Business Tax debts to go to credit reporting agencies?

No reduction in the Private Health Insurance rebate as of 1 April 2022

An event that we have become accustomed to every 1 April, is that the amount of the Private Health Insurance (‘PHI’) rebate decreases.

The Australian Government rebate on PHI is annually indexed on 1 April by a Rebate Adjustment Factor (‘RAF’) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums.

The RAF for 2022 has been calculated as 1.

This means there will be no changes to the PHI rebate on 1 April 2022.

Editor:  With inflation at levels Australians have been unaccustomed to over the last 20 years, at least there is one very small piece of good news.

Disclosure of business tax debts

The ATO is in the process of writing to taxpayers that may be eligible to have their tax debts disclosed to credit reporting bureaus (‘CRBs’).

The ATO can potentially report outstanding tax debts to a CRB where the following criteria are satisfied:

-   The taxpayer has an Australian business number and is not an excluded entity;

-    The taxpayer has one or more tax debts and at least $100,000 is overdue by more than 90 days;

-     The taxpayer is not engaging with the ATO to manage their tax debt; and

-     The taxpayer does not have an active complaint with the Inspector-General of Taxation about the ATO’s intent to report its tax debt information.

Excluded entities are a deductible gift recipient, a complying superannuation fund, a registered charity and a government entity.

The purpose of this letter from the ATO is to raise awareness of the actions that the ATO can now take under the Disclosure of Business Tax Debts measure.

The letter will be sent to all taxpayers with business tax debts that currently meet the criteria (discussed above) for disclosure.

This letter from the ATO provides business taxpayers with information on how to effectively engage with the ATO to manage their tax debt.

Taxpayers can avoid disclosure to a CRB by making payment in full or negotiating a payment plan.

If an eligible taxpayer does not take steps to actively manage their debt, they will remain eligible for disclosure.

Before the ATO takes any final action to disclose a tax debt, it will issue the taxpayer with a formal Intent to Disclose Notice.

If a taxpayer receives an Intent Notice, asking them to 'Act now or your tax debt will be reported to credit reporting bureaus', the taxpayer or their tax agent must contact the ATO within 28 days of receiving the notice to avoid the debt being reported.

It is crucial for taxpayers to engage with the ATO early before their debts become unmanageable.

Editor:  If the ATO reports a taxpayer that has an outstanding debt to a CRB, this can have a negative impact on the client’s credit rating. 

This in turn may affect the client’s ability to borrow from banks and other financial institutions.

High Court rejects attempt to disclaim interest in trust distribution

The High Court has rejected a taxpayer’s attempt to disclaim an interest in trust income that arose as a result of a default beneficiary clause being triggered.

Facts

The taxpayer, Ms Natalie Carter, was one of five default beneficiaries of the Whitby Trust, a discretionary trust.

For the 2014 income year the trustee had failed to appoint or accumulate any of the income of the Trust.

The Trust Deed contained a default beneficiary clause, nominating Ms Carter and four other beneficiaries, as the default beneficiaries, in the event that the trustee had failed to allocate trust income for the benefit of beneficiaries by 30 June of a particular year.

The ATO issued each of Ms Carter and the four other default beneficiaries with an assessment for one-fifth of the income of the Whitby Trust for the 2014 income year on October 2015.

This was done on the basis that they were “presently entitled” to that income within the meaning of S.97(1) of the Income Tax Assessment Act 1936.

An initial unsuccessful attempt was made by the default beneficiaries to disclaim their entitlement to default distributions in November 2015.

A further attempt by the default beneficiaries to disclaim their interest in trust income for the 2014 income year was made in September 2016 in what was referred to as the “Third Disclaimers”.

The Administrative Appeals Tribunal held that the Third Disclaimers were ineffective whereas the Full Federal Court found in the taxpayers’ favour that they were effective.

The High Court was then asked to consider the legal status of the Third Disclaimers.

Decision

It was the unanimous decision of the High Court that the Third Disclaimers were ineffective.

The High Court carefully analysed the words of S.97(1).

In particular, the phrase “is presently entitled to a share of the income of the trust estate” in S.97(1) is expressed in the present tense. 

The plurality found that expression "is directed to the position existing immediately before the end of the income year for the stated purpose of identifying the beneficiaries who are to be assessed with the income of the trust – namely, those beneficiaries of the trust who, as well as having an interest in the income of the trust which is vested both in interest and in possession, have a present legal right to demand and receive payment of the income."

The High Court took the view that the question of the "present entitlement" of a beneficiary to income of a trust must be tested and examined "at the close of the taxation year", not some reasonable period of time after the end of the taxation year.

Accordingly, Ms Carter and the other four beneficiaries had been appropriately assessed by the ATO under S.97(1) given their status as default beneficiaries under the Trust Deed.

For the sake of completeness, the High Court also rejected the taxpayers’ argument that a beneficiary of a discretionary trust, with reference to events that may occur in a “reasonable period” after the end of an income year, can trigger an event that would disentitle the beneficiary to a distribution.

Editor:  This decision is significant, because it backs the proposition that disclaimers of trust income cannot be effective if they occur after the end of the income year that gave rise to a present entitlement. 

It will be interesting to see in any subsequent Decision Impact Statement how the ATO intends to apply the decision in Carter’s case.

As we head towards the end of another income year, this case serves as a timely reminder to ensure for discretionary trusts, that steps are taken before the end of the income year to effectively distribute trust income.

This is done to avoid the operation of default beneficiary clauses, or the situation where no beneficiary is presently entitled to trust income and the trustee is assessed at the highest marginal rate.

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.

$450 monthly earnings threshold removed for Super guarantee

Tax deductibility of COVID-19 test expenses

After much speculation, the Government announced that COVID-19 tests, including Polymerase Chain Reaction (‘PCR’) and Rapid Antigen Tests (‘RATs’), will be both:

-   tax-deductible; and

-    exempt from FBT;

broadly where they are purchased for work-related purposes.

