditor contravention report (ACR).

Terms of Engagement Letters

The Terms of Engagement Letter (TOE) is an essential agreement between the auditor and the trustee as set out under ASA 210 Agreeing the Terms of Audit Engagements and ASAE 3100 Compliance Engagements. The TOE sets out, amongst other things, the scope of the audit and each party’s roles and responsibilities during the audit.

Where the SMSF accountant is the primary source of contact instead of the trustee, it is best practice to issue a separate TOE.  The reason is that these parties work together in a different capacity which requires additional protections and security, such as stating that all audit evidence provided to the auditor will be in an unaltered form.

Getting the TOE right is in the best interests of the trustee, the accountant and the SMSF auditor, as it will help to avoid misunderstandings and ensure that these relationships are clearly defined. That’s why it’s critical to have a signed TOE on file before the audit starts.

There’s A Mistake in the Annual Return

During the audit, SMSF auditors will ask for many documents to gain insight and knowledge into the operations of a fund to ensure regulatory compliance. It is only the financial statement and operating statement, however, that gets audited and signed off by the auditor.

Auditing anything else is outside the scope of the TOE and not the responsibility of the auditor.

Most SMSF auditors, however, will value add their service by providing feedback on other matters, such as where a question on the tax return is missed or where the member preservation and taxation components are incorrect on the member statements.

Opinion Shopping

Signing the TOE forms a contract between the parties, and once the audit commences there is no turning back. Once a compliance breach is identified, the trustee can’t “opinion shop” and switch to another auditor for an unqualified audit opinion.

Apart from the fact that the original SMSF auditor is obligated to finalise their audit opinion under the auditing standards, opinion shopping causes pressure on SMSF auditors in general and impairs auditor independence.

As a result, there have been situations where the lodged annual return has indicated a clear audit report with an ACR lodged by an “unrelated” auditor.

SMSF Adviser Liability

The accountant relies on the SMSF Auditor to ensure that the audit of their clients’ superannuation funds has been undertaken professionally and in a compliant manner.

If an SMSF Auditor fails to follow the standards and takes shortcuts, they are not only exposing themselves to potential lawsuits but also their accounting clients.  As it is the accounting clients who recommend that the trustees use a particular SMSF Auditor, the trustees would have recourse to the accountant if the recommended SMSF Auditor did not do their job correctly.

It’s only a matter of time before an SMSF adviser is nominated in a lawsuit where the auditor has fallen short of their professional obligations.

Conclusion

An SMSF auditor is bound by professional and legal obligations that stipulate what they will and won’t check during an audit.  Important documents, such as the TOE letter, exist to reinforce the roles and responsibilities of all parties involved.

SMSF auditors mitigate risk by acting in a matter that is widely accepted as being competent and professional. The secret is also in understanding the construct under which an SMSF audit is conducted, and that all professionals take appropriate steps to work with care, skill and diligence in line with their obligations.

Source: Article by Shelley Banton, head of technical, ASF Audits – www.smsfadviser.com

Corporate Tax Rates: Recent Changes Give Certainty

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There are two categories of companies when it comes to the corporate tax rate. The two categories are determined by turnover and business activity.

The rate of 27.5% applies to corporate tax entities known as “base rate entities”. What is a base rate entity? Put simply, it is a company which carries on a business and has an aggregated turnover of less than $50 million. This is up from $25 million in the last financial year (ie 2017-18), but will stay at $50 million until 2023-24. The ALP has confirmed that it will not change the rules for base rate entities if elected – so there we have our first certainty.

The rate for base rate entities is locked in at 27.5% until 2023-24. The tax rate for all other companies remains at 30%, ie the standard corporate tax rate. This will not change.

There had been legislation before Parliament that proposed to progressively extend the 27.5% corporate tax rate to all companies regardless of turnover. However, the legislation did not make it through the Senate and the Government has since announced that it would not proceed with this proposal. This provides us with our second certainty – there will be no changes to the standard corporate tax rate.

The tax rate for base rate entities is scheduled to reduce after 2023-24, as this has already been legislated. It is reasonable to state this as the third certainty – that the tax rate for base rate entities will decline progressively to 25% by 2026-27.

