Newsletter July 2018

Personal Income Tax Cuts passed!

Parliament has passed the Government's Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.

According to the Prime Minister, taxes "will now be lower, fairer and simpler".

The Government's plan has three steps:

1.    The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year). 

       The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.

2.    Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:

–   From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. 

–   From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.

The low income tax offset will also be lifted to $645.

3.    The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.

 

Early release of super on compassionate grounds: ATO

From 1 July 2018, responsibility for the administration of the early release of superannuation benefits on compassionate grounds will be transferred from the Department of Human Services (DHS) to the ATO.

 

Since the ATO is responsible for most of an individual's interactions with the superannuation system, this change will enable the ATO to build on these existing relationships and provide a more streamlined service to superannuation fund members.

 

A key improvement under the new process is the ATO providing electronic copies of approval letters to superannuation funds at the same time as to the applicant, which will mitigate fraud risk and negate the need for superannuation funds to independently verify the letter with the Regulator. 

 

Individuals will also upload accompanying documentation simultaneously with their application, rather than the current 'two-step process'.

 

Since DHS will accept early release applications up until 30 June 2018, there will be a short transition period where DHS will continue to process those existing applications and complete any necessary reviews. 

Nonetheless, from 1 July 2018 the ATO will process all new applications.

 

ATO putting clothing claims through the wringer

A focus on work-related clothing and laundry expenses this Tax Time will see the ATO "more closely examine taxpayers whose clothing claims don’t suit them".

According to Assistant Commissioner Kath Anderson, around 6 million people claimed work-related clothing and laundry expenses last year, with total claims adding up to nearly $1.8 billion.

She went on to say:

"While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing.”

With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming. 

Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.

“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”

Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims.  However, far too many are claiming for normal clothing, such as a suit or black pants.  Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line.  Others think they can claim normal clothes because they bought them just to wear to work.

“Unfortunately they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.

 

 Tax time tips for small business

The ATO claims that it is committed to supporting small businesses and making it as easy as possible for them to understand and meet their tax obligations at tax time.

Consequently, Assistant Commissioner Mathew Umina has some tips to help small business in the lead up to and during tax time, including:

u   keeping up-to-date records, which will help small businesses to complete and lodge their tax returns, manage cash flow, meet their tax obligations and understand how their business is doing;

  •    consider small business tax concessions, such as:

–   simplified trading stock rules (if the estimate of the difference between opening and closing trading stock is $5,000 or less, the small business doesn't need to do a stocktake);

–   concessions that allow new small businesses to claim an immediate deduction for start-up costs like professional, legal and accounting advice;

–   simplified depreciation rules, including the $20,000 instant asset write-off for assets costing less than $20,000 bought and installed by 30 June 2018.

Please contact our office if you need any advice as to how any of the abovementioned small business tax concessions may be relevant to your business.

 

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.

Newsletter June 2018

 

2018 Budget Update

The Government handed down the 2018/19 Federal Budget on Tuesday 8th May 2018.  Some of the important proposals include:

  •     The introduction of the 'Low and Middle Income Tax Offset', a temporary non-refundable tax offset of up to $530 p.a. to Australian resident low and middle income taxpayers for the 2019 to 2022 income years.  This offset will apply in addition to the Low Income Tax Offset. 
  •  Providing tax relief for individual taxpayers by progressively increasing some of the tax brackets (including an increase in the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000 from 1 July 2018), and eventually removing the 37% tax bracket entirely.
  •    The $20,000 immediate write-off for small business will be extended by a further 12 months to 30 June 2019 (i.e., for businesses with aggregated annual turnover less than $10 million).
  •    From 1 July 2019:

–      Increasing the maximum number of allowable members in an SMSF from four to six members;

–      Ensuring that unpaid present entitlements (or ‘UPEs’) come within the scope of Division 7A; and

–      Denying deductions for expenses associated with holding vacant residential or commercial land.

 

Superannuation guarantee amnesty introduced

The Government has introduced legislation to complement the superannuation guarantee ('SG') integrity package already before Parliament by introducing a one‑off, twelve month amnesty for historical underpayment of SG.

The Bill incentivises employers to come forward and "do the right thing by their employees" by paying any unpaid superannuation in full, as well as the high rate of nominal interest (but without the penalties for late payment that are normally paid to the Government by such employers).

Employers that do not take advantage of the amnesty will face higher penalties when they are subsequently caught – in general, a minimum 50% on top of the SG Charge they owe. 

In addition, throughout the amnesty period the ATO will still continue its usual enforcement activity against employers for those historical obligations they don't own up to voluntarily.