This will require the introduction of new specific legislation (i.e., to clarify that work-related COVID- 19 test expenses incurred by individuals will be tax-deductible or FBT exempt where employers provide the tests to their staff) which will apply both where an individual is required to attend the workplace or has the option to work remotely.

The Government intends that these changes take effect from the beginning of the 2022 income year and will apply permanently once enacted.

Super changes and full expensing 12-month extension now law

A plethora of superannuation law tweaks has recently been made  (via recent legislative reforms) which include:

-   Removing the $450 monthly super guarantee threshold.

-   Reducing the eligibility age for making downsizer contributions from 65 to 60.

-   Changes to facilitate the removal of the work test for those aged between 67 and 75 regarding non-concessional and salary sacrificed contributions.  In addition, the bring-forward rule will now be available for people under the age of 75 (rather than 67, as is currently the case).

-   Increasing the maximum releasable amount under the First Home Super Saver scheme from $30,000 to $50,000.

-   Allowing super fund trustees to choose not to use the segregated assets method in certain circumstances.

Furthermore, the Government has also ‘made good’ on their promise to extend accelerated depreciation with legislation passing to allow  current Temporary Full Expensing measures to continue for another  12 months (i.e., to 30 June 2023).

12-month extension of the temporary loss carry-back measure

As announced in the 2020/2021 Federal Budget, legislation has now passed to allow eligible corporate entities (i.e., with, amongst other things, an aggregated turnover of less than $5 billion) a 12-month extension to claim a loss carry-back tax offset in the 2023 income year.  

The temporary loss carry-back rules were initially implemented in 2020 to promote economic recovery by providing cash flow support to previously profitable companies that fell into a tax loss position due to the COVID-19 pandemic.

The law allows eligible companies to carry-back tax losses from 2020, 2021, 2022 and now the 2023 income year to previously-taxed profits in the 2019 or later income years.

A company that does not elect to carry back losses under this temporary (yet extended) measure is still eligible to carry losses forward as usual.

Keeping and maintaining SMSF records

Trustees of SMSFs have been put on notice by the ATO that keeping and maintaining good records is one of their key responsibilities and legal obligations.  Good record keeping ensures trustees can ensure accurate and timely SMSF accounts, audits and income tax return lodgments. 

As a result, the ATO has recently confirmed that even where SMSF trustees rely upon super or tax professionals to administer their SMSF, each trustee remains personally responsible for good record keeping.

If trustees are unsure of their obligations, the ATO has encouraged them to view the ATO’s record-keeping videos available on their website (refer to QC 23333) and undertake an approved education course (refer to QC 41142) to improve their understanding and knowledge.

Editor: Talking about SMSFs... The ATO has recently released some interesting statistics, outlined in the article below. These statistics were taken from the information provided in the 2020 SMSF annual return lodgments.

SMSF – statistical overview from 2020 lodgments published

As of 30 June 2021, SMSFs have been reported as making up 25% of all super assets (i.e., $822 billion as of 30 June 2021).

At the same time, there were approximately 598,000 SMSFs with almost 1.115 million individual members.  Furthermore, as of 30 June 2020, on average, each SMSF has assets of just over $1.3 million.

The ATO has also reported that the total contributions to all SMSFs in 2020 was around $17.9 billion (a 4% increase from 2019).

Finally, according to ATO statistics, over 25,000 SMSFs were established in 2021 (with average assets of $391,000 upon establishment), and of these new SMSFs, 85% were founded with a corporate trustee (i.e., rather than an individual trustee).

New shield against debt recovery proposed for small business

Small businesses are to be afforded the ability to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (‘the Tribunal’) for orders to stay (i.e., temporarily suspend) specific ATO debt recovery actions.  Broadly, amending legislation will allow the Tribunal to make such an order only if the proceeding is brought under the Small Business Taxation Division of the Tribunal.

This proposal (initially announced in the most recent Federal Budget) aims to provide small business entities (‘SBEs’) with a cheaper and easier way to pause the effects of an ATO decision to recover a tax debt whilst their tax dispute is being considered.

Small employers and STP – the ATO gets serious

The ATO has advised it is in the process of shifting from its previous engagement and communication focus on Single Touch Payroll (‘STP’).  In particular, it will begin a ‘failure to lodge penalty’ process for small business employers (i.e., those with 19 or fewer employers) who have yet to commence STP reporting.

STP reporting has been mandatory for most small employers from the 2020 income year, with a final ‘nudge letter’ being issued to approximately 700 small employers in late January 2022.

Notably, the ATO advised that any remaining non-compliant small employers (i.e., those not subject to any appropriate reporting extensions or exemptions) will have been issued pre-penalty warning letters from 18 February 2022. 

Where an employer receives a pre-penalty warning letter, they will have a further 28 days to take action by either starting to lodge or contacting the ATO before a failure to lodge penalty will be imposed.

Editor: Should you have any questions (or require any assistance) about any of the issues raised in this update, please feel free to contact our office.

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.

Scamwatch : Scams cost Australia hundreds of millions per year

Super is now following new employees

The ATO is reminding employers that, as of 1 November 2021, there is an extra step they may need to take to comply with the choice of super fund rules.

If a new employee does not choose a super fund, most employers will need to request the employee's 'stapled super fund' details from the ATO to avoid penalties.

A stapled super fund is an existing super account which is linked, or 'stapled', to an individual employee so that it follows them as they change jobs.

When a new employee starts, employers need to:

-   offer eligible employees a choice of super fund;

-   if the new employee does not choose a super fund, the employer will need to request stapled super fund details using Online services for business; and

-   pay super contributions into one of the following:

       –    the super fund they choose;

       –    the stapled super fund the ATO provides if they have not chosen a fund; or

       –    the employer's default fund (or another fund that meets the choice of fund rules) if the employer cannot pay into the two above.