Now, this is all perfectly straightforward if your company is carrying on what may be termed a trading business, eg providing services, buying and selling trading stock, importing/exporting etc. But if the activities of the company wholly or partly consist of receiving returns on investments – such as rent, interest and dividends (which are termed “passive income”) – then it can get a bit tricky.

The Government never intended that companies receiving passive income should benefit from the lower tax rate. It recently changed the rules for base rate entities to ensure this does not happen.

A base rate entity will only qualify for the lower 27.5% rate for a particular year if its passive income is less than 80% of its assessable income (and of course its aggregated turnover is less than $50m). Put the other way, companies that receive more than 80% of their income in passive forms will pay tax at the standard corporate tax rate, regardless of turnover.

The passive income is termed “base rate entity passive income” in the amending legislation. And what qualifies? Well, dividends and the associated franking credits to start with. Interest (or a payment in the nature of interest) also qualifies – but not if the entity is a financier – as well as royalties and rent. Another key area that qualifies as base rate entity passive income is net capital gains. This could be important for smaller companies – in that the sale of a substantial asset could shake the income mix and possibly put access to the lower rate at risk.

Does your company derive investment income?

If you are not sure of the implications of the new company tax rates, we can help. For example, if your business operates via a company, it may be worthwhile using the CGT rollover provisions to transfer assets into a separate entity, to ensure that the 80% rule is not breached. The split 27.5% / 30% rate also has implications for the imputation system and franking credits, which we would be happy to discuss.

Still Unsure About The Instant Asset Write-Off?

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If you’re thinking about purchasing some new equipment for your business, it may make sense to bring forward that purchase in order to take advantage of the “instant asset write-off” available until 30 June 2020.

The write-off allows small and medium businesses (with turnover up to $50 million) to claim a full deduction for any depreciating asset costing up to $30,000 in the year they first use it, rather than having to deduct the cost over several years under the usual depreciation rules.

Case study: David runs a distribution business with annual turnover of $1.4 million. He has been thinking about purchasing a computer upgrade (costing $8,000), an extra forklift ($24,000) and a new van ($35,000), which David would use 20% of the time for personal use.

Which assets qualify?

The $30,000 threshold is a per asset threshold, so the business could claim both the $8,000 computer upgrade and $24,000 forklift under the write-off, even though these total $32,000.

The $35,000 vehicle won’t qualify. Even though businesses may only claim the write-off for the business use proportion of an asset (in this case 80% or $28,000), the full cost of the asset must still be below the $30,000 threshold. The vehicle would be subject to the usual depreciation rules.

What’s the advantage of the write-off?

The write-off “accelerates” David’s deductions because the business can fully write off qualifying purchases in the first year, rather than gradually claiming deductions for depreciation over several years. This is clearly a benefit, but David’s decision about the purchases should also factor in:

  • how profitable the business is, and how a large deduction this year versus gradual depreciation over several years will be applied against the business’ assessable income; and
  • the cashflow impact of making the purchase, including whether finance is needed. Does the business genuinely need the new assets, and does the tax benefit of the instant write-off justify the expense involved in this capital expenditure?

What’s the deadline?

The $30,000 write-off is a temporary measure.

Unless there are further government announcements, the threshold will return to $1,000 from 1 July 2020.

David must do two things if he wishes to utilise the $30,000 write-off.

First, he must purchase the asset by 30 June 2020.

  • For small businesses like David’s (with turnover under $10 million), the purchase can go as far back as 13 May 2015 (subject to the “first use/installation” rule discussed below).
  • If David’s business turnover was between $10 million and $50 million, the purchase would need to have been made after 2 April 2019 (because the measure was not available to medium businesses before then).

Be careful about financing asset purchases. If you “lease” an asset you may not qualify because you’re not the owner, but if you use a form of finance like a “chattel mortgage” (where the lender takes security over the asset) you can still claim the write-off.

Second, the asset must be first used, or installed ready for use, on or before 30 June 2020. This means David wouldn’t qualify if he buys the asset but it’s not delivered until after 30 June 2020.

If a small business purchased and also first used or installed an asset on or before 2 April 2019, a lower threshold will apply. Talk to your adviser about the tax treatment of that purchase.

Let’s look at your expenditure plans

If you’ve been considering new equipment for your business, contact us today to explore the optimal timing for that expenditure and whether the write-off can work for you.

 

The Australian Tax Office hotspots 2019 — do they apply to you?

