Newsletter: August 2016

-Update on the government's superannuation program-
Editor: Now that the government has been re-elected, it seems they are committed to proceeding with their superannuation policy, including the controversial measure to impose a 'lifetime cap' of $500,000 on the amount of non-concessional (i.e., undeducted) contributions that can be made into superannuation (calculated from all contributions made since 1 July 2007).

The Treasurer Scott Morrison has also indicated that transitional relief provisions will be introduced in relation to the lifetime non-concessional contributions cap of $500,000.  
It is proposed that transitional provisions will allow for non-concessional contributions to be made under the rules and limits that existed prior to Budget Night where a superannuation fund has entered into a contract before 3 May 2016 to acquire an asset, and the contract settles after 3 May 2016.

Furthermore, there will be transitional relief for self-managed superannuation funds (SMSFs) that had a Limited Recourse Borrowing Arrangement in place before 3 May 2016, and additional non-concessional contributions are to be made up to 31 January 2017 (so that the borrowing will comply with the ATO's new guidelines). 

Editor: There have also been reports that the government may also allow 'carve-outs' for extraordinary 'life events' (e.g., divorce).
The government is apparently going to release draft legislation for their superannuation changes some time in August 2016. 

-Tax time is prime time for scams-
The ATO is reminding Australians to be on the lookout for tax-related scams during tax time, as scammers are particularly active because of the large number of people lodging their tax returns.

Assistant Commissioner Graham Whyte said that, while most people were able to identify scams, it is important to remain alert during tax time.
For example, although the ATO makes thousands of outbound calls to taxpayers a week, there are some key differences between a legitimate call from the ATO and a call from a potential scammer:

“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner.  If you’re not sure, hang up and call us back on 1800 008 540”.

-ATO also warns against identity theft-
The ATO is also reminding Australians to protect themselves against identify theft this tax time.  Highly organised crime networks use a range of methods to steal personal information in order to commit refund fraud.
The ATO recommends following a few easy steps for taxpayers to protect themselves against identity theft:
 
      Put a padlock on their letterbox;
    Shred documents containing personal details (especially their tax file number (TFN)) before throwing them away;
    Use legitimate and up-to-date antivirus, firewall and anti-spyware software; and
    Make sure passwords are strong, using a combination of letters, numbers and symbols, don't share them with anyone, and ensure they are changed regularly.
The ATO also says that taxpayers should report the loss or theft of their TFN without delay, if they can’t find their TFN, and/or think their TFN has been stolen or misused.

-The 'sharing economy' in the ATO's sights-
The ATO is concerned that those earning money from the 'sharing economy' may not realise they have to declare these amounts on their tax return.

In the sharing economy, buyers and sellers are connected through a facilitator who usually operates an app or website.

Assistant Commissioner Graham Whyte said: 

“If you earn money from doing odd jobs or providing a service like task sharing, transporting passengers through things like ride-sourcing, or renting out a room or house, you need to declare it because it counts as assessable income.  If you are running a business through the sharing economy you also need to declare this income.
“It’s a bit different if the goods you provide or the activity you complete through a sharing economy website or platform is done as a hobby or recreational activity.  The amount you are paid may not be assessable income."  

Editor: We can help you with this distinction.
Mr Whyte said ATO technology was keeping up with the sharing economy, and, thanks to their data collection and data matching activities, the ATO would know if taxpayers have left out a significant amount of income.

In addition, some taxpayers may need to register for, and pay, GST (especially those earning an income from carrying on an enterprise of ride-sourcing services, regardless of how much money they earn).

-Latest ATO benchmarks released-
The ATO has released the latest benchmarks for small business based on the data from 2014 income tax returns and business activity statements, covering over 1.3 million small businesses.

Assistant Commissioner Matthew Bambrick said that, if a small business is inside the benchmark range for their industry and the ATO hasn't received any extra information that may cause concern, they can be confident that they probably won't hear from the ATO.

Mr Bambrick said the benchmarks were also a helpful guide for small businesses to see how they stack up against others in their industry.
 
