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.

Newsletter: December

Parliamentary update

Editor: The ongoing citizenship saga in Parliament has resulted in the Government losing its one-seat majority in the House of Representatives, thanks to the resignations of Barnaby Joyce and John Alexander.

By-elections have been scheduled in the relevant electorates and, in the meantime, some of the cross-benchers have guaranteed the Government's (current) survival by committing to vote with it on motions of no-confidence and supply.

Tax legislation passed

In other news, the Government has passed changes to the tax legislation that will limit, or deny, deductions for travel expenses and depreciation claims for certain residential premises.

Legislation to impose vacancy fees on foreign acquisitions of residential land has also been passed.

 

ATO relief for SMSFs reporting 'transfer balance account' events

The ATO has announced that, from 1 July 2018, SMSF event-based reporting regarding events impacting a member’s transfer balance account (i.e., via a Transfer Balance Account Report) will be limited to SMSFs with members with total superannuation balances of $1 million or more.

Editor: This new reporting is only required if an event that impacts a member’s transfer balance account actually occurs (e.g., such as starting an account based pension, or commuting such a pension). 

This effectively means that up to 85% of the SMSF population will not be required to undertake any additional reporting with respect to a member’s transfer balance cap, outside of current time frames (as SMSFs with members with account balances below $1 million can choose to simply report events which impact their members’ transfer balances when the fund lodges its SMSF annual return).

However, from 1 July 2018, SMSFs that have members with total superannuation account balances of $1 million or more will be required to report any events impacting members’ transfer balance accounts within 28 days after the end of the quarter in which the event occurs. 

Editor: Whilst SMSFs are not required to report anything to the ATO until 1 July 2018, SMSF trustees should be mindful that, where the $1.6 million transfer balance cap has been breached in respect of a member from 1 July 2017, any resulting tax liability will continue to accrue until the excess amount is commuted (i.e., irrespective of when reporting that breach is required).

 

ATO's annual closure

This year, the ATO's annual office closure is between noon Friday 22 December and 8.00am Tuesday 2 January 2018.

Also, the ATO may have systems maintenance on some weekends, so they recommend that lodgments be made as early as possible, as even returns or activity statements lodged in early December may not be finalised until after 2 January 2018.

 

 

Truck drivers' reasonable amounts for travel updated

Following detailed consultation with the transport industry, the ATO has amended their determination for travel expenses for truck drivers to provide separate reasonable travel allowance expense amounts for breakfast, lunch and dinner for employee truck drivers for the 2017/18 income year.

The reasonable amount for travel expenses (excluding accommodation) of employee truck drivers who have received a travel allowance and who are required to sleep away from home was originally reduced for 2017/18 to a total of $55.30 per day, but this daily rate has now been replaced with the following amounts for all domestic travel destinations for the 2017/18 income year:

            Breakfast         $24.25

            Lunch              $27.65

            Dinner              $47.70

The amounts for each of these meal breaks are separate and cannot be aggregated into a single daily amount, and amounts cannot be moved from one meal to another (e.g., if the full amount for breakfast is not expended, it cannot be carried over to lunch or dinner).

A driver's work diary (as maintained for fatigue management purposes) can be used to demonstrate when meal breaks were taken.

 

Tool for applying the margin scheme to a property sale

The ATO is recommending that taxpayers use their recently updated GST property decision tool to work out if GST applies to their property sales.

The tool can be used to determine GST on the sale, lease or purchase of real property, and was recently updated for easier use on mobile devices.

In particular, after providing the relevant information, the tool will generate a GST decision that:

  •   advises whether GST is payable on a sale;
  •   estimates the amount of GST payable when applying the margin scheme; and
  •   advises whether the taxpayer is eligible to claim input tax credits.

Note that the ATO does not record any personal information and users will remain anonymous.

Other GST News

The Government has released draft legislation on "improving the integrity of GST on property transactions", as announced in the 2017/18 Federal Budget.

They intend to amend the GST law so that, from 1 July 2018, purchasers will withhold the GST on the purchase price of new residential premises and new residential subdivisions, and remit the GST directly to the ATO as part of settlement.

This is to address tax evasion through "phoenixing arrangements", where developers collect GST from their customers but dissolve their company to avoid paying it to the ATO.

To provide certainty