ABN 'intent to cancel' program

The ATO is reviewing Australian business numbers ('ABNs') to identify potentially inactive ABNs for cancellation, and it has introduced a new automated process to allow taxpayers (or their tax agents) to confirm if their ABN is still required via a secure voice response system.

An ABN may be selected if the taxpayer has not reported business activity in their tax return, or there are no signs of business activity in other lodgments or third-party information.

The ATO reminds taxpayers that any income earned under an ABN needs to be reported in their tax return, regardless of the amount.  By keeping their tax obligations up to date, the ATO can see they are actively undertaking a business (so, therefore, their ABN should not be cancelled).

'Backpacker tax' may not apply to some backpackers

The High Court has held that the 'working holiday maker tax' (also known as the 'backpackers tax') did not apply to a taxpayer on a working holiday visa from the United Kingdom who was also an Australian tax resident, due to the application of the Double Tax Agreement between Australia and the United Kingdom.

The ATO has responded to this High Court decision, noting that it is only relevant where a working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.

Working holiday makers who may potentially be affected by this decision are encouraged to check the ATO website for updated guidance prior to lodging or amending a return or lodging an objection.

Employers should continue to follow rates in the published withholding tables for working holiday makers until the ATO updates its website with further guidance.

The ATO notes that a working holiday maker’s residency status for tax purposes is determined by the taxpayer’s individual circumstances, but most working holiday makers will be non-residents (consistent with their purpose of being in Australia to have a holiday and working to support that holiday).

Beware of scams

Scamwatch is warning that scams cost Australian consumers, businesses and the economy hundreds of millions of dollars each year and cause serious emotional harm to victims and their families. 

Cryptocurrency scams are the most 'popular' type of investment scams, representing over 50% of losses.  Often the initial investment amount is low (between $250 and $500), but the scammers pressure the person to invest more over time before claiming the money is gone or ceasing communication and blocking access to the funds. 

All age groups are losing money to investment scams, but the over-65s have lost the most, with $24 million lost this year.

Some simple steps individuals can take to protect themselves (and their businesses) are:

-    Never give any personal information to someone who has contacted you.

-    Hang up and verify the identity of the person contacting you by calling the relevant organisation directly - find them through an independent source such as a phone book, past bill or online search.

-    Do not click on hyperlinks in text/social media messages or emails, even if it appears to come from a trusted source.

-    Go directly to a website through a browser (e.g., to reach the MyGov website, type ‘my.gov.au’ into the browser).

-    Search for reviews before purchasing from unfamiliar online traders.

-    Be wary of sellers requesting unusual payment methods.

-    Verify any request to change bank details by contacting the supplier directly.

-    Consider a multi-factor approval process for transactions over a certain dollar amount.

-   Never provide a stranger remote access to your computer, even if they claim to be from a telco company such as Telstra.

Editor: Feel free to contact our office if you need any help at all with this or anything else.

Managing business cash flow

The ATO has issued a reminder to businesses that paying regular attention to their record-keeping and reporting tasks will help them better manage their cash flow and allow them to plan for the future.

The best way to make sure a business has enough cash available to meet its tax and other obligations is to do a cash flow budget or projection.  This information will help the business to:

-   see its likely cash position at any time;

-   identify any fluctuations that may lead to potential cash shortages;

-   plan for tax payments;

-  plan for any major expenses; and

-   provide lenders with information.

Accounting for income and expenses can help keep a business running smoothly — by giving it an overview of when it can expect money to come in and when it may go out, and highlighting where the business may need to direct its money.

The ATO provides resources about record keeping for business, and there is also information on business.gov.au regarding how to create a budget, and how to improve a business's financial position.

Data-matching program: Services Australia benefits and entitlements

The ATO has advised it will acquire Medicare Exemption Statement ('MES') data relating to approximately 100,000 individuals from Services Australia for the 2021 financial year through to the 2023 financial year inclusively, and compare it with claims made by taxpayers on their tax returns.

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.

Property investors warned for common tax traps

Extending administrative relief for companies to use technology

The Government has passed legislation renewing the temporary relief that allows companies to use technology to meet regulatory requirements under the Corporations Act 2001.

These temporary relief measures will allow companies to hold virtual meetings and use electronic communications to send meeting-materials and execute documents until 31 March 2022.  This should ensure that companies can meet their obligations as they continue to deal with the uncertainty of the COVID-19 pandemic.

With the extension of this temporary relief, the Government will now seek to introduce permanent reforms later this year to give companies the flexibility to use technology to hold meetings, such as hybrid meetings, and sign and send documents.

Expansion of support for SMEs to access funding

The Government is providing additional support to small and medium sized businesses ('SMEs') by expanding eligibility for the SME Recovery Loan Scheme. 

Specifically, in recognition of the continued economic impacts of COVID‑19, the Government will remove requirements for SMEs to have received JobKeeper during the March quarter of 2021, or to have been a flood affected business, in order to be eligible under the SME Recovery Loan Scheme.

As with the existing scheme, SMEs who are dealing with the economic impacts of the coronavirus with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years. 

Other key features include:

-   The Government guarantee will be 80% of the loan amount.

-  Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.

- to refinance any pre-existing debt of an eligible borrower.

-   Loans can be either unsecured or secured (excluding residential property).

The loans will be available through participating lenders until 31 December 2021.

ATO warns property investors about common tax traps

In 2019/20, over 1.8 million Australians owned rental properties and claimed $38 billion in deductions, so the ATO is reminding property investors to beware of common tax traps that can delay refunds or lead to an audit costing taxpayers time and money.

The most common mistake rental property and holiday homeowners make is neglecting to declare all their income, including failing to declare any capital gains from selling an investment property. 

Assistant Commissioner Tim Loh said: “To put it simply, you should expect tax consequences for any property that you earn income from that isn’t your main residence.”

