Coronavirus - tax measures

Coronavirus: Government announces new tax measures

The Government has announced a number of economic responses to the Coronavirus (or 'COVID-19') pandemic, including economic stimulus packages worth billions of dollars.

Some of the key tax measures include:

-       From Thursday 12 March 2020, the instant asset write-off threshold has been increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.

-       A time-limited 15-month investment incentive (through to 30 June 2021) which will operate to accelerate certain depreciation deductions.

         This measure will also be available to businesses with a turnover of less than $500 million, which will be able to immediately deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.

-       Small and medium-sized businesses (and not-for-profit entities), with an aggregated annual turnover of less than $50 million that employ people, may be eligible to receive a total payment of up to $100,000 (with a minimum total payment of $20,000), based on their PAYG withholding obligations.

-       A new 'JobKeeper Payment' will be available to assist eligible employers (and self-employed individuals) who have been impacted by the Coronavirus pandemic to continue to pay their workers.

         Eligible employers will be able to claim a subsidy of $1,500 per fortnight, per eligible employee, from 30 March 2020 (with payments commencing from the first week of May 2020), for a maximum period of six months.

ATO's support measures to assist those affected by COVID-19

The ATO will also implement a series of administrative measures to assist Australians experiencing financial difficulty as a result of the COVID-19 outbreak.

Options available to assist businesses impacted by COVID-19 include:

-      Deferring the due dates for income tax payments, Fringe Benefits Tax payments ('FBT') and excise payments up to 12 September 2020 for businesses in financial difficulty; and

-      Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities.

However, note that employers will still need to meet their ongoing super guarantee obligations for their employees.

Editor: Please contact our office if you need any advice or assistance during this difficult time.

New laws can make directors personally liable for GST

The government recently passed new legislation designed to strengthen laws to "crack down on illegal phoenixing activity by dodgy business operators who try to avoid their obligations to their customers, employees and creditors."

In particular, the changes allow the ATO to collect estimates of anticipated GST liabilities, and make company directors personally liable for their company’s GST liabilities in certain circumstances (basically by including these liabilities in the director penalty notice regime).

Importantly, the expansion of the director penalty notice regime to include GST liabilities will commence from 1 April 2020.

New super guarantee amnesty

On 6 March 2020, the government introduced a superannuation guarantee ('SG') amnesty.

This amnesty allows employers to disclose and pay previously unpaid super guarantee charge ('SGC'), including nominal interest, that they owe their employees, for quarter(s) starting from 1 July 1992 to 31 March 2018, without incurring the administration component ($20 per employee per quarter) or Part 7 (double SGC) penalty.

In addition, payments of SGC made to the ATO after 24 May 2018 and before 7 September 2020 will be tax deductible.

Employers who have already disclosed unpaid SGC to the ATO between 24 May 2018 and 6 March 2020 don’t need to apply or lodge again.

Employers who come forward from 6 March 2020 need to apply for the amnesty.

The ATO will continue to conduct reviews and audits to identify employers not paying their employees SG.

New vacant land tax measures

A new ‘vacant land’ measure limits the deductibility of costs incurred on or after 1 July 2019 (i.e., from the 2020 income year) that relate to holding vacant land, even if the land in question was first held before that date.

Importantly, however, the new provisions include (amongst other exceptions) a ‘carrying on a business’ exception.  This exception means that the limitations will not apply to the extent that the ‘vacant land’ is used, or available for use in carrying on a business, including a business carried on by either the taxpayer (i.e., the owner of the land) or by a specified related entity. 

Further, an additional business exception also applies where ‘vacant land’ is leased at arm’s length for use in any business (i.e., not just a business of the taxpayer or of a related entity).

In addition, land is considered to be “available for use” if it is held for future use in a business currently carried on by the taxpayer or is made available to a specified related entity for future use in a business that entity currently carries on.

ATO on property investments

The ATO has reminded taxpayers in a property business or thinking about investing in property that there are things they should know, such as:

-     they need a clearance certificate from the supplier when buying property over $750,000;

-      they may have to pay the GST on the sale of brand new residential property separately to the ATO; and

-       income from property activities could increase their total business turnover.

The ATO says taxpayers with property should keep accurate and complete records where they:

q      rent it out as a residential property (even short-term through the sharing economy);

q      flip houses; and/or

q      build a new house to sell for a profit.

In addition, when it's time to lodge, taxpayers should remember:

-      Some expenses need to be claimed over time.

-      It is only possible to claim expenses for:

        –    periods when the property is genuinely available for rent; and

        –    travel related to renting property, if the taxpayer is in the business of letting properties.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

CORONAVIRUS stimulus package info

Government’s Stimulus Package in response to the Coronavirus March 2020

Editor: What a changed world we are living in as we all try to navigate the challenges arising from the current Coronavirus Pandemic, including protecting the health and safety of our friends and family, and the viability of our businesses, employment and investments.

The purpose of this communication is to provide you with an update relating to the Government's Economic Stimulus Package in response to the Coronavirus.  Our office will continue to apply its available resources to assist and support you where we can through this uncertain period as we attempt to survive the ever changing restrictions we are all dealing with.

The following is a broad summary of the key aspects of the Federal Government’s stimulus package in response to the Coronavirus, as recently announced and enacted. 

These measures were implemented via various Bills introduced into Parliament, which very quickly received Royal Assent on 24 March 2020 (including the Coronavirus Economic Response Package Omnibus Bill 2020), so as to give effect to the Government’s stimulus package.  

Income support for individuals

Various measures have been introduced so as to provide a 'safety net' for individuals who are financially impacted by the Coronavirus.

The new Coronavirus supplement

A new six-month 'Coronavirus supplement' of $550 per fortnight will be paid to individuals who are currently eligible for certain income support payments, including the:

-       Jobseeker Payment;

-      Youth Allowance; and

-       Parenting Payment (Partnered and Single).

Furthermore, it appears that this new (additional) supplement will be paid to eligible individuals as part of their existing income support payments (e.g., Jobseeker Payment and Youth Allowance).

Expanding access (and eligibility) to certain income support payments

For the period that the Coronavirus supplement is paid, the Government will also expand access to certain income support payments (e.g., the Jobseeker Payment, the Youth Allowance Jobseeker and the Parenting Payment) for eligible individuals. 

For example, a new category of Jobseeker Payment and Youth Allowance Jobseeker will become available for eligible individuals financially impacted by the Coronavirus.

According to the Government, this could include, for example, permanent employees who are stood down or lose their employment; sole traders; the self-employed; casual workers; and contract workers who meet the income tests, as a result of the economic downturn due to the Coronavirus.

Additionally, asset testing for the JobSeeker Payment, the Youth Allowance Jobseeker and the Parenting Payment will be waived for the period of the Coronavirus supplement.  Income testing will still apply to the person’s other payments, consistent with current arrangements.

Tax-free payments of $750 to eligible recipients

The Government will be providing two separate $750 tax-free payments (referred to as ‘economic support payments’) to social security, veteran and other income support recipients and to eligible concession card holders.

The first $750 payment will be available to individuals who are residing in Australia and are receiving an eligible Government payment, or are the holders of an eligible concession card, at any time from 12 March 2020 to 13 April 2020 (inclusive).  This payment will be made automatically to eligible individuals from 31 March 2020.