The amnesty will run for twelve months from 24 May 2018.

 

ATO scrutinising car claims this tax time

The ATO has announced that it will be closely examining claims for work-related car expenses this tax time as part of a broader focus on work related expenses.

Assistant Commissioner Kath Anderson said: 

“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.”

This is no doubt because over 3.75 million people made a work-related car expense claim in 2016/17 (totalling around $8.8 billion), and, each year, around 870,000 people claim the maximum amount under the cents-per-kilometre method.

Ms Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics: “Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job . . . simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.”

Ms Anderson said there are three golden rules for taxpayers to remember to get it right.

“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.”

 

Case studies

False logbook

A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim. 

However, upon investigation the ATO discovered that the logbook wasn’t printed until the following year – the taxpayer admitted the logbook was fraudulent and it was ruled invalid.

Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had travelled at least 5,000 kilometres for work-related purposes, so the ATO used the cents per kilometre method to calculate the taxpayer’s deduction (but his claim was reduced from over $11,000 to under $4,000).

Claiming for home to work travel

A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. 

However, he advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work.

The ATO advised the taxpayer that home to work travel is a private expense and is not an allowable deduction – his claim was reduced to nil and the ATO applied a penalty for failure to take reasonable care.

 

What the super housing measures mean for SMSFs

The ATO has reminded members of SMSFs that they will be able to use their voluntary super contributions to assist with buying their first home, or to make a contribution into their super from the proceeds of the sale of their main residence (under changes passed by Parliament in December 2017).

The First Home Super Saver Scheme

The First Home Super Saver (FHSS) Scheme allows SMSF members to save faster for a first home by using the concessional tax treatment available within super.

From 1 July 2018, SMSF members can apply to release certain voluntary concessional and non-concessional contributions made from 1 July 2017, along with associated earnings to help buy their first home.

Editor: There are various conditions that need to be met in order to take advantage of this measure – contact our office if you would like to know more.

The downsizing measure

SMSF members who are 65 or over and exchange a contract for sale of their main residence on or after 1 July 2018 may be eligible to make a downsizer contribution of up to $300,000 into their super.

This downsizer contribution won’t count towards their contributions caps or total super balance test in the year it’s made. 

However, it will count towards the transfer balance cap and be taken into account for determining eligibility for the age pension.

SMSFs must ensure the member's contribution has satisfied all relevant conditions and completed the downsizer contribution form before accepting a downsizing contribution.

 

Car limit for 2018/19

The car limit is $57,581 for the 2018/19 income year (unchanged from the previous year).  This amount limits depreciation deductions and GST input tax credits.

 

FBT: Car parking threshold

The car parking threshold for the FBT year commencing 1 April 2018 is $8.83.  

This replaces the amount of $8.66 that applied in the previous year commencing 1 April 2017. 

 

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.

Newsletter: April

New superannuation rates and thresholds released

The ATO has published the key superannuation rates and thresholds for the 2018/19 income year.

  •     The Non-Concessional Contributions cap will remain at $100,000 (although transitional arrangements may apply), and the Concessional Contributions cap will remain at $25,000.
  •     The CGT cap amount will be $1,480,000.
  •     The Division 293 tax threshold will be $250,000.
  •     The maximum super contribution base for superannuation guarantee purposes will be $54,030 per quarter.
  •     The maximum superannuation co-contribution entitlement for the 2018/19 income year will remain at $500 (with the lower income threshold increasing to $37,697 and the higher income threshold increasing to $52,697).

The superannuation benefit caps for the 2018/19 income year include:

  •     a low rate cap amount of $205,000;
  •     an untaxed plan cap amount of $1,480,000;
  •     a general transfer balance cap of $1.6m;
  •     a defined benefit income cap of $100,000;
  •     an ETP cap amount for life benefit termination payments and death benefit termination payments of $205,000; and
  •     the tax-free part of genuine redundancy payments and early retirement scheme payments comprising a base limit of $10,399 and for each complete year of service an additional $5,200.

 

Super guarantee payable on ‘public holidays’ and ‘additional hours’!

The Federal Court has held that superannuation guarantee contributions were payable with respect to the ‘additional hours’ and ‘public holidays’ component of annualised salaries paid by BlueScope Steel, on the basis that these particular components formed part of ordinary time earnings (‘OTE’). 

Under an enterprise agreement, primarily due to the specific working environment, the employees in question were required to be available (at short notice) 365 days per year and 24 hours per day, including a requirement to work additional hours and public holidays. 