"For example, one business told us how their accountant used the tailored benchmarks to work out that their expense to turnover ratio was higher than other businesses with a similar turnover.  Using this information the business adjusted some of their inputs and how they were pricing their products.  These changes resulted in an overall improvement in their performance."

While the benchmarks are a helpful guide for small business, Mr Bambrick said it was also one of a number of tools the ATO uses to ensure a level playing field.

-Cents per km deduction rate for motor vehicle expenses- 
The ATO has determined that the rate at which work-related motor vehicle expense deductions may be calculated using the cents per kilometre method is 66 cents per kilometre for the income year commencing 1 July 2016.

-Overtime Meal Allowance Amounts-
The reasonable amount for overtime meal allowance expenses for 2016/17, where an allowance is paid under an award, order, determination, industrial agreement or a Commonwealth, State or Territory law, is $29.40 per meal.

-Div.7A benchmark interest rate-
The benchmark interest rate for 2016/17, for the purposes of the deemed dividend provisions of Div.7A, is 5.40% (down from 5.45% for 2015/16).

-CGT:  2016/17 Improvement threshold-
The CGT improvement threshold is $145,401 for the 2016/17 income year, up from  $143,392  for 2015/16.

P r a c t i c e U p d a t e July 2016

ATO focuses on rental property owners
With Tax Time 2016 just around the corner, the ATO has stated it will be paying close attention to excessive interest expense claims, and incorrect apportionment of rental income and expenses between owners.  
The ATO is also looking at holiday homes that are not genuinely available for rent, and incorrect claims for newly purchased rental properties.  
An ATO spokesperson said that their ability to identify incorrect rental property claims is becoming more sophisticated due to enhancements in technology and the extensive use of data.

Case Studies
Holiday home not genuinely available for rent
John has a newly purchased rental property that had not returned any rental income.  
He told the ATO that the property was occasionally advertised on community noticeboards and websites.  
John was unable to prove there was a genuine arrangement in which he actively sought tenants, or had taken sufficient steps to genuinely advertise the property for rent.
A rental loss of almost $60,000 was disallowed and penalties were applied.

Interest
Rental property owner Sarah reported high rental interest claims and was required to provide bank statements as evidence to the ATO.  
The statements showed borrowings well in excess of the purchase price of the rental property.  
The interest charges relating to the private part of the loan were disallowed.
Sarah was required to pay more than $15,000 back to the ATO.
Incorrect claims for a newly purchased rental property and false claims
Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses.  
Nancy had inappropriately claimed a deduction for repairs to defects present in the newly purchased property, and the capital works and borrowing expenses should have been spread over several years.  
She also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.
 
Apportioning expenses between joint owners of a property
A rental property claim was investigated by the ATO where the rental expenses had not been apportioned correctly. The property was jointly owned by a couple but the higher income earner claimed the larger proportion of the expenses.
The expenses were adjusted to reflect the ownership interest and the higher earner had to pay back more than $8,000 in tax.

GIC and SIC rates for the 2016 September quarter
The ATO has published the 2016 September quarter rates for the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC):
GIC annual rate    9.01%
GIC daily rate    0.02461749%
SIC annual rate    5.01%
SIC daily rate    0.01368852%

Car depreciation limit for 2016/17
The car limit is $57,581 for the 2016/17 (up from $57,466 for the previous year).  This amount provides a limit on depreciation and GST input tax credit claims.

Tax implications for the sharing economy
The ATO is reminding taxpayers who earn income through the sharing economy that they have tax obligations they should consider.
Examples of sharing economy services include:
n    ride-sourcing - providing taxi travel services to transport passengers for a fare;
n    renting out a room or a whole house or unit on a short term basis;
n    renting out parking spaces; or
n    providing personal services, such as web or trade services, or completing odd jobs, errands, deliveries, etc.
As is usual under the GST and income tax law, the nature of the goods or services they provide and the extent of their activities will determine what they need to do for tax purposes.