“We are expanding the rental income data we receive directly from third-party sources such as sharing economy platforms, rental bond authorities, and property managers.  We will contact taxpayers about income they’ve received but haven’t included in their tax return.  This will mean they need to repay some of their refund,” Mr Loh said.

So far, the ATO has adjusted more than 70% of the 2019/20 returns selected for a review of rental information.

“Most people we contact about their rental deductions are able to justify their claims.  However, there are instances where we have to knock back claims where taxpayers didn’t keep receipts, claimed for personal use, or claimed for ineligible deductions,” Mr Loh said.

Editor: We can help make sure you get your rental income and deductions right, including where rental income has been affected by COVID-19.

Div.293 concessional contribution assessments have been issued

The ATO has recently issued approximately 30,000 Division 293 assessments for the 2018/19 and 2019/20 financial years.

Editor: Division 293 tax is an additional tax on super contributions, which reduces the tax concession for individuals whose combined income and contributions are greater than the Division 293 threshold (currently $250,000).

Due to a system issue, concessional contributions reported for these financial years were not included in Division 293 assessments where that super account was also reported as closed during that financial year.  This reporting issue was resolved in June 2021, and this has resulted in affected members receiving either an initial or amended Division 293 assessment.

Travel allowances and 'LAFHAs'

The ATO has released a Ruling explaining:

-    when an employee can deduct accommodation and food and drink expenses when travelling on work;

-    the FBT implications, including the application of the 'otherwise deductible rule', where an employee is reimbursed for accommodation and food and drink expenses, or where the employer provides or pays for these expenses; and

-    the criteria for determining whether an allowance is a 'travel allowance' or a 'living-away-from-home allowance' ('LAFHA') benefit.

Whether accommodation and food and drink expenses are deductible depends on the facts and circumstances of each case, so the Ruling uses examples to show how to determine the deductibility of these expenses in a range of situations.

Time running out to register for the JobMaker Hiring Credit

The JobMaker Hiring Credit scheme's third claim period is now open, so if a taxpayer has taken on additional eligible employees since 7 October 2020, they may be able to claim JobMaker Hiring Credit payments for their business.

Eligible businesses can receive up to:

-   $10,400 over a year for each additional eligible employee hired aged 16 to 29 years; and

-   $5,200 over a year for each additional eligible employee hired aged 30 to 35 years.

The JobMaker Hiring Credit is available to businesses for each additional eligible employee hired before 6 October 2021, so, if a business is thinking about taking on extra staff, they should check if they are eligible to participate in the scheme.

Labor commits to income tax cuts and certainty on negative gearing

The ALP has formally announced that, if elected to Government, they will deliver "the same legislated tax relief . . . as the Morrison Government".

This means they have committed to upholding the legislated changes to personal income taxes, and will also maintain the existing regimes for negative gearing and capital gains tax to provide "certainty and clarity to Australian working families after a difficult two years for our country and the world".

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 to ramp up checking on not-in-use ABN's

Government proposal to modernise business communications

The Government has committed to modernising certain laws so that they are 'technology neutral', to enable easier communication between businesses, individuals and regulators.

The first phase of legislative reform will focus on key areas raised by stakeholders which are implementation-ready (ideally by the end of 2021), including:

-    expanding the range of documents that can be validly signed electronically;

-    increasing the range of documents that can be sent electronically to shareholders and amending requirements to contact lost shareholders;

-    improving flexibility for customers when changing address and consenting to electronic communication with credit providers;

-    removing prescriptive requirements for notices to be published in newspapers, where suitable alternatives have been identified; and

-    addressing provisions in Treasury legislation where only non-electronic payment options are in place.

Subsequent phases will consider reforms in additional areas that could benefit from greater technology neutrality, including communication with regulators, and product disclosure and recordkeeping requirements.

ATO "keeping JobKeeper payment fair"

The ATO is using its compliance resources to maintain the integrity of the JobKeeper measure.

While most businesses and employees have done the right thing, the ATO has identified concerning and fraudulent behaviour as well as claims by a small number of organisations and employees, and will actively pursue these claims.

Some of the concerning behaviours the ATO is currently examining include:

-     businesses that have:

           –    made claims for employees without a nomination notice, or have not paid their employees the correct JobKeeper amount (before tax);

           –    made claims for employees where there is no history of an employment relationship;

           –    amended their prior business activity statements to increase sales in order to meet the turnover test; or

           –    recorded an unexplained decline in turnover, followed by a significant increase; and

-     individuals who have knowingly:

          –    made multiple claims for themselves as employees or as 'eligible business participants'; or

          –    made claims both as an employee and an 'eligible business participant'.

The ATO encourages all JobKeeper applicants to review their applications and contact the ATO if they have made mistakes (and the ATO may not pursue repayment of an overpayment in certain circumstances, such as for honest mistakes).

If anyone is concerned that someone is doing the wrong thing in relation to the JobKeeper payment, they are encouraged to tell the ATO about it.  The ATO will be examining JobKeeper Tip-Offs and contacting businesses where it has concerns and needs more information.

Independent review service for small businesses made permanent

Following a successful multi-year pilot, the ATO’s small business independent review service will be offered permanently as a dispute resolution option for eligible small businesses.

ATO Deputy Commissioner Jeremy Geale said the service is all about ensuring small businesses are given the opportunity to achieve an independent, fast, free, and fair resolution when they disagree with the ATO’s audit position:

“Independence is critical when handling a dispute, so we ensure each and every independent review is done by an officer from a different part of the ATO who was not involved in the original audit”.

The ATO’s small business independent review service is available to eligible small businesses with an annual turnover of less than $10 million in relation to disputes about income tax, GST, excise, luxury car tax, wine equalisation tax, and fuel tax credits, and is in addition to other dispute options.

Disputes about employer obligations like superannuation and FBT are not eligible for the independent review service.