As such, the employees were paid an annualised salary, which was made up of a base rate, as well as a component which absorbed all additional payments, such as penalty rates, allowances, public holiday loadings and pay-outs, and payment for additional hours worked outside the normal rostered hours.

However, when paying superannuation, adjustments were made to the annualised salary, so that the additional hours and public holiday components were not included by BlueScope Steel as OTE for superannuation guarantee purposes.

Decision

The Federal Court did not agree with the employer’s adjustments, instead finding that, under the circumstances, the ‘additional hours’ and ‘public holidays’ formed part of an employee’s ‘ordinary hours of work’ and, therefore, were considered OTE for superannuation guarantee purposes.

This remained the case whether or not the employee actually worked the additional hours or the public holidays.

That is, the ordinary conditions of the employee’s work required them to be available outside their rostered shifts and on public holidays (on short notice) and, as this was factored into their annual salary, they were considered ordinary hours for these particular employees.

 

Inactive ABNs will be cancelled by the ATO

The ATO has recently advised that, in an effort to maintain accurate data, the Australian Business Register (or ‘ABR’) periodically checks its records for Australian Business Numbers (‘ABNs’) and automatically cancels those that appear inactive. 

Ultimately, a taxpayer’s ABN may be cancelled if they: 

  •    have told the ATO they stopped their business activity;
  •    declared no business income in the last two years; or 
  •    have not lodged a BAS or an income tax return in more than two years. 

To avoid cancellation, the ATO has reminded taxpayers that they need to bring their lodgments up to date, and have reminded sole traders that, regardless of their income, they need to lodge the individual tax return with the supplementary section, as well as the business and professional items schedule. 

 

Commissioner’s speech highlights ATO’s focus areas

Recently, the Commissioner of Taxation highlighted the areas in which the ATO has recently increased its focus, including: 

  •     undeclared income;
  •     individuals' unexplained wealth or lifestyle;
  •     incorrectly claimed private expenses;
  •     unpaid superannuation guarantee; and
  •     cash-only businesses and those with low usage of merchant banking facilities, with black economy visits to over 2,600 businesses across 8 locations in 2017.

The Commissioner also highlighted ongoing ATO concern with respect to the predicted 'work-related expense claim gap', which (at least by the ATO’s estimates) could amount to being greater than the 'large corporate tax gap' of $2.5 billion of lost revenue. 

 

No need to actually 'downsize' for ‘downsizer contributions’

From 1 July 2018, individuals aged 65 or over may use the proceeds from the sale of an eligible dwelling that was their main residence to make superannuation contributions (referred to as ‘downsizer contributions’), up to a maximum of $300,000 per person (i.e., up to $600,000 per couple), without having to satisfy the age or gainful employment tests that usually apply.  

This measure was announced in the 2017/18 Federal Budget, and aims to provide an incentive for older Australians to ‘downsize’ their home.  

This, in turn, is expected to reduce pressure on housing affordability by freeing up stocks of larger homes for growing families.  

Importantly, it should be noted that there is no requirement for an individual to actually ‘downsize’ by acquiring a smaller property, or to even acquire another property at all.  

In this regard, all that is required is that the individual (or their spouse) ‘downsizes’ by selling their 'main residence'. 

The individual can then move into any living situation that suits them, such as aged care, a retirement village, a bigger or smaller dwelling than the one sold, a rental property, or living with family.

Also, the property sold does not need to have been the individual’s (or their spouse’s) main residence during their entire ownership of it, provided the property was owned for at least 10 years and was their main residence at some time during the ownership period.  Therefore, the sale of an investment property that at one stage was their main residence may enable an individual (or their spouse) to make downsizer contributions. 

Newsletter: March

Big changes proposed to eligibility for the CGT SBCs

The Treasurer has released draft legislation containing new "integrity improvements" to the CGT small business concessions ('SBCs') (i.e., including the 15-year exemption, the retirement exemption, the 50% active asset reduction and the small business roll-over).

Due to the government's "continued support for genuine small business taxpayers", it proposes making amendments so that the CGT SBCs can only be accessed in relation to assets used in a small business or ownership interests in a small business.

Predominantly, the amendments include additional basic conditions that must be satisfied for a taxpayer to apply the CGT SBCs to a capital gain arising in relation to a share in a company or an interest in a trust (i.e., a unit in a unit trust).

This integrity rule is designed to prevent taxpayers from accessing these concessions for assets which are unrelated to their small business, such as where taxpayers arrange their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

Under the proposed amendments, the measure would be backdated to apply from 1 July 2017.  