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Every tax time, the ATO focuses on certain hotspots where taxpayers are prone — either accidentally or deliberately — to make errors. These are the areas it will concentrate its audit firepower on, and for those who have made claims in areas which the ATO will be targeting, they can be a wake-up call both to ensure that you get it right this year and that you go back and check that you did it right last year.

So, what is on the ATO’s list this year? Well, essentially, they’re looking at two main areas: work-related expenses and claims made by investment property owners.

The ATO recently claimed that there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying. The ATO believes that work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year. In particular, they’ll be looking closely at:

  • Claims for work-related clothing, dry cleaning and laundry expenses (for instance the ATO has flagged that it will be checking taxpayers who take advantage of the exemption from keeping receipts for people who spend less than $150 on laundry expenses; the ATO believes that too many people are claiming this without actually incurring the expense)
  • Deductions for home office use, including claiming for “occupation” costs like rent, rates and mortgage interest, which are not allowable unless you’re actually running a business from home.
  • Overtime meal claims
  • Union fees and subscriptions
  • Mobile phone and internet costs, with a particular focus on people who are claiming the whole (or a substantial part) of the bill for their personal mobile as work-related
  • Motor vehicle claims where taxpayers take advantage of the 68 cent per kilometre flat rate available for journeys up to 5,000kms (the ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel)
  • Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts (the ATO believes that some taxpayers are claiming this — or an amount just less than $300 — without actually incurring the expenses at all)

All these are areas where we know taxpayers often make mistakes, often not helped by misleading or vague advice from the ATO about how the law actually works. Our top tip before making any claim is to be confident that you understand what you can and can’t claim, and that you have the necessary proof (invoices, receipts, diaries etc.) that you actually incurred the expenditure and that it was work or business-related.

Property spotlight

The other main focus this year is on people who make deduction claims in relation to investment properties and holiday homes. Over 1.8 million people — or about 8 per cent of the Australian population — own an investment property, according to ATO figures, so this is a large and growing population for them to focus on. The ATO believes errors in rental property claims are the second biggest component in the $8.7 billion tax gap (after work-related expenses), and indeed, they recently announced that in a series of audits, the ATO found errors in 90 per cent of returns reviewed. So, this year, expect them to focus on the following:

  • The ATO has announced it will be paying close attention to excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
  • They will also be looking at the incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
  • They will be looking at holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of home owners claiming deductions for their holiday pad on the grounds that it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent-free.
  • They will be keeping a close eye on incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.

Don’t forget, the ATO has access to numerous sources of third-party data including access to popular holiday rental listing sites such as Stayz and Airbnb, so it is relatively easy for them to establish whether a claim that a property was “available for rent” is correct.

The key tip is to ensure that property owners keep good records. The golden rule is: if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.

Other hotspots

Cryptocurrency

The ATO will also be taking a closer look at the booming market in investments in cryptocurrencies like Bitcoin. Increasing numbers of taxpayers are jumping on the bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments. Remember, investing in cryptocurrencies can give rise to capital gains tax on profits. Traders can be taxed on their profits as business income.

To help them in their search, the ATO is collecting bulk records from Australian cryptocurrency-designated service providers (DSPs) as part of a data-matching program to ensure people trading in cryptocurrency are paying the right amount of tax. Data to be provided to the ATO will include cryptocurrency purchase and sale information. The data will identify taxpayers who fail to disclose their income details correctly.

The ATO estimates that there are between 500,000 and one million Australians that have invested in crypto assets.

Sharing economy

The ATO will also be looking closely at those working in the shared economy to ensure that income and expenses are correctly reported. Examples quoted by the ATO include services such as:

  • ride-sourcing – transporting passengers for a fare (such as Uber drivers)
  • renting out a room or house for accommodation (Airbnb hosts are the obvious example). The ATO is believed to be particularly concerned about taxpayers claiming the full CGT main residence exemption when part of their main residence has been rented out through Airbnb. The law prevents a full CGT exemption where part of a main residence has been used to earn income.
  • renting out parking spaces
  • providing skilled services – web or trade services etc. (Airtasker workers, for instance)
  • supplying equipment, tools etc.
  • completing odd jobs, errands, deliveries etc.
  • renting out equipment such as tools, musical instruments, sports equipment etc.

Source: Article by Mark Chapman – www.accountantsdaily.com.au