More information about the ATO’s independent review service, including how to request a review and eligibility criteria, is available on the ATO’s website.

ATO asks businesses to check if they are still using their ABNs

The ATO has advised that, if a business hasn’t used its ABN for a while, the ATO may contact them about cancelling their ABN. 

The ATO may also contact them about their ABN if their business situation has changed.

To ensure businesses don’t miss out on Government support, including during unfortunate events, it’s essential that they regularly review their ABN details and keep them up to date (or cancel their ABN if the business is no longer operating, so that Government agencies can tailor their support to those that need it).

It’s also important to check that the business has listed the physical address of the business, as otherwise it can be difficult for emergency services and Government agencies to make contact. 

A business' mailing address and physical location address can be listed separately on its ABN data, and these (and other ABN details) can be checked and updated online at any time.

Passenger movement data-matching program

The ATO will access data from the Department of Home Affairs on passenger movements during the 2016/17 to 2022/23 financial years, and match it with certain sections of ATO data holdings to identify taxpayers that can be provided with tailored information to help them meet their tax and superannuation obligations, or to ensure compliance with taxation and superannuation laws.

Data items include names, dates of birth, arrival  and departure dates, passport Information, and status types (visa status, residency, lawful, Australian citizen).

The ATO estimates that records relating to approximately 670,000 individuals will be obtained each financial year.

Super contribution caps will increase from 1 July 2021

The ATO has confirmed that, from 1 July 2021, the superannuation concessional and non-concessional contribution caps will be indexed.

The new caps for the 2021/22 year will be:

-    Concessional Cap:              $27,500

-    Non-Concessional cap:  $110,000 (or $330,000 over 3 years)

The total superannuation balance limit that determines if an individual has a non-concessional contributions cap of nil will also increase from $1.6 to $1.7 million, effective from 1 July 2021.

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.

JobKeeper comes to an end

JobKeeper comes to an end

The ATO has advised that the final JobKeeper payment will be processed in April 2021.

Enrolled businesses do not have to do anything when the program closes, although they will need to complete their final March monthly business declaration by 14 April 2021.

Also, once a business is no longer claiming JobKeeper Payments, it may start to be eligible to receive the JobMaker Hiring Credit for any additional employees that started employment on or after 7 October 2020.

ATO loses case on JobKeeper and backdated ABNs

On 24 March 2021, the Full Federal Court handed down its decision in a case concerned with the requirement that an entity claiming JobKeeper must have had an ABN on 12 March 2020, or a later time allowed by the ATO.

The Registrar of the Australian Business Register had reactivated the relevant entity's previously cancelled ABN after 12 March 2020, but with a backdated effective date on or before 12 March 2020. 

The Court held that backdating an ABN to have an effective date on or before 12 March 2020 did not satisfy the requirement for the entity to have had an ABN on 12 March 2020.

However, the Court also held that the ATO's decision not to allow the entity a "later time" to have an ABN was a "reviewable decision", and that the Commissioner's discretion should be exercised in these circumstances (i.e., the Court held that the entity should be entitled to JobKeeper).

The Court's decision does not change the need to satisfy all of the other eligibility requirements.

Editor: Where the ATO has postponed finalising a decision regarding a taxpayer's eligibility for JobKeeper (and/or the cash flow boost) pending the Court's decision, the ATO will contact the affected taxpayer shortly to provide them with an update.

First criminal conviction for JobKeeper fraud

A person claiming to be a sole trader  was convicted of three counts of making a false and misleading statement to the Commissioner of Taxation, in order to receive $6,000 in JobKeeper payments to which he was not entitled, as he was not operating a genuine business and he had already agreed to be nominated by his full-time employer for the allowance.

The ATO has a dedicated integrity strategy that supports the administration of the Government’s stimulus packages, with robust and efficient compliance systems that make it very easy to identify fraudulent behaviour and stop it. 

ATO Deputy Commissioner Will Day said “Since the first payments were made in April, the ATO has monitored every payment, every day, every month, and will continue to do so until the last payment is made."

ATO's taxable payments reporting system update

The ATO has confirmed that more than 60,000 businesses have not yet complied with lodgment requirements under the taxable payments reporting system ('TPRS') for 2019/20.

The TPRS is a black economy measure designed to assist the ATO to identify contractors who don’t report or under-report their income.

The ATO estimates that around 280,000 businesses need to lodge a Taxable payments annual report ('TPAR') for the 2020 financial year.

Importantly, 2020 was the first year that businesses that pay contractors to provide road freight, information technology, security, investigation, or surveillance services may need to lodge a TPAR with the ATO (in addition to those businesses providing building and construction, cleaning, or courier services).

Businesses who have not yet lodged need to lodge as soon as possible to avoid penalties.

ATO Assistant Commissioner Peter Holt added that some businesses may not realise they need to lodge a TPAR, but may be required to, depending on the percentage of payments received for deliveries or courier services.

“Many restaurants, cafés, grocery stores, pharmacies and retailers have started paying contractors to deliver their goods to their customers.  These businesses may not have previously needed to lodge a TPAR.  However, if the total payments received for these deliveries or courier services are 10% or more of the total annual business income, you’ll need to lodge,” Mr Holt said.

FBT rates and thresholds for the 2021/22 FBT year

The ATO has updated its webpage containing the fringe benefits tax ('FBT') rates and thresholds for the 2017/18 to 2021/22 FBT years.

Two amounts that were not previously announced for the 2021/22 FBT year are:

-   the FBT record keeping exemption is $8,923 (up from $8,853 for the 2020/21 FBT year); and

-   the statutory or benchmark interest rate is 4.52% (down from 4.80% for the 2020/21 FBT year).

The ATO also separately released two taxation determinations setting out further rates and thresholds for the FBT year commencing on 1 April 2021, being:

-   Motor vehicle (other than a car) — cents per kilometre rate; and

-   Reasonable food and drink amounts for employees living away from home.