Editor: The proposed amendments, if enacted as currently drafted, will significantly restrict access to the CGT SBCs where taxpayers owning shares in a company, or units in a unit trust, seek to dispose of their interests in the entity.

This will particularly be the case where such interests are held in an asset-owning entity (i.e., which holds and/or leases business assets across to a separate, yet related, business entity). 

It is to be hoped that the more draconian aspects of these measures may be scaled back, but due to the retrospective nature of the proposed amendments (i.e., from 1 July 2017), caution is warranted with respect to the SBCs in relation to the disposal of shares or units. 

 

ATO's focus on work-related expenses

This year, the ATO is paying close attention to what people are claiming as 'other' work-related expense deductions, so it's important when taxpayers claim these expenses that they have records to show:

n    they spent the money themselves and were not reimbursed;

n    the expense was directly related to earning their income; and

n    they have a record to prove it.

If the expense is for work and private use, the taxpayer can only claim a deduction for the work-related portion.

Importantly, taxpayers are not automatically entitled to claim standard deductions, but need to be able to show how they worked out their claims.

Editor: ‘Other’ work related expenses are expenses incurred by employees in relation to their work that are not for travel, clothing or self-education, such as home office expenses.

 

Taxpayer can't explain where she got the money to pay her expenses 

The Administrative Appeals Tribunal has upheld amended assessments issued by the ATO to a beauty technician, based on the high volume of money passing through the taxpayer's various accounts when compared with the modest income she had included in her tax returns.

For example, in the 2015 income year, the taxpayer had declared income of $61,842, but the ATO’s analysis of her bank accounts, records of international money transfers, and casino data suggested she had spent $107,328.

The Tribunal noted that, in cases like this, the ATO is effectively making an "informed guess" as to the taxpayer’s income, but, provided there is a rational basis for the estimate, the ATO’s assessment will stand, unless the taxpayer can:

q    demonstrate the assessment was excessive; and

q    establish what the correct (or more nearly correct) figure is.

After hearing from the taxpayer and witnesses at the hearing, and after reviewing the documents, the Tribunal was not persuaded that the taxpayer had demonstrated that the Commissioner’s assessments were 'excessive'.

In particular, the taxpayer’s explanation regarding her income and expenditure was not supported by the objective facts in the hearing, being:

n    the 'churn' through her bank accounts; 

n    the absence of contemporaneous records beyond the bank accounts (for example, she was always paid in cash without receiving pay slips); and 

n    the deficiency in corroborating evidence from other witnesses.

In addition to upholding the amended assessments, the Tribunal was also satisfied that the ATO's 75% administrative penalty on top of the tax payable was properly imposed.

 

Uber driver not an 'employee'

In a recent case, an Uber driver's access to the Uber app had  been terminated as a result of failing to maintain an adequate overall rating, and he applied to the Fair Work Commission (FWC) for an unfair dismissal claim against Uber.

However, the FWC held that he was an independent contractor and not an 'employee', and therefore his application for unfair dismissal was dismissed.

Editor: Although this was not a tax case, it is obviously of interest to anyone involved in the 'gig economy', and it may have flow-on implications for other employment issues, such as super guarantee.

 

Government to fix a problem with reversionary TRISs 

The government has released draft legislation to ensure that a reversionary Transition to Retirement Income Stream (‘TRIS’) will always be allowed to automatically transfer to eligible dependants (i.e., upon the death of the primary recipient).  

Currently, a reversionary TRIS cannot transfer to a dependant if the dependant has not personally satisfied a condition of release.  

If this positive measure is legislated, it will apply to reversionary TRISs from 1 July 2017.  

 

New small business benchmarks are available

The ATO has updated its small business benchmarks with the latest data from the 2015/16 financial year.

In addition to helping businesses to see if they are performing within their industry average, the benchmarks are one of the tools the ATO uses to identify businesses that may be a higher risk. 

Editor: That is, they use the benchmarks to pick their audit targets, so please contact us if you would like us to check whether your data is inside or outside the average benchmark range for your industry.

 

Guide to the new Small Business Super Clearing House

The Small Business Superannuation Clearing House (SBSCH) joined the ATO's online services on 26 February 2018. 

This is intended to streamline how businesses use the SBSCH, and will also include extra functionality, such as the ability to sort employee listings and payment by credit card.

Editor: The SBSCH is a free service that businesses with 19 or fewer employees (or which are SBEs) can use to comply with their super obligations. 

 

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.