SuperStream deadline extended!
With only days to go until the 30 June SuperStream deadline, the ATO noted that, while many small businesses had implemented the required changes, "some small businesses may need extra time and help to become SuperStream compliant".
The ATO has announced that for small businesses that are not yet SuperStream ready, it will provide a further extension to 28 October 2016.

Newsletter: June 2016

2016/17 Federal Budget
The government handed down the 2016/17 Federal Budget on Tuesday 3rd May.  
It included (among many changes) proposed personal income and company tax cuts from 1 July 2016, the extension of GST to all imports (irrespective of value) from 1 July 2017, an increase in the small business entity ('SBE') turnover threshold from 1 July 2016, and (as you may have heard) many, many superannuation changes.
Of course, they are all dependent on the Turnbull Government winning the election on 2 July and the legislation then surviving Parliament after that.
Editor: We'll keep you informed!

SMSFs and Collectables - last opportunity to comply!
From 1 July 2011, SMSF investments in collectables and personal-use assets have been subject to stricter rules than SMSF investments in other assets (such as shares and property).
Editor: Assets considered collectables and personal-use assets include things like artwork, jewellery, antiques, vehicles, boats and wine. 
However, SMSFs that already had investments in such assets before 1 July 2011 were given five years to comply with these rules (i.e., until 30 June 2016).  
Therefore, any SMSFs with such investments need to consider their situation carefully and take appropriate action (if necessary) before 1 July 2016.
Such action may include (for example):

• reviewing current leasing agreements (items can't be leased to or used by a related party, including business premises);
•  making decisions about storage (items can't be stored or displayed in a private residence of a related party, and decisions about storage must be documented and the written record kept); and
•  arranging insurance cover (items must be insured in the fund's name).

In addition, if the trustees of the fund are considering disposing of these items, they can be transferred to a related party without a qualified independent valuation, but only if the transfer takes place before 1 July 2016 and the transaction is made on arm's-length terms.
If these requirements are not met from 1 July 2016, penalties may apply.

 
ATO's continuing focus on trust property developers
In recent years, the ATO has focused on trusts developing and selling properties as part of their normal business. 
When these developed properties are sold, some trusts incorrectly claim a 50% CGT discount.
The ATO will continue to target arrangements that display the following characteristics:

• clients have experience in either developing or selling property (or experience in the industry) and establish a new trust to acquire property for development and sale;
• circumstances surrounding the arrangement are inconsistent with the stated purpose of developing the property as a long term investment;
• the development is advertised as available to purchase before completion, or is sold soon after completion; and
• the trustee claims the 50% CGT discount on the sale of the property.

The ATO is encouraging taxpayers to review their circumstances with their tax agent/adviser.
Editor: The ATO has also advised that they may contact property developers directly to "help them meet their obligations during development and disposal of the property.  However, we may contact your clients at any stage of a development, not just on the sale of the property."
If you get any such contact - let us know!

New Simpler BAS on the way
The ATO has been working on ways to deliver a simpler business activity statement (BAS) to simplify account set-up, record keeping, BAS preparation and lodgment for agents and their clients, and make it less costly.
To achieve this, several GST labels will be removed from the BAS, with small businesses only required to report:

• GST on sales (1A);
• GST on purchases (1B); and
• Total sales (G1).

They will begin user testing from 1 July 2016 and a simpler BAS should be the standard option for all small business from 1 July 2017.

ATO reminder about 30 June SuperStream deadline
With the 30 June 2016 deadline looming, the ATO strongly encourages small businesses to get on board with SuperStream as soon as possible.
SuperStream is the standardisation of how employers make super contributions on behalf of their employees, and involves employers sending all super payments and employee information electronically in a standard format.
Using it is mandatory.
Editor: Unless the employer and the SMSF are related parties . . .
Options for becoming 'SuperStream ready' include using:

• a payroll system that meets the SuperStream standard;
• a super fund's online system; or
• a messaging portal or a super clearing house like the ATO's Small Business Super Clearing House (SBSCH).

The SBSCH is a free, optional service for small business with 19 or fewer employees, as well as businesses with an annual aggregated turnover of $2 million or less. 
Editor: If you're worried you won't be able to use SuperStream as you don't operate electronically, there is a SuperStream option to suit every business, including using third parties to pay your super using SuperStream on your behalf. 
If you have any questions, let us know and we'll help you out.

ATO warns about iTunes scammers
The ATO is reminding the public to be alert to scammers impersonating the ATO demanding iTunes gift cards as a form of tax debt payment
Of the 8692 phone scam reports the ATO received in April 2016 in relation to the fake ATO tax debt scam, 58 reports mentioned the scammer demanding payment by iTunes (and apparently 26 people unfortunately payed $174,830 to fraudsters!)
Importantly, the scammers don't need the actual physical card; they just need the gift card number, which they get victims to read over the phone.
The ATO states: "We will never request the payment of a tax debt via gift or pre-paid cards such as iTunes and Visa cards.  Nor will we ask for direct credit to be paid to a personal bank account.
"And if the person calling you is rude and aggressive, threatening police or legal action if you don't do something immediately - it's not the ATO".

Latest Newsletter: May 2016

Impending blowout from the leaked 'Panama Papers'

Under a plan devised by the Commissioner of Taxation, Chris Jordan, 35 countries have agreed to mount the most ambitious international investigation in history to hunt down tax evaders identified in the Panama Papers leak.

About 800 Australians are listed in the files of Panama law firm Mossack Fonseca, from which confidential correspondence was leaked, and 80 of those are identified in the Australian Crime Commission's (ACC's) database for serious and organised crime.

The ATO says that it has now linked over 120 of them to an associate offshore service provider located in Hong Kong.

Deputy Commissioner, Michael Cranston, said that “The information we have includes a large number of taxpayers who haven’t previously come forward, including high wealth individuals, and we are already taking action on those cases”.

The documents from Mossack Fonseca have been exposed in a global media project led by the International Consortium of Investigative Journalists (ICIJ).

The ICIJ plans to release the names of all of the 240,000 offshore entities set up by Mossack Fonseca, along with directors and shareholders, next month.

ATO – SuperStream deadline rapidly approaching

With the SuperStream deadline of 30 June rapidly approaching, ATO Deputy Commissioner James O’Halloran says now is the time for employers who are not yet using SuperStream to cross it off their to-do list.

SuperStream is the new way employers must pay super.  It means paying super and sending employee information electronically.

More than 60% of all Australia’s small businesses are now using SuperStream.

“Employers who are using SuperStream have reduced the time they spend on super by an average of around 70%, each cycle,” says Mr O’Halloran.

“We are encouraging the remaining employers who have not yet adopted SuperStream to do so before 28 April."

“By taking action now employers will have a chance to test their SuperStream solution and ensure things are running smoothly and eliminate any stress around the 30 June deadline”, says Mr O’Halloran.

Contractor payments data matching program

The ATO has advised that it is continuing its Contractor payments data-matching program.

It will acquire data from businesses that it visits as part of its employer obligations compliance program during the 2016/17, 2017/18 and 2018/19 financial years.

The data collected from businesses is used to identify contractors that may not be meeting their taxation obligations through:

- not registering correctly with the ATO;

- non-lodgment of returns;

- failing to report payments received; and

- not paying amounts of tax due to the ATO.

This is an ongoing data matching program and has been conducted for more than five years.

New rules for selling property over $2 million

From 1 July 2016, new rules will apply to sales of taxable Australian property (e.g., real estate) with a market value of $2 million or above.

A 10% non-final withholding tax may be applied to all contracts to sell such property entered into on or after 1 July 2016.

Australian resident vendors selling such property will need to obtain a clearance certificate from the ATO prior to settlement to avoid the 10% non-final withholding tax.

Editor:  This new 10% withholding tax was really only intended to apply to non-residents selling Australian property. 

However, it equally applies to Australian resident vendors and forces them to obtain a clearance certificate from the ATO to, in fact, prove that they are Australian residents.

Generally speaking, clients will be affected for sales of residential and commercial properties, or companies or trusts that hold such properties.

Newsletter: April 2016

ATO reminder – What's new for small business?

Editor:  The ATO has issued a timely reminder before the end of the financial year on the changes announced in last year's Budget.

Instant asset write-off – simpler depreciation rules

Small businesses can immediately deduct the business portion of most (new or secondhand) assets if they cost less than $20,000 and were purchased between 7:30pm on 12 May 2015 and 30 June 2017.

From 1 July 2017, the threshold will return to $1,000.

Accelerated depreciation for primary producers

From 12 May 2015, primary producers can immediately deduct the costs of:

l       fencing – previously deducted over a period up to 30 years; and

l       water facilities – previously deducted over three years.

They can also deduct the cost of fodder storage assets over three years, instead of 50 years.

Deductions for professional expenses for start-ups

From 1 July 2015, small businesses are entitled to certain deductions when starting up a small business.

The range of deductible start-up costs includes professional, legal and accounting advice, and government fees and charges.

Small business restructure roll-over

From 1 July 2016, small businesses will be able to change the legal structure of their business without incurring any income tax liability when assets are transferred by one entity to another.

This roll-over basically applies to:

l       CGT assets;

l       trading stock; and

l       depreciating assets used, or held ready for use, in the course of carrying on a business.

FBT changes for work-related devices

From 1 April 2016, small businesses will not incur an FBT liability if they provide their employees with multiple work-related portable electronic devices that have similar functions.

These include devices that are primarily used for work, such as laptops, tablets, calculators, GPS navigation receivers and mobile phones.

Small business income tax offset

From the 2015/16 income year, an individual is entitled to a tax offset on the tax payable on the portion of their income that is from:

l       net small business income from sole trading activities; and/or

l       their share of net small business income from a partnership or trust.

The income tax offset can reduce the tax payable that relates to the individual’s small business income by 5% (up to $1,000) each year.

The ATO will work out the offset based on the total net small business income reported in a client's income tax return.

Company tax cut for small businesses

For income years commencing on or after 1 July 2015, the small business company tax rate has been reduced from 30% to 28.5%.

The maximum franking credit that can be allocated to a frankable distribution is unchanged at 30%, even if a small business is eligible for the 28.5% tax rate.

Editor:  If you need to discuss any of the above please contact our office – preferably before 30 June.

ATO releases latest business benchmarks

The ATO says that the 2013/14 data is now available for the 'Small business benchmarks'.

The ATO uses these benchmarks as a guide on industry trends to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income.

The ATO says that using the Small business benchmarks can assist with building taxpayers' businesses.

They say that taxpayers should compare their details against similar businesses in their industry and see how competitive they are or where improvements can be made.

Newsletter: March 2016

DHS specified benefits and entitlements data matching

The ATO has advised that it will collect information from the Department of Human Services (DHS) for the following benefits and entitlements:

-       family tax benefits – part B;

-       paid parental leave scheme;

-       carers' allowance; and

-       Medicare entitlement statements.

This data will be compared with claims made in income tax returns for the invalid and invalid carer tax offset, and for exemptions from paying the Medicare levy and surcharge.

The program will enable the ATO to detect those who are NOT genuinely entitled to claim these offsets and exemptions.  Due to a number of legislative changes in recent years, some people continue to claim these offsets and exemptions incorrectly.

The ATO says that it has been undertaking this data matching program for more than five years and intends to continue conducting it for a further three years.

Buyers to withhold tax for ATO when buying certain properties

Editor:  Parliament recently passed legislation amending the taxation law to impose withholding obligations on the purchasers of certain Australian assets – generally property purchased from a non-resident.  However, the changes will affect most purchases of property in Australia!

The amendments impose a 10% withholding obligation on purchasers of 'Taxable Australian Real Property' (generally, this means an interest in Australian land) from certain foreign residents, as well as certain 'indirect Australian real property interests' (such as shares in companies that own a lot of land) and options to acquire such assets.

The amendments will generally apply where the contract to purchase an applicable asset is signed on or after 1 July 2016.

Tax Warning!

Where the land, or the interest in the land, is worth $2 million or more, the new law requires the purchaser to withhold 10% of the purchase price and send it to the ATO unless the vendor has obtained a 'clearance certificate' from the ATO and provided it to the purchaser prior to settlement.

This obligation arises regardless of whether the vendor is a foreign resident or not. 

Example

On 1 August 2016, Harvey enters into a contract to purchase a residential property in an affluent Sydney suburb for $2.5 million, with settlement proposed to occur on 1 October 2016.  He does not know whether the vendor is a foreign resident. 

Despite many requests from Harvey’s lawyer, the vendor refuses to obtain a clearance certificate from the ATO to give to Harvey.

As Harvey is acquiring Australian land with a market value greater than $2 million and he has not received a clearance certificate from the vendor by the time settlement occurs, Harvey will be required to withhold and pay to the ATO $250,000, whether or not the vendor is an Australian resident.

Inactive Trusts –  ABNs to be cancelled

The ATO has advised that they will begin cancelling the ABNs of approximately 220,000 trusts, where there is evidence those trusts are no longer carrying on an enterprise.

Trust ABNs will be cancelled from February, where information available indicates that, for the last two years, the trust has not lodged BASs and/or trust income tax returns.

The ATO will send a letter if an ABN has been cancelled, including the reason for the cancellation, and a phone number to ring to get the ABN reinstated immediately if the recipient does not agree with the decision.

Editor: If you receive such a letter and think the trust should still be entitled to an ABN, let us know and we'll try and sort it out for you.  Please also let us know if there are any outstanding BASs or returns you need us to lodge!

Newsletter: February 2016

Warning to employers to withhold tax from some car allowances

The ATO has reminded taxpayers that, in relation to claiming car expenses, the one-third of actual expenses method and 12% of original value method were abolished from 1 July 2015.

The cents per kilometre method now uses a standard rate of 66 cents per kilometre for all cars, rather than a rate based on a car's engine size.

Employers should be aware that the ATO set the approved pay as you go (PAYG) withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015. Employers should withhold tax from any amount above 66 cents for all future payments of a car allowance, as failure to do so may result in the employee having a tax liability when they lodge their tax return.

Employees, who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount, should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.

Editor: If this applies to your business, please contact our office if you need help with the calculations.

Taxpayer misses out on small business CGT concession

A taxpayer's claim that a related trust was entitled to the small business 15-year exemption* was rejected because a loan from his trust had to be included in the net value of his CGT assets.

Note (*): 

One of the requirements to get this concession is to satisfy the "maximum net asset value test" (MNAVT), whereby the net value of CGT assets of a taxpayer (and their connected entities and affiliates) must not exceed $6 million.

It was agreed between the ATO and the taxpayer that the total net value of the taxpayer's other assets in 2008 was $5.93 million. 

The parties disagreed, however, as to whether an amount of $1.14 million shown as a loan in the 2008 balance sheet of the taxpayer's trust should be included as an asset – the taxpayer claimed that he was "statute-barred" from recovering the loan by the Limitation of Actions Act 1936 (SA). 

If it was an asset, then the net value of the total assets for the purposes of the small business exemption exceeded $6 million, and the taxpayers were not entitled to CGT relief.

Decision

The Federal Court held that any action by the trust against the taxpayer to recover the pre‑1998 loan would be an action to recover "trust property", and the Limitation of Actions Act does not prescribe any limitation period in respect of claims of that kind. 

Therefore, "the contention that the pre‑1998 loan was statute‑barred and did not have to be brought into account in the calculation of the MNAVT must be rejected".  

Tax help for people affected by recent bushfires

The ATO has advised that, for people affected by the recent Victorian and Western Australian bushfires, refunds will be fast-tracked and they will have additional time to lodge income tax returns and activity statements.

No need to apply

The Tax Commissioner said taxpayers do not need to apply for a deferral or a faster refund.

“If your business or residential address is in one of the identified affected postcodes it will happen automatically. You can visit our website to see the new lodgment dates and check if your region is included.  Further postcodes may be added as needed, so check our website for more information,” Commissioner of Taxation, Mr Jordan, said.