Editor: Please contact our office if you need more information about these rates or FBT in general.

Warning regarding new illegal retirement planning scheme

The ATO has recently identified a new scheme where SMSF trustees were informed that they could set up a new SMSF to roll-over the fund balance from the old SMSF and then liquidate their old SMSF, in an attempt to avoid paying potential tax liabilities.

The ATO warns that taking part in this arrangement and others like it can result in civil and criminal actions and could ultimately put the members' retirement savings at risk.

If a trustee of an SMSF believes they have been approached by a promoter of a retirement planning scheme, the ATO recommends they seek a second opinion from a registered tax agent or appropriately qualified financial adviser, and also report the promoter to the ATO.

New succession planning guide for family businesses

The Australian Small Business and Family Enterprise Ombudsman, in conjunction with Family Business Australia, has released a new online guide to succession planning — the “Introductory Guide to Family Business Succession Planning” — which provides a step-by-step guide to passing the family business on to the next generation.

A recent report revealing that 54% of family businesses have no documented succession plan in place and no retirement plan for the current CEO.

The easy-to-read guide offers tips on how to handle tense conversations that can arise between family members throughout the transition phase.

The guide is free and available on both the Family Business Australia and the ASBFEO’s websites.

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.

STP reporting concessions for closely held payees will end June 2021

March 2021

Changes to STP reporting concessions from 1 July 2021

Small employers (19 or fewer employees) are currently exempt from reporting ‘closely held’ payees through Single Touch Payroll ('STP').  Also, a quarterly STP reporting option applies to micro employers (four or fewer employees).  These concessions will end on 30 June 2021.

The STP reporting changes that apply for these employers from 1 July 2021 are outlined below.

Closely held payees (small employers)

From 1 July 2021, small employers must report payments made to closely held payees through STP using any of the options below.  Other employees must continue to be reported by each pay day.

A ‘closely held payee’ is an individual who is directly related to the entity from which they receive payments.  For example, this could include family members of a family business, directors or shareholders of a company and beneficiaries of a trust.

Payments to such payees can be reported via STP (from 1 July 2021) using any of the following options:

1.    Report actual payments on or before the date of payment.

2.    Report actual payments quarterly on or before the due date for the employer’s quarterly activity statements. 

3.    Report a reasonable estimate quarterly on or before the due date for the employer’s quarterly activity statements.  Note that consequences may apply for employers that under-estimate amounts reported for closely held payees.

Small employers with only closely held payees have up until the due date of the payee’s tax return to make a finalisation declaration.  Employers will need to speak with these payees about when their individual income tax return is due.

Micro employers

From 1 July 2021, the quarterly reporting concession will only be considered for eligible micro employers experiencing ‘exceptional circumstances’.

Common examples of when the ATO would generally consider it to be fair and reasonable to grant a deferral due to exceptional or unforeseen circumstances include natural disasters, other disasters or events, serious illness or death.

Additionally, ‘exceptional circumstances’ for access to the STP quarterly reporting concession from 1 July 2021 may include where a micro employer has:

-   seasonal or intermittent workers; or

-   no or unreliable internet connection.

The ATO says it will consider any other unique circumstances on a case-by-case basis.

It should be noted that registered agents must apply for this concession and lodge STP reports, quarterly, on behalf of their eligible micro employer clients.  

The STP reports are due the same day as the employer’s quarterly activity statements. 

If an employer prefers to report monthly, the STP reports must be lodged on or before the 21st day of the following month. 

Finalisation declarations will need to be submitted by 14 July each year.

Editor: Please contact our office if you require more information or assistance with these STP reporting options.  

Paper PAYG and GST quarterly instalment notices

The ATO has previously advised that it will no longer issue paper activity statements after electronic lodgment.  Instead, electronic activity statements will be available for access online, three to four days after the activity statement is generated.

As part of its digital improvement program, the ATO stopped issuing paper quarterly PAYG and GST instalment notices (forms R, S & T), where taxpayers had a digital preference on ATO systems.  The September 2020 notice was the last one issued to these taxpayers.

However, the ATO has received feedback from tax professionals that issues have arisen for some of their clients as a result of this change.  For example, some taxpayers who are self-lodgers rely on the receipt of the paper statements as a reminder that their instalments are due.

As an interim solution, the ATO said it will issue paper PAYG and GST quarterly instalment notices starting with the March 2021 quarterly notices.

For taxpayers impacted by this change, the ATO will work with their registered agents to take their circumstances into account.  The ATO has a range of practical support options available, including lodgment deferrals and payment plans that agents can access online, on behalf of their clients.

For self-lodgers, the ATO has issued an email notification reminding them that their December 2020 PAYG and GST instalment notices are due for payment soon (by 2 March 2021).

The ATO said it will continue to work with the tax profession to develop a digital solution for the PAYG and GST instalment notices that is workable for registered agents and their clients.

Editor: Please contact our office if you require more information about paper PAYG or GST quarterly instalment notices.

Avoiding disqualification from SG amnesty

The superannuation guarantee (‘SG’) amnesty ended on 7 September 2020.  Employers who disclosed unpaid SG amounts and qualified for the amnesty are reminded that they must either pay in full any outstanding amounts they owe, or set up a payment plan and meet each ongoing instalment amount so as  to avoid being disqualified and losing the benefits of the amnesty.

The ATO will be sending employers reminders to pay disclosed amounts, if they have not previously engaged with the ATO.  Employers will have 21 days to avoid being disqualified from the amnesty.

Registered agents can assist their employer clients who qualified for the SG amnesty avoid disqualification.  In particular, if a client needs to set up a payment plan, agents can do this (online) on their behalf, if the employer:

-   has an existing debit amount under $100,000 (total balance or overdue amounts);

-   does not already have a payment plan for that debit amount; and

-   has not defaulted on a payment plan for the relevant account more than twice in the past two years.