The second $750 payment will be available to individuals who are residing in Australia and are receiving one of the eligible Government payments or are the holders of one of the eligible concession cards on 10 July 2020 (except for those receiving an income support payment that qualifies them to receive the $550 fortnightly Coronavirus supplement).  This payment will be made automatically to eligible individuals from 13 July 2020.

Each of the $750 payments will be exempt from income tax and will not count as income for the purposes of Social Security, the Farm Household Allowance and Veteran payments.

Early access to superannuation benefits

The Government will introduce a new compassionate ground of release that will allow individuals to access their superannuation entitlements where those benefits are required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements are satisfied:

-  The individual is unemployed.

-  The individual is eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.

-       On or after 1 January 2020 either:

          –   the individual was made redundant; or

          –   the individual’s working hours were   reduced by at least 20%; or

          –   if the individual is a sole trader – their business was suspended or there was a reduction in the business’s turnover of at least 20%. 

Under this new compassionate ground of release, eligible individuals will be able to access (as a lump sum) up to $10,000 of their superannuation entitlements before 1 July 2020, and a further $10,000 from 1 July 2020 (subject to a six-month time frame).

Eligible individuals who are looking to access their superannuation entitlements under the above new ground of release will be able to apply directly to the ATO through the myGov website (at www.my.gov.au) and certify that the relevant eligibility criteria is satisfied.

Editor: Importantly, such lump sum superannuation withdrawals under this new compassionate ground of release will not be taxable to the recipient (i.e., they will be tax-free).  Also, according to the Government, the amount withdrawn will not affect Centrelink or Veteran’s Affairs payments.

Reducing the minimum drawdown amounts for superannuation pensions

The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020 and 2021 income years. 

Editor: This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (e.g., an account-based pension) will be reduced by half for these two income years. 

Reducing social security deeming rates 

From 1 May 2020, the Government will be reducing both the upper and lower social security deeming rates by a further 0.25 percentage points.  This is in addition to the recent 0.5 percentage point reduction, resulting in an overall reduction to the social security deeming rates of 0.75 percentage points.

On this basis, as of 1 May 2020, the upper deeming rate will be reduced from 3% to 2.25%, and the lower deeming rate will be reduced from 1% to 0.25%. 

Editor: These reductions reflect the low interest rate environment and its impact on the income from savings.  Broadly speaking, the social security deeming rates apply (for ‘income test’ purposes) to determine the amount of income that an individual is ‘deemed’ (or taken to) earn from financial investments (e.g., cash deposits and listed securities), irrespective of the actual amount of income (e.g., interest income and dividend income) earned by the individual.  In most cases, the deeming rates apply for the purposes of applying the Age Pension ‘income test’. 

Cash flow assistance for businesses 

The Government is also providing cash flow assistance for eligible businesses in the form of two separate measures.

Boosting cash flow for employers

Small and medium-sized businesses and not-for-profit entities, with an aggregated annual turnover of less than $50 million (usually based on their prior year’s turnover) that employ people, may be eligible to receive a total payment (in the form of a refundable credit) of up to $100,000 (with a minimum total payment of $20,000), based on their PAYG withholding obligations in two stages:

Stage 1 payment (credit)

Commencing with the lodgment of activity statements from 28 April 2020, eligible employers that withhold PAYG tax on their employees’ salary and wages will receive a tax-free payment equal to 100% of the amount withheld, up to a maximum of $50,000. 

Eligible employers that pay salary and wages will receive a minimum (tax-free) payment of $10,000, even if they are not required to withhold PAYG tax.

The tax-free payment will broadly be calculated and paid by the ATO as an automatic credit to an employer, upon the lodgment of activity statements from 28 April 2020, with any resulting refund being paid to the employer.  This means that:

-  quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020; and

-  monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgments. 

Note that, the minimum payment of $10,000 will be applied to an entity’s first activity statement lodgment (whether for the month of March or the March quarter) from 28 April 2020.

Stage 2 payment (credit)

For employers that continue to be active, an additional (tax-free) payment will be available in respect of the June to October 2020 period, basically as follows:

-  Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020, with each payment being equal to 50% of their total initial (or Stage 1) payment (up to a maximum of $50,000). 

-       Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 activity statement lodgements, with each additional payment being equal to a quarter of their total initial (or Stage 1) payment (up to a maximum of $50,000).

Again, the ATO will automatically calculate and pay the additional (tax-free) payment as a credit to an employer upon the lodgment of their activity statements from July 2020, with any resulting refund being paid to the employer.

Editor: It should be noted that eligibility for the above payments is subject to a specific integrity rule that is designed to stamp out artificial or contrived arrangements that are implemented to obtain access to this measure.  In particular, if an employer or an associate enters into a scheme with the sole or dominant purpose of obtaining or increasing any of the above payments for a particular employer, for a period, the employer will not be eligible for any such payments for the relevant period. 

Wages subsidies for apprentices and trainees

Employers with less than 20 full-time employees, who retain an apprentice or trainee (who was in training with the employer as at 1 March 2020) may be entitled to Government funded wage subsidies.

These will be equal to 50% of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020. 

The maximum wage subsidy over the nine-month period will be $21,000 per eligible apprentice or trainee.

Employers can register for the subsidy from early April 2020.

Increasing the instant write-off threshold for business assets 

Broadly, the depreciating asset instant asset write-off threshold will be increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020. 

The measure applies to both new and second-hand assets first used or installed ready for use in the period beginning on 12 March 2020 (i.e., the date on which this measure was announced) and ending on 30 June 2020.

Small Business Entities (‘SBEs’)

Editor: These are businesses with aggregated turnover of less than $10 million.

SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $150,000, provided the relevant asset is first acquired at or after 7.30 pm on 12 May 2015, by legal time in the ACT, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020.

Additionally, SBEs will also be able to claim an immediate deduction for the following:

-       An amount included in the second element of the cost of (i.e., an improvement to) a depreciating asset that was first used or installed ready for use in a previous income year.  The amount of the second element cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.

-       If the balance of an entity’s general small business pool (excluding current year depreciation) is less than $150,000 at the end of the 2020 income year, a deduction can be claimed for this balance.

Medium Business Entities (‘MBEs’)

Editor: These are businesses with turnover of at least $10 million and less than $500 million.

MBEs can immediately deduct the cost of an asset in an income year if the asset has a cost of less than $150,000 and it was first acquired in the period beginning at 7:30pm, by legal time in the ACT, on 2 April 2019 and ending on 30 June 2020, and the taxpayer starts to use or have the asset installed ready for use for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2020.

Additionally, MBEs can also claim a deduction for certain amounts included in the second element of the cost of a depreciating asset, where the amount of the second element cost is less than $150,000, and is incurred on or after 12 March 2020 but before 1 July 2020.

The threshold will generally be applied to the GST-exclusive cost of an eligible asset (i.e., assuming the relevant business is entitled to an input tax credit for any GST included in the acquisition cost).

Importantly, this increased threshold also continues to operate on a ‘per asset’ basis, which means that eligible businesses can immediately write-off multiple assets (as long as each of the assets individually satisfy the relevant eligibility criteria).

Currently, the instant asset write-off threshold is due to revert to $1,000 for small businesses (i.e., those with an aggregated turnover of less than $10 million) from 1 July 2020.

Accelerating depreciation deductions for new assets

Broadly, a new time-limited 15-month investment incentive (available for eligible assets acquired from 12 March 2020 up until 30 June 2021) will also be introduced to accelerate certain depreciation deductions for businesses with an aggregated turnover below $500 million.

The amount that an eligible entity can deduct in the income year in which an eligible depreciating asset is first used or installed ready for use is:

-       50% of the cost (or adjustable value where applicable) of the asset; and

-       the amount of the usual depreciation deduction that would otherwise apply (if it were calculated on the remaining cost of the asset).

Different rules will apply where an SBE is using the general small business pool (i.e., for assets not qualifying for the instant asset write-off).  In this case, an SBE may deduct an amount equal to 57.5% (rather than 15%) of the business-use portion of the cost of an eligible depreciating asset in the year is it allocated to the pool. 

Unless specifically excluded, an eligible asset is a new asset that can be depreciated under Division 40 of the ITAA 1997 (i.e., plant and equipment and specified intangible assets, such as patents), where the asset satisfies all of the following conditions:

-       The asset is new and has not previously been held (and used or installed ready for use) by another entity (other than as trading stock or for testing and trialling purposes).

-       No entity has claimed depreciation deductions (including under the instant asset write-off) in respect of the asset.

-      The asset is first held, and first used or installed ready for use, for a taxable purpose, between 12 March 2020 and 30 June 2021 (inclusive).

Note that a depreciating asset is not an eligible asset where a commitment to acquire or construct the asset was entered into before 12 March 2020.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

SMS scam links to fake mygov website

March 2020

            Court confirms ATO's position on foreign income tax offsets

The ATO has welcomed the decision of the High Court to basically uphold the decision of the Full Federal Court in a case which the ATO won, in relation to foreign income tax offsets ('FITO').

An Australian tax resident had sold some US investments and paid US tax on the gains.

The taxpayer was then basically taxed on half of those gains in his assessable Australian income (i.e., the gains were eligible for the CGT discount in Australia).

The taxpayer included the whole of the US tax paid in his FITO to offset against his Australian income tax.

However, when determining the FITO available, the ATO only allowed the proportion of the US tax paid that related to the capital gain included in his Australian assessable income.

The Full Federal Court affirmed the ATO’s position.

“This decision reminds taxpayers that they can only claim the foreign income tax offset to the extent that the capital gain is assessable in Australia, rather than the full amount assessed in a foreign jurisdiction,” Deputy Commissioner Tim Dyce said.

“We believe that others may have similarly incorrectly claimed the foreign income tax offset.  Now is the time to review any claim and make any necessary voluntary amendments as we intend to commence compliance activity on this issue in the near future.”

Employer's requirements and the deductibility of WREs

Some employees may wonder whether a work-related expense (or 'WRE') becomes deductible merely because their employer specifically requires the employee to incur the expense. 

Importantly, the ATO's recent draft ruling on the deductibility of work-related expenses reiterates that an employer’s requirements do not determine the question of deductibility.

Specifically, a number of examples contained in the draft ruling confirm that a WRE expense may be deductible without an employer requiring the expenditure.  For example, a taxpayer incurring expenditure in relation to a course directly connected to their current employment (without their employer’s specific support) may still be in a position to claim self-education deductions.

Alternatively, expenses may be non-deductible despite an employer’s specific directions, such as a restaurant requiring its waiters to dress in ‘black and whites’, or support such as where an employer encourages a dental practice receptionist to undertake a ‘Certificate in Dental Assisting’ so as to open up a new career opportunity.

SMS scam targeting natural disaster victims

The ATO is warning the community about a new SMS scam which promises an 8% bonus on 2020 tax returns to victims of recent natural disasters.

The scam text message says: "Due to natural disasters, Australians are entitled to an 8% bonus on their tax return. Please begin the process by filling out the form below. Link: https://my.gov.verification-digital.com."

ATO Assistant Commissioner Karen Foat said this is a classic case of fraudsters impersonating the ATO in an effort to collect personal information from people like names, addresses, emails, phone numbers and online banking login details.

This particular scam includes a link to a fake myGov website which looks genuine.

Over the past few years the ATO has seen an increasing number of reports of scammers contacting members of the public pretending to be from the ATO by SMS, email, and phone, and the scammers are becoming more and more sophisticated.

“Last year, over 15,000 people reported to us that they provided scammers with their personal identifying information”, Ms Foat said.

“If you receive an SMS, call, or email and aren’t sure if it’s genuine, it's OK to not respond."

The ATO does send SMS and emails, and also makes phone calls to taxpayers, but note that the ATO does not project their phone number onto the recipient's caller ID — so people can be sure that, if there’s a number on their caller ID, it’s not the ATO calling.

Further STP developments

Editor: In an indication of the far-reaching changes that Single Touch Payroll ('STP') will be bringing, Treasury has recently finished consulting on draft legislation that expands the data that may be collected through STP by the ATO (as announced in the 2019/20 Budget).

The legislation, if enacted, will broaden the amounts that employers can voluntarily report under the STP rules, to include employer withholding of child support deductions from salary or wages and child support garnishee amounts from salary or wages that are paid to the Child Support Registrar.

Amendments will also be made to ensure that if employers choose to report under STP to the Commissioner of Taxation, they do not also have to report the amounts to the Child Support Registrar.

STP and employer clients

The ATO has advised that over 580,000 small employers have made the transition to STP reporting, and they are encouraging tax practitioners to help any clients who have yet to engage with STP reporting make the transition now.

They will also send reminders to small employers who are not yet reporting through STP.

Editor: So if you receive any such correspondence and/or simply want to discuss this with us, please call our office.

Valuing car parking fringe benefits

Where businesses provide car parking fringe benefits to their employees, the taxable value of these benefits must be calculated correctly to ensure they are meeting their fringe benefits tax ('FBT') obligations, regardless of the method used.

The ATO has advised they may directly contact businesses who have engaged an arm's length valuer, as required under the 'market value method'.

According to the ATO, in some instances, valuers have prepared reports using a daily rate that doesn't reflect the market value, meaning the taxable value of the benefits is significantly discounted or even reduced to nil.

The ATO wants businesses to understand that engaging an arm's length valuer does not mean they've met all the requirements for working out the taxable value of their car parking fringe benefits.

It is actually the business's responsibility to confirm the basis on which valuations are prepared, and they are expected to examine any valuation they suspect is incorrect or which considerably reduces their liability.

Editor: We can help check if a valuation report required under the market value method meets the ATO's requirements.

In addition to the valuation report, businesses need a declaration relating to the FBT year that includes the:

-      number of car parking spaces available to be used by employees;

-      number of business days; and

-       daily value of the car parking spaces.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

"Lifestyle" assets remain ATO audit target

January/February 2020

The ATO has revealed it will request a further five years’ worth of policy information from over 30 insurance companies about taxpayers who own marine vessels, thoroughbred horses, fine art, high-value motor vehicles and aircraft.

The ATO expects to receive information about assets owned by around 350,000 taxpayers from 2016 to 2020 as part of its data-matching program.

This information (provided by insurers) is intended to be used by the ATO as part of its compliance profiling activities. 

For example, ATO Deputy Commissioner Deborah Jenkins said:

“If a taxpayer is reporting a taxable income of $70,000 to us but we know they own a three million dollar yacht then this is likely to raise some red flags.”

She clarified that the data will not be used to initiate automated compliance activity.

“Taxpayers selected for compliance activities are identified through other methodologies. The data is made available to our compliance teams to support their risk profiling of the selected taxpayers. Existence of an insurance policy may or may not prompt the compliance officer to pursue a particular line of enquiry.”

Aside from helping identify taxpayers who may be understating their income, the data from insurers may be used by the ATO to identify taxpayers who have made capital gains on the disposal of certain assets but who have not declared this to the ATO.

It will also be used by the ATO to identify incorrect claims for GST input tax credits where taxpayers are incorrectly claiming GST credits as if the (private) item was a business asset.

Additionally, SMSFs the ATO suspects may be acquiring lifestyle assets purely for the personal enjoyment of the fund's trustee or beneficiaries are also likely to be looked at by the ATO.

Insurers are required to provide the ATO with policy information where the value of assets is equal to or exceeds the following thresholds:

l    Marine vessels $100,000

l    Motor vehicles $65,000

l    Thoroughbred horses $65,000

l    Fine art $100,000 per item

l    Aircraft $150,000

Editor: If you feel that you may be targeted by this latest ATO data collection activity and are concerned about the implications, please feel free to contact our office to discuss your individual circumstances.

Ref: ATO website, 18 December 2019

Disclosure of business tax debts – Declaration made

Following the enactment of legislation in late 2019, the ATO can disclose certain business tax debt information to external credit reporting bureaus.

This information will primarily be used when issuing external creditworthiness reports in relation to relevant businesses, effectively treating tax debts in a similar manner to other business debts.

More recently, the Government issued a Declaration to determine exactly what class of entities may be subject to such disclosures, including entities that:

l    are registered in the Australian Business Register and are not a complying superannuation fund, a DGR, registered charity or government entity; and

l    have one or more tax debts totalling at least $100,000 that are overdue for more than 90 days, disregarding:

–     tax debts where the entity has an arrangement to pay the ATO by instalments (i.e., via a payment plan);

–     tax debts subject to an application for release on grounds of hardship; and/or

–     tax debts subject to dispute via an objection, AAT or Federal Court review that has not been finalised.

Additionally, the Declaration does not allow debt disclosure for taxpayers who have an active complaint concerning the disclosure of tax debt information that is, or could be, the subject of an Inspector-General of Taxation (‘IGOT’) investigation. 

Importantly, if there is such a complaint, the ATO can only proceed with a disclosure of the debt where it is not aware of it after taking reasonable steps to confirm whether the IGOT has such a complaint.

Ref: Taxation Administration (Tax Debt Information Disclosure) Declaration 2019

  MYEFO – 2019/20

Treasury has released its Mid-Year Economic and Fiscal Outlook (‘MYEFO’) for 2019/20 forecasting a surplus of approximately $5 billion.

Proposed new record-keeping course

One new tax-related measure of note in the MYEFO was the announcement the ATO would be provided with a new discretion to direct taxpayers (found to be lacking in their substantiation efforts under audit) to undertake an approved record-keeping course, instead of applying financial penalties.

This is yet another measure designed to tackle the ‘black’ or ‘cash’ economy.

Specifically, the Commissioner will be given the discretion to direct taxpayers to undertake the course where he reasonably believes there has been a failure by the taxpayer to comply with their reporting obligations.

The Commissioner will not apply this discretion to those who disengage with the tax system or who deliberately avoid their record-keeping obligations.

Editor: Such a proposal raises obvious concerns as to the onerous nature of having to comply with such a course, particularly for small business owners whose main priority is to run their business.

Interestingly, there is a precedent for similar ATO directions to taxpayers (i.e., to undertake an approved course), with legislation passed earlier this year allowing the Commissioner to require employers to undertake a superannuation guarantee obligations course where there has been a failure by an employer to comply with those obligations.

New ‘gig’ economy reporting

Additionally, the MYEFO also announced the Government’s intention to implement a new third party reporting regime for the sharing economy. 

This will apply to businesses who operate via online platforms within the ‘sharing’ or ‘gig’ economy (e.g., Uber and Airbnb).

It is proposed to be introduced in two stages, starting from 1 July 2022 (for ride-sharing and accommodation platforms) and from 1 July 2023 (for asset sharing, food delivery and tasking-based platforms).

The online platforms will be required to report identification and income information for all its participating members (i.e., both the sellers and providers).

These reports will go directly to the ATO for data-matching (i.e., review and audit) purposes.

Ref: MYEFO 2019/20

The ATO’s Bushfire crisis response

In response to the devastating bushfires across large parts of Australia, the ATO has been keen to advise those impacted that it understands peoples priority is their family and community.  

If taxpayers live in one of the identified impacted postcodes, the ATO will automatically defer any lodgments or payments, meaning that income tax, activity statement, SMSF and FBT lodgments (and their associated payments) are deferred until 28 May 2020.

For those affected not in the current ATO postcodes list, assistance can still be provided, with impacted taxpayers encouraged to phone the ATO’s Emergency Support Infoline on 1800 806 218.

Editor: Please contact our office if you have been impacted by this or another disaster for assistance. Ref: ATO website, 20 January 2020 and ATO media release, 20 January 2020.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

No CGT main residence exemption for non-residents

P r a c t i c e  U p d a t e

PAYG and deductions for payments to workers

The ATO has reminded business taxpayers they can no longer claim deductions for certain payments to workers if they have not met their PAYG withholding obligations from 1 July 2019.

If the PAYG withholding rules require an amount to be withheld, to claim a deduction for most payments to a worker, a business taxpayer must:

-      withhold the amount from the payment before they pay their worker; and

-      report that amount to the ATO.

Importantly, where a taxpayer simply makes a mistake and withholds or reports an incorrect amount, they will not lose their deduction, although any such errors should be corrected as soon as possible so as to minimise penalties.

Additionally, a deduction is still available if they voluntarily disclose to the ATO prior to the commencement of an audit or other ATO compliance activity involving their PAYG withholding obligations or deduction claims.

Ref: ATO website, 18 November 2019

STP and superannuation guarantee

In a presentation at the Australian Institute of Superannuation Trustees Chairs Forum, the ATO's Deputy Commissioner confirmed that as a result of STP, the ATO now has an "unprecedented level of visibility" of super information.

In particular, the ATO's examination of Super Guarantee ('SG') contributions of some 75 million payment transactions for the first three quarters of 2019 (for approximately 400,000 employers) has shown that 90 - 92% of contribution transactions by volume and 85 - 90% of transactions by dollar value were paid on time.

The ATO is now starting to actively use this data to warn employers who appear not to be paying the required SG on time (or at all).

As a result, it has notified 2,500 employers that they have paid their SG contributions late during 2019.  Due-date reminders were also sent to a further 4,000 employers.

Ref: ATO Presentation, ATO insights and actions across superannuation, 14 October 2019

No CGT main residence exemption for non-residents

The Government recently tabled legislation, making its second attempt to deny access to the CGT main residence exemption for individuals who are foreign residents (i.e., non-resident taxpayers for Australian tax purposes). 

The restrictions to this CGT exemption will apply to taxpayers who are a non-resident at the time of the relevant CGT event (i.e., generally as at the contract date).

If enacted, the proposed changes will potentially impact foreign residents in the two ways outlined below.

1. Transitional rules for properties held before 7:30pm (AEST) on 9 May 2017

Firstly, for properties held prior to the 2017 Federal Budget (i.e., before 7:30pm AEST on 9 May 2017), the CGT main residence exemption will only be able to be claimed, for a non-resident, for disposals that occur up until 30 June 2020.

For disposals of properties occurring on or after 1 July 2020, foreign residents will have no access to the CGT main residence exemption, unless specified ‘life events’ occur within a continuous period of six years of the taxpayer becoming a foreign resident. These 'life events' include:

-      The terminal illness of the taxpayer, their spouse or a child under the age of 18 years.

-      The death of a spouse or child under the age of 18.

-      A transfer of the relevant asset as a result of a divorce, separation or similar maintenance agreement.

2. Properties acquired at or after 7:30pm (AEST) 9 May 2017

Secondly, for properties acquired at or after the 2017 Budget night, the CGT main residence exemption will no longer be available for non-resident taxpayers, unless the same specified ‘life events’ (as outlined above) occur within a continuous period of six years of the taxpayer becoming a foreign resident.

Ref: ATO Website, 29 October 2019

ATO November 2019 bushfire assistance

Following the devastating bushfires across large parts of NSW and Queensland in November, the ATO has offered ongoing support.

In particular, a specific helpline (1800 806 218) has been established that can be used by those impacted to seek assistance, such as to:

-      obtain extra time to pay tax debt or lodge tax forms;

-      obtain assistance in finding lost TFNs;

-      obtain re-issued income tax returns, activity statements and notices of assessment;

-      obtain assistance in re-constructing tax records that are lost or damaged;

-      have any refunds owed fast tracked;

-      negotiate payment plans tailored to individual circumstances (including interest-free periods); and

-      negotiate the remission of penalties or interest charged during the time a taxpayer has been affected.

Editor: Should you find yourself impacted by a natural disaster, even an alternative disaster to the November 2019 bushfires,  please contact our office so we can provide you with any additional assistance you may need at this difficult time.

Ref: ATO website, 21 November 2019

SMSs for SMSFs!

In the interests of protecting SMSF members and their retirement savings from fraud and misconduct, the ATO has announced it will send out an email and/or a text message via an SMS when changes (including updates to the SMSF financial details or member information) are made.

Accordingly, the ATO has urged all SMSF members to ensure they update their contact details either:

-      online at abr.gov.au (with an AUSkey or an ABN linked to their myGov account);

-      through their registered tax agent;

-      by phoning 13 10 20 (for authorised contacts of the relevant SMSF); or

-  by lodging the paper form (NAT 3036).

The ATO has urged SMSF members who are concerned about notified changes to first speak with the other trustees of the SMSF or the authorised agent of their SMSF, before contacting the ATO.

Editor: As the ATO moves over to the digital world at a rapidly increasing pace, it has also reminded SMSF members that any ATO sanctioned emails and text messages would never ask for the recipient to reply by text or email, or to provide otherwise personal information. 

Importantly, where an SMSF member is concerned about the authenticity of an email or text purportedly from the ATO, the ATO’s current SMS and email activities can be viewed on its website by searching for QC 40936.

Ref: ATO website, 22 November 2019

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Another reason why ABN details need to be updated

P r a c t i c e  U p d a t e

Super guarantee opt-out for high income earners now law

From 1 January 2020, eligible individuals with multiple employers can apply to opt out of receiving super guarantee ('SG') from some of their employers, to help them avoid unintentionally going over the concessional contributions cap.

If appropriate for them, they should submit the relevant ATO form to apply for an SG employer shortfall exemption certificate, which releases one or more of their employers from their SG obligations for up to four quarters in one financial year.

Editor: We can assist with the lodgment of this form.

Note that this measure may not benefit everyone who is eligible, so before lodging the form, it is important to consider the individual's employment arrangements, such as how their pay and other entitlements may change (if at all), and the effect of any relevant award or workplace agreement applicable to them.

The measure only became law on 2 October 2019, so to give eligible employees time to make an application, the ATO will accept applications for the 2019/20 financial year as follows:

-       third quarter commencing 1 January 2020 — lodge on or before 18 November 2019; and

-       fourth quarter commencing 1 April 2020 — lodge on or before 31 January 2020.

A separate application is required for each financial year.

ATO recommends updating ABN details for disastrous reasons

The ATO has provided a novel, though important, reason for businesses to update their ABN details: to help businesses to manage the coming disaster season.

ABN details are used by emergency services and government agencies to help identify and contact businesses during times of emergency and potential disaster.

Therefore, to make sure they don’t miss out on receiving important information, the ATO asks that businesses update their ABN details, including authorised contacts, physical location, email and phone number.

Also, if a taxpayer is no longer in business, the ATO asks they cancel their ABN so they aren't contacted unnecessarily.

Reporting asset disposals for CGT

As the ATO's data-matching capabilities increase, they are paying close attention to capital gains made on shares, property and cryptocurrency.

Editor: Therefore, it's important to let us know about any asset disposals (which can include an asset's sale, loss or destruction) and to keep records relating to CGT events, including asset disposals, for at least five years after the year in which the event occurred (and maybe longer if you make a capital loss).  Good records will also help to work out a capital gain or loss correctly.

Government passes other superannuation legislation

The Government has recently passed legislation requiring insurance in superannuation for new members under 25, and members with low balance accounts, to only be offered on an opt-in basis from 1 April 2020.

Importantly, low balance account holders and young members will still be able to opt in if they want to take out insurance.

Additionally, a targeted exemption will allow trustees to elect to provide insurance on an opt-out basis to members employed in emergency services, such as police, ambulance officers or firefighters, or other workers employed in the top 20% riskiest occupations.

Super Lookup 'status' will change if SMSF annual returns are late

The ATO considers the lodgment of an SMSF's annual return on time to be a fundamental part of an SMSF trustee's obligations.

Consequently, from 1 October 2019, if an SMSF is more than two weeks overdue on any annual return lodgment due date and hasn't requested a lodgment deferral, the ATO will change their status on Super Fund Lookup ('SFLU') to 'Regulation details removed' until any overdue lodgments have been brought up to date.

Editor: We can request a lodgment deferral on your behalf to ensure the SMSF's status remains ‘complying’ (unless the fund does not meet the agreed date of referral).

Having a status of ‘Regulation details removed’ means APRA funds won't roll over any member benefits to the SMSF and employers won't make any super guarantee ('SG') contribution payments for members to the SMSF.

The ATO says it is taking this approach because "non-lodgment combined with disengagement indicates that retirement savings may be at risk".

While the fund's status is 'Regulation details removed', members should alert their employer to make any SG payments into the employer's default super fund or a fund of the member's choice until the SFLU status of the SMSF has been updated to 'complying'.

Taxpayer liable for excess transfer balance tax despite commutations

A taxpayer has unsuccessfully tried to challenge an excess transfer balance tax liability, despite following the ATO's instructions.

The taxpayer was receiving three pensions in 2017, including two capped defined benefit income streams and one account based pension.

Based on information reported by the super funds, the ATO became aware that the taxpayer had exceeded his $1.6 million transfer balance cap, and so it issued the taxpayer with an excess transfer balance determination of $376,646.72 on 3 January 2018.

The taxpayer then commuted $376,646.00 from his account based pension on 31 January 2018, but additional earnings continued to accrue due to the commutation being 72 cents short, so the ATO had to issue another excess transfer balance determination of $3,841.96 on 1 July 2018 (which the taxpayer acted on by making another commutation in August 2018).

Finally, in September 2018, the ATO issued an excess transfer balance tax notice of assessment, assessing the taxpayer for excess transfer balance tax of $2,867.85.

The taxpayer challenged this before the AAT, contending that, despite doing what was required of him by the 3 January 2018 letter, he was still liable for the excess transfer balance tax, to which the AAT replied:

“That is true but the problem for the applicant is that the determination period on which the tax liability is based is not determined by reference to when the taxpayer is first informed of his excess transfer balance.  Further, the applicant does not avoid a tax liability by complying with the request to commute funds out of his superannuation income streams.  That is made clear by the letter from the Commissioner dated 3 January 2018 which requests the applicant to commute the necessary funds but goes on to say “when you are no longer in excess of your cap we will send you a separate ‘Excess transfer balance tax notice of assessment’ detailing the tax amount payable”.”

The AAT agreed with the ATO’s contention that the taxpayer was liable for the excess transfer balance tax, that it had been calculated in accordance with the tax legislation, and that there was no discretion for the tax to be waived.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

ATO impersonation scam update

$30,000 instant asset write-off

The ATO is reminding businesses that are looking to expand or improve their business and thinking of buying new or second hand assets, that medium sized businesses with a turnover up to $50 million (but at least $10 million) are eligible for the instant asset write-off.

This now applies to assets that cost up to $30,000 and which were purchased and first used or installed ready for use from 7:30pm (AEDT) on 2 April 2019 to 30 June 2020.

Medium sized businesses may purchase and claim a deduction for each asset that costs less than the $30,000 threshold.

For assets over $30,000 the general depreciation rules apply (which may depend on the entity).

Federal Court provides clarification on the PSI rules

The Federal Court recently handed down two decisions relating to the personal services income ('PSI') rules.

Income is classified as PSI when more than 50% of the income received under a contract is for a taxpayer’s labour, skills or expertise.

The PSI rules are integrity provisions which ensure individuals cannot reduce or defer their income tax by (for example) diverting income for their personal services through companies, partnerships or trusts.  If the rules apply, the individual is taxed on the income directly.

The rules do not apply if at least 75% of the individual’s PSI is for producing a result, where the individual supplies all the required 'tools of trade' and is liable for rectifying defects in the work (this is known as the 'results test').

In the first case, the Federal Court confirmed that the taxpayer did not meet the 'results test'.

The taxpayer argued that the 'results test' is still satisfied even if they do not get paid for achieving a result, provided they can show this is the custom or practice of independent contractors in their industry.

The Federal Court rejected this, agreeing with the ATO’s earlier determination to apply the PSI laws to tax the individual’s contract income as his own income, rather than income split through a partnership with his spouse (which also meant certain deductions were not allowable).

The Federal Court also affirmed the imposition of penalties for recklessness.

However, in the second case, the Federal Court allowed the taxpayer’s appeal from an earlier AAT decision, that he has failed the 'unrelated clients test' despite advertising his services on LinkedIn.

The Federal Court found the ATO and AAT had applied an exception for services provided through intermediaries (e.g., recruitment agencies) too broadly, and instead the Court preferred a narrow interpretation of the exception.

This matter has now been referred back to the AAT to be reconsidered, and the ATO has said it will consider this decision and whether an appeal is appropriate.

Deductions for a company or trust home-based business

The ATO has reminded taxpayers that, if they run their home-based business as a company or trust, their business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the property.

The agreement will determine which expenses the business pays for and can claim as a deduction.

If there isn’t a genuine rental contract, there may be tax implications for the homeowner and the business for providing benefits to any individuals.

If an individual earns PSI, they may not be able to deduct some occupancy expenses.

If the business pays for or reimburses an employee of the business for some of the expenses of running the business from home, the employee can't claim a deduction for those expenses in their individual income tax return.

Also, the business may have to pay FBT if it pays or reimburses the individual for certain expenses as an employee (although exemptions and concessions may apply to reduce the FBT liability), and may need to keep additional records for FBT purposes.

ATO impersonation scam update

Editor: Unbelievably, scammers are still successfully bilking Australians out of tens of thousands of dollars, as a recent ATO scam report shows.

According to the July 2019 ATO impersonation scam report:

-      6,179 online scam reports were received in the first month of their new online reporting form going live;

-      6,645 phone scam reports were officially recorded, and 465 phishing scam emails were reported to reportemailfraud@ato.gov.au;

-      520 taxpayers provided scammers with their personal identifying information including date of birth, tax file number, driver's licence number and notice of assessment details; and

-      $197,057 was reported as being paid to scammers, mostly by iTunes and Google Play.

Using the cents per kilometre method

The ‘cents per kilometre’ method broadly allows an individual taxpayer to claim up to a maximum of 5,000 business kilometres per car, per year without the need to keep any written evidence (e.g., receipts) of car expenses.

Importantly, taxpayers making a ‘cents per kilometre’ claim are required to demonstrate that they worked out the number of business kilometres they claimed on a reasonable basis. 

Taxpayers claiming under this method will generally fall into one of two categories, being either those who undertake a regular or irregular pattern of work-related travel.

If a taxpayer has a regular pattern of work-related travel (e.g., a 60 kilometre round trip to the warehouse to pick up supplies twice a week, 40 weeks in the year), then this type of explanation would generally be sufficient to justify the claim.

However, if the taxpayer has an irregular pattern of work-related travel, then they would need to make a note (e.g., in a diary) of each trip. 

Also, remember that, for the 2019 income year, the rate that is applied (up to the 5,000 business kilometre maximum) is 68 cents (up from 66 cents in 2018) per business kilometre travelled.

Measuring the integrity of the ABR

From September, the Australian Business Register ('ABR') will contact a random sample of ABN holders across all entity types to:

-      confirm their business information;

-      discuss how they use the ABN, and check their understanding of how ABNs are used;

-       find out about their registration experience and ask for suggestions for how they can improve it; and

-       if applicable, confirm their entitlement to the ABN (although the ABR will not cancel ABNs unless requested).

The ABR is trying to understand and improve the experience for clients applying for, maintaining and cancelling an ABN, and will use the information to measure ABR data quality.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

'LEGO set' and 'wedding reception' are not deductible!

"Outrageous" deductions rejected

The ATO has published some of the most unusual claims that they disallowed last financial year.

Nearly 700,000 taxpayers claimed almost $2 billion of ‘other’ expenses, but the ATO's systematic review of claims had found, and disallowed, some very unusual expenses, including:

-   claims for Lego sets bought as gifts for children, and sporting equipment or membership fees for their child athletes;

-   claims for dental expenses ("believing a nice smile was essential to finding a job");

-   some taxpayers tried to claim the purchase of a brand new car (in excess of $20,000 each!), with one "particularly charitable" taxpayer trying to claim for a car purchased as a gift for their mother;

-   one taxpayer made a claim for "the cost of raising twins", while another claimed for the "cost of raising three children" (and another taxpayer was obviously shocked at the cost of having children, simply stating "New born baby expensive" when making their claim);

-   other taxpayers claimed child support payments, private school fees, school uniforms, before school care and other school expenses, as well as health insurance costs and medical expenses; and

-   one taxpayer decided to claim the cost of their wedding reception.

The ‘other’ deductions section of the tax return is for expenses incurred in earning income that don’t appear elsewhere on the return — such as income protection and sickness insurance premiums.

The ATO is reminding taxpayers that, in order to claim an ‘other’ deduction, the expenses must be directly related to earning income and they need to have a receipt or record of the expense.

ATO guidance regarding incorrect ENCC determinations

The ATO has acknowledged that an incorrect excess non-concessional contribution ('ENCC') determination may issue due to a known system issue with the calculation of some SMSF member’s total super balance ('TSB').

Editor: Recent super reforms have meant that individuals are restricted from making non-concessional contributions where their TSB equals or exceeds $1.6 million.

This is due to an individual’s pension being incorrectly 'double counted' in the calculation of their TSB (which may have occurred where the individual commenced a pension on 30 June 2017 and/or 1 July 2017).

If an incorrect ENCC determination does issue, the ATO advises that there is no need for the SMSF to amend its reporting — an amended determination should issue within 4 weeks.

Editor: If you get one of these, please contact our office and we'll help sort it out.

ATO watching for foreign income this Tax Time

The ATO is urging taxpayers who receive any foreign income from investments, family members or working overseas to make sure they report it this tax time.

New international data sharing agreements allow the ATO to track money across borders and identify individuals not meeting their obligations.

“This year, the ATO has received records relating to more than 1.6 million off-shore accounts holding over $100 billion and is now using data-matching and sophisticated analytics to identify foreign income that has not been reported,” Assistant Commissioner Karen Foat said.

The ATO has shared data on financial account information of foreign tax residents with over 65 foreign tax jurisdictions across the globe, including information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income.

In addition to a small number of individuals deliberately engaging in tax avoidance, the ATO is concerned about a large number that are unsure of how to meet their obligations.

“If you're an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount may be.  This may include income from offshore investments, employment, pensions, business and consulting, or capital gains on overseas assets,” Ms Foat said.

"Even if you have paid tax on the overseas income it must be reported to the ATO, however you may be able to claim a foreign income tax offset to account for any foreign tax paid.”

The ATO hits the road

The ATO plans to visit almost 10,000 businesses this financial year in all States and Territories, across a variety of industries, as part of their strategy to deal with the black economy (they visited nearly 9,000 businesses in the 2018/19 financial year).

According to Assistant Commissioner Peter Holt, there are a number of businesses in some areas not registered for GST or PAYG withholding, which can be a sign of the black economy, as well as a number of businesses with overdue tax returns.

Other black economy signs that the ATO looks out for are things like lifestyle and assets far exceeding reported business income, sham contracting, a failure to provide pay slips, reports that employers are paying their workers cash in hand and keeping them off the books, or a lack of merchant payment facilities like EFTPOS.

Some businesses are more likely than others to get a visit from the ATO, including:

-    Residential building construction;

-    Building completion and installation services, and other construction services;

-    Building cleaning, pest control, and gardening services;

-    Accommodation;

-    Pharmaceutical and other store-based retailing;

-    Automotive repair and maintenance;

-    Cafes, restaurants, and takeaway food services;

-    Personal care services;

-    Legal and accounting services;

-    Computer system design and related services; and

-    Adult, community and other education services

Motor vehicle registries data matching program protocol

The ATO will match the data provided by the State and Territory motor vehicle registering authorities against the ATO’s taxpayer records with the objective of identifying those who may not be meeting their registration, reporting, lodgment and payment obligations.

Details will be requested where records indicate a vehicle has been transferred or newly registered during the 2016/17, 2017/18 and 2018/19 financial years where the purchase price or market value is equal to or exceeds $10,000 (approximately 2 million transactional records a year).

This data will allow compliance checks on luxury car tax, FBT and fuel schemes, as well as identifying higher risk taxpayers with outstanding taxation lodgments, and those with undeclared income or concealing the real accumulation of wealth.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

ATO "puts the brakes" on dodgy car claims

Tax cuts become law

The Government has announced that more than 10 million Australians will receive immediate tax relief following the passage of legislation through the Parliament, which increases the top threshold for the 19% tax rate from $41,000 to $45,000 and increases the low income tax offset from $645 to $700 in 2022/23.

In combination with the legislated removal of the 37% tax bracket in 2024/25, the Government is also "delivering structural reform to the tax system" by reducing the 32.5% tax rate to 30%.

Low and middle income tax offset also now law

In addition, from the 2018/19 income year (i.e., last income year):

-     The low and middle income tax offset ('LAMITO') has been increased from a maximum amount of $530 to $1,080 per annum and the base amount increased from $200 to $255 per annum; and

-      Taxpayers with a taxable income:

       —   of $37,000 or below can now receive a LAMITO of up to $255;

       —   above $37,000 and below $48,001 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080;

       —   above $48,000 and below $90,001 are now eligible for the maximum LAMITO of $1,080; and

       —   above $90,000 but is no more than $126,000 are now eligible for a LAMITO of $1,080, less an amount equal to 3% of the excess.

The ATO is implementing the necessary system changes so taxpayers that have already lodged their 2018/19 tax return will receive any increase to the LAMITO they are entitled to (any tax refund should be deposited in the taxpayer's nominated bank account).  There will not be any need to request an amendment.

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.

ATO "puts the brakes" on dodgy car claims

The ATO is making work-related car expenses a key focus again during Tax Time 2019.

Assistant Commissioner Karen Foat said over 3.6 million people made a work-related car expense claim in 2017/18, totalling more than $7.2 billion.

“We are still concerned that some taxpayers aren’t getting the message that over-claiming will be detected and if it is deliberate, penalties will apply,” she said.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make, and car expenses their employer paid for or reimbursed them for.”

One in five car claims are exactly at the maximum limit that doesn’t require receipts.

Under the cents per kilometre method, taxpayers don’t need to keep receipts, but they do need to be able to demonstrate how they worked out the number of kilometres they travelled for work purposes.

The ATO’s sophisticated analytics compares taxpayer claims with others earning similar amounts in similar jobs.

Where the ATO identifies questionable claims, they will contact taxpayers and ask them to show how they have calculated their claim, and in some cases the ATO may even contact employers to confirm whether a taxpayer was required to use their own car for work-related travel.

Case studies

The ATO’s sophisticated data analytics found a range of unsupported claims in 2018, including:

-       When the ATO asked a taxpayer to provide the logbook to support a claim of $4,800, they found the taxpayer was referring to a car service logbook rather than a logbook kept for calculating their work use car percentage (the taxpayer had not undertaken any work-related car travel during the year).

-       Another claim was flagged by the ATO's analytics indicating a taxpayer, a retail worker, had incorrectly claimed $350 for the cost of public transport to and from work.

-       The ATO also identified an office worker claiming $3,300 for 5000 kilometres of work-related travel using the cents per kilometre method, but it turned out the taxpayer's claim was based on trips he made from home to work.

Private health insurance statements now optional

Taxpayers with private health insurance should be aware that insurance providers are no longer required to provide statements to their members.

Taxpayers lodging their tax returns using a registered tax agent should have their health insurance details 'pre-filled' into their return (but they will need to contact their health insurer if they cannot get this information for some reason).

FBT and taxi travel

Taxi travel by an employee is an exempt benefit for FBT purposes if the travel is a single trip beginning or ending at the employee's place of work (or if it is a result of sickness or injury in certain circumstances).

However, the ATO is reminding taxpayers that this exemption is limited to travel undertaken in a vehicle that is licensed to operate as a taxi by the relevant State or Territory, and does not extend to travel undertaken in a ride-sourcing vehicle or other vehicle for hire that do not hold such a licence.

ATO rates and thresholds

Editor: The ATO has updated a number of rates and thresholds on their website, including the following.

Division 7A – benchmark interest rate

The Division 7A benchmark interest rate for the 2020 income year is 5.37% (up from the rate for the 2019 income year of 5.20%).

Car cost limit for depreciation

The maximum value taxpayers can use for calculating depreciation of cars is the car limit in the year in which they first used or leased the car.

In the 2019/20 income year, the car limit is $57,581, unchanged from the 2018/19 year.

Capital improvement threshold

The improvement threshold for the 2019/20 income year is $153,093, up from $150,386 for the 2018/19 income year.

SMSF LRBA interest rates

An interest rate of 5.94% charged by an SMSF in the 2020 income year under a limited recourse borrowing arrangement ('LRBA') to acquire real property would be consistent with the ATO's safe harbour terms (or 7.94% for listed shares or units).

ATO Data Matching Program: HELP, VSL and/or TSL debts

The ATO is conducting a data matching program for the 2019/20, 2020/21 and 2021/22 financial years to identify individuals with an existing Higher Education Loan Program ('HELP'), Vocational Education and Training Student Loan ('VSL') and/or Trade Support Loans ('TSL') debt who may not be meeting their registration, lodgment and/or payment obligations.

This data collection is expected to involve approximately 3 million individuals each year.

NEWSLETTER July 2019

P r a c t i c e  U p d a t e

July 2019

‘Cash in hand’ payments to workers no longer tax deductible

The ATO has reminded employers that any ‘cash in hand’ payments made to workers from 1 July 2019 will not be tax deductible.

‘Cash in hand’ refers to cash payments to employees that do not comply with pay as you go ('PAYG') withholding obligations.

Payments made to contractors where the contractor does not provide an ABN and the business does not withhold any tax will also not be tax deductible from 1 July.

In addition to the loss of a tax deduction, employers caught not complying with their PAYG withholding obligations may be penalised for failing to withhold and report amounts under the PAYG withholding system.

However, employers who mistakenly classify their employee as a contractor will not lose their deduction where their worker provides them with an ABN.

Uber drivers not employees

The Fair Work Ombudsman has completed its investigation relating to Uber Australia Pty Ltd and its engagement of drivers, concluding that the relationship between Uber Australia and the drivers is not an employment relationship.

The investigation found that Uber drivers are not subject to any formal or operational obligation to perform work.

Instead, Uber drivers have control over whether, when, and for how long they perform work, on any given day or on any given week, and, in particular, Uber Australia does not require drivers to perform work at particular times.

As a consequence, the FWO will not take compliance action in relation to this matter.

Making a Division 293 election

The ATO is reminding taxpayers and tax practitioners that the process to release money from super fund accounts to pay additional tax on concessional contributions (referred to as 'Division 293') changed on 1 July 2018.

Since then, practitioners or their clients must send the Division 293 election form to the ATO, not to the super fund (if the election form is sent to the fund it will be rejected and returned to the sender).

When the ATO receives the election form, they will have the client's nominated super fund release and send the money to the ATO, which will then be offset against any outstanding tax or other Australian Government debts before they refund any remaining balance to the client.

ATO targeting false laundry claims

The ATO will target false clothing and laundry work-related expense claims this Tax Time.

In 2018, around six million people claimed work-related clothing and laundry expenses totalling nearly $1.5 billion.

Assistant Commissioner Karen Foat said although many Australians can claim clothing and laundry expenses, it’s unlikely that half of all taxpayers are required to wear uniforms, protective clothing or occupation-specific clothing to earn their income.

“Last year a quarter of all clothing and laundry claims were exactly at the record-keeping limit", Ms Foat said.

"But don’t think that we won’t scrutinise a claim because we don’t require receipts”.

She also said the ATO does not ignore incorrect claims "just because they are small, because small amounts add up".

The ATO is also concerned about the number of people claiming deductions for conventional clothing, such as retail workers claiming normal clothes "because their boss told them to wear a certain colour, or items from the latest fashion clothing line", or others claiming normal clothes because they only wear them to work.

The ATO’s sophisticated data analytics is constantly improving and can identify unusual claims by comparing taxpayer claims to others in similar occupations.

Taxpayers who can’t substantiate their claims should expect to have them refused, and may be penalised for failing to take reasonable care when submitting their tax return.

Lifestyle assets data matching program

The ATO has released details of their "Lifestyle assets 2013-14 and 2014-15 financial years data matching program protocol".

They will obtain information on insurance policies for certain classes of assets, including marine vessels, enthusiast motor vehicles, thoroughbred races horse, fine art and aircraft to improve their profiling of taxpayers and provide a more comprehensive view of their assets and accumulated wealth.

Tax time tips for small business

To lend a 'helping hand' to small businesses to get their tax right this Tax Time, the ATO has identified the top 3 issues they see when small businesses lodge their tax returns:

-      Failing to report all of their income;

-      Not having the necessary records to prove small business expenses claims; and

-    Claiming private expenses as business expenses (such as travel expenses).

Fixing incorrectly issued excess NCCs determinations

The ATO has recently identified a system error that inadvertently led them to issue incorrect pre-dated excess non-concessional (superannuation) contributions ('NCCs') determinations to clients.

The ATO will extend the election due dates for all affected clients, so this issue will not disadvantage them, and will not take default action in relation to these affected clients who do not make their election by the due date.

Amended determinations will automatically issue on a case-by-case basis in coming weeks to any clients that will have a modified excess NCC amount due once their income tax return is processed.

Car parking threshold for 2020 FBT year

The car parking threshold for the FBT year commencing on 1 April 2019 is $8.95 (replacing the amount of $8.83 that applied in the previous year commencing 1 April 2018).

Trustee obligations on the ATO's radar: TFN reports

The ATO is currently reviewing adherence to certain trustee obligations, including the lodgment of Tax File Number ('TFN') reports for TFN withholding for closely held trusts.

Beneficiaries are required to quote their TFN to trustees to avoid having tax withheld from payments or unpaid present entitlements, and trustees must lodge a TFN report for any quarter in which a beneficiary quotes their TFN to the trustee.

If beneficiaries have not quoted their TFN to the trustee, the trustee must:

-       withhold tax at the rate of 47% from the distribution;

-       pay this tax to the ATO; and

- report, in an annual report, details of all withheld amounts.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.