The ATO has advised that employers who are disqualified from the amnesty will:

-   be notified in writing of the quarter they are disqualified for;

-   be charged an administration component of $20 per employee for each disqualified quarter;

-   have their circumstances considered when deciding a Part 7 penalty remission (this is an additional penalty of up to 200% of the unpaid SG amount that may be imposed under the SG laws); and

-   be issued with a notice of amended assessment.

Employers who continue to qualify for the SG amnesty are reminded that they can only claim a tax deduction for amounts paid on or before 7 September 2020 (i.e., the amnesty end date).

Editor: Please contact our office if you require more information or would like us to set up a payment plan for SG amnesty amounts on your behalf.

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.

New incentive: “JobMaker” Hiring Credit

Improvements to be made to full expensing measure

The government will expand eligibility for the temporary 'full expensing measure', which temporarily allows certain businesses to deduct the full cost of eligible depreciable assets in the year they are first used or installed.

Editor: The government initially announced in the 2020/21 Budget that businesses with a turnover of up to $5 billion would be able to immediately deduct the full cost of eligible depreciable assets as long as they are first used or installed by 30 June 2022.

The government will also allow businesses to opt out of temporary full expensing and the backing business investment incentive on an asset‑by‑asset basis. 

This change will provide businesses with more flexibility in respect of these measures, removing a potential disincentive for them to take advantage of these incentives (Editor: For example, where the automatic application of full expensing might cause the entity to make a loss).

JobMaker Hiring Credit passed

The government has passed legislation to establish the JobMaker Hiring Credit, which is part of the government’s economic response to the COVID-19 pandemic.

The JobMaker Hiring Credit is specifically designed to encourage businesses to take on additional young employees and increase employment. 

It does this by providing employers with a fixed amount of $200 per week for an eligible employee aged 16 to 29 years and $100 per week for an eligible employee aged 30 to 35 years, paid quarterly in arrears by the ATO.

To be eligible, the employee must have been receiving JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months, assessed on the date of employment.  Employees also need to have worked for a minimum of 20 hours per week of paid work to be eligible, averaged over a quarter, and can only be eligible with one employer at a time.

The hiring credit is not available to an employer who does not increase their headcount and payroll. 

Employers and employees will be prohibited from entering into contrived schemes in order to gain access to or increase the amount payable.

Existing rights and safeguards for employees under the Fair Work Act will continue to apply, including protection from unfair dismissal and the full range of general protections.

ATO Visa Data Matching Program

The ATO will acquire visa data from the Department of Home Affairs for 2020/21 through to 2022/23, relating to approximately 10 million individuals for each financial year.

The data will be used to identify non-compliance with obligations under taxation and superannuation laws, including registration, lodgment, reporting and payment responsibilities.

How to avoid getting dodgy advice

The ATO is warning taxpayers who may be thinking about pausing, changing or closing their business, due to the current economic conditions, to be wary of untrustworthy advisers who may recommend inappropriate or illegal behaviour.

This could include illegal phoenix activity, where businesses intentionally remove their assets prior to winding up so that they can be used in a copy of the original business.

Red flags include:

-   people the taxpayer doesn't know cold calling with advice;

-   unsolicited letters, emails or phone calls after the taxpayer has been through court action with a creditor;

-   advice to transfer assets to a third party without payment;

-   refusal to provide advice in writing;

-   advice suggesting they have a sympathetic liquidator who will protect the taxpayer's personal interests and assets;

-   advice to withhold certain records from the bankruptcy trustee or liquidator, or provide incorrect information to authorities; and

-   advice to deal with the liquidator or trustee on the taxpayer's behalf.

The ATO instead recommends anyone thinking of pausing, changing or closing their business to contact a qualified professional, such as an accountant, lawyer, or registered liquidator.

STP data-sharing with Services Australia

Single Touch Payroll ('STP') allows the ATO to share data in real-time with other government agencies, to "help them deliver government services to the Australian community".

As part of the ATO's data-matching program, it has a STP data-sharing arrangement with Services Australia to help them administer Australia's welfare system. 

This means that people who are on an income support payment from Services Australia and need to report their employment income fortnightly to Centrelink will now see their employer details are pre-filled.

Proposed FBT exemption — retraining and reskilling

The government has announced it will introduce an exemption from FBT for retraining and reskilling benefits provided by employers to redundant, or soon to be redundant, employees where the benefits may not be related to their current employment.

It is proposed that this exemption will not apply to:

-    retraining provided under a salary packaging arrangement;

-    training provided through Commonwealth supported places at universities; or

-    repayments towards Commonwealth student loans.

If enacted, this proposed measure is intended to apply from the day it was announced (i.e., 2 October 2020).

Getting the margin scheme right

Editor: The margin scheme may allow a property owner to pay less GST when they sell the property — paying GST of 1/11th of their margin on the sale, rather than 1/11th of the total sale price.

If a property owner wants to use the margin scheme when selling property, they must be eligible before the property is offered for sale.

This may be where they're selling new property as part of their business and they're registered for GST.

Importantly, among other criteria, there must be a written agreement before settlement between the supplier and purchaser to use the margin scheme — this could be part of the contract.

To avoid the common errors suppliers make when selling property using the margin scheme, the ATO is reminding suppliers that they must also:

-    calculate the margin correctly; and

-    report the amount of the margin on the sale on their BAS — not the full amount of payment received.

Editor: We can help determine your eligibility and also calculate the margin.

Also remember that, when someone purchases property using the margin scheme, they:

-   can't claim GST credits for the sale; and

-   don't report it on their activity statement.

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.

TAX CUTS PASS PARLIAMENT

November 2020

Tax cuts pass Parliament

The Government announced various tax measures in the 2020 Budget on 6 October 2020, and it was able to secure passage of legislation containing some of the important measures very shortly afterwards, as summarised below.

Tax relief for individuals

The Government brought forward 'Stage two' of their Personal Income Tax Plan by two years, so that, from 1 July 2020:

-   the low income tax offset increased from $445 to $700;

-  the top threshold of the 19% tax bracket increased from $37,000 to $45,000; and

-   the top threshold of the 32.5% tax bracket increased from $90,000 to $120,000.

In addition, in 2020/21, low and middle-income earners will receive a one-off additional benefit of up to $1,080 from the low and middle income tax offset.

Tax relief for business

Businesses with a turnover of up to $5 billion are now able to immediately deduct the full cost of eligible depreciable assets as long as they are first used or installed by 30 June 2022.

To complement this, the Government will also temporarily allow companies with a turnover of up to $5 billion to offset tax losses against previous profits on which tax has been paid.

Also, businesses with an aggregated annual turnover between $10 million and $50 million will, for the first time, be able to access up to ten small business tax concessions.

Under the changes passed by the Parliament, the Government will also enhance previously announced reforms to invest an additional $2 billion through the Research and Development Tax Incentive.

Employers need to apply recent tax cuts as soon as possible

The ATO has now updated the tax withholding schedules to reflect the 2020/21 income year personal tax cuts — the updated schedules are available at ato.gov.au/taxtables.

The ATO has said that employers now need to make adjustments in their payroll processes and systems in order for the tax cuts to be reflected in employees’ take-home pay.

Employers must make sure they are withholding the correct amount from salary or wages paid to employees for any pay runs processed in their system from no later than 16 November onwards.

Employees should be aware that any withholding on the old scales will be taken into account in their tax return.

Deferrals of interest due to COVID-19

Many lenders have recently allowed borrowers with investment property loans to defer repayments for a period of time.

While repayments are being deferred, interest (and fees) will usually be added to the loan balance (i.e., the deferred interest will be 'capitalised').

However, it is important to recognise in such situations that, while repayments are not being made during the relevant period, borrowers continue to ‘incur’ the interest during that time. 

Further, interest will continue to be calculated and will accrue on both the unpaid principal sum of the loan and the unpaid (i.e., capitalised) interest.  The interest that accrues on the unpaid or capitalised interest is referred to as ‘compound interest’.

Importantly, the ATO has previously acknowledged that, if the underlying, or ordinary, interest is deductible, then the compound interest will also be deductible. 

Accordingly, interest expenses (including any compound interest) will generally be deductible to the extent the borrowed monies are used for income producing purposes (such as where the borrowed funds are used to purchase a rental property).

However, interest on a loan will not be deductible to the extent to which the borrowed funds are used for private purposes (e.g., to purchase a home, a private boat, or to pay for a holiday).

Editor: Note that, despite the name, "penalty interest" is not always "in the nature of interest" and, in some cases, may not be deductible (e.g., due to the expense being capital in nature).

Simplified home office expense deduction claims due to COVID-19

Given that many Australians continue to work from home due to COVID-19, the ATO has updated its Practical Compliance Guideline which allows taxpayers working from home to claim a rate of 80 cents per hour, by keeping a record of the number of hours they have worked from home, rather than needing to calculate specific running expenses.

The application of the Guideline has been extended so that it now applies from 1 March 2020 until 31 December 2020. 

Companies holding meetings and signing documents electronically

The Government has made another determination extending the timeframe within which companies can hold meetings electronically and enabling electronic signatures to be used, to relieve companies from problems they face due to the Coronavirus situation.

This determination is intended to be in effect until (and will be repealed from) 22 March 2021, unless the Government determines otherwise.

Editor: Note that the Government has also released exposure draft legislation to make these reforms (in respect of virtual meetings and electronic document execution) permanent.

COVID-19 and loss utilisation

The ATO understands the way some businesses operate has been impacted as a result of COVID-19.

Some of these impacts may have resulted in changes that affect whether they are able to utilise their carried-forward losses in the current or a future income year.

For companies to utilise their carried-forward losses in a particular year, they need to satisfy the continuity of ownership test or, if they fail that test, they need to satisfy the business continuity test ('BCT').  

Whether a company can utilise carried-forward losses requires a consideration of its facts and circumstances.

Generally, a company that has completely closed its business with no intention to resume will fail the BCT.  However, a company that has temporarily closed its business may still be able to satisfy the BCT.

Importantly, the mere receipt of JobKeeper payments will not cause a company to fail the BCT.

Employees on JobKeeper can satisfy the ‘work test’

The Australian Prudential Regulation Authority ('APRA') has confirmed that, where an employer is receiving the JobKeeper wage subsidy for an individual, superannuation funds should consider the individual to be ‘gainfully employed’ for the purpose of the ‘work test', even if that individual has been fully stood down and is not actually performing work.

As such, superannuation funds can assume that all members in receipt of the JobKeeper subsidy satisfy the ‘work test’ when determining whether they can make voluntary superannuation contributions.

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.

August newsletter - update on "work from home shortcut' method.

80 cents per hour 'shortcut' method for home office expenses has been extended

Back in April 2020 the ATO announced that a 'shortcut' method was to be made available to use from 1 March 2020 until 30 June 2020 for individuals claiming home office expenses due to COVID-19.   The ATO has recently announced an extension of this shortcut method to also include 1 July 2020 to 30 September 2020.

In summary, a taxpayer can claim a deduction of 80 cents for each hour they work from home due to COVID-19 as long as the individual is:

q   working from home to fulfil their employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls; and

q   incurring additional deductible running expenses as a result of working from home.

A taxpayer does not have to have a separate or dedicated area of their home set aside for working, such as a private study.

The shortcut method rate covers all deductible running expenses such as: electricity and gas  used for heating/cooling and running electronic items used for work purposes; depreciation and repair of assets used for work purposes; work-related phone and internet costs.

Editor:  If you are working from home due to COVID-19 and have queries about what deductions you can claim, contact our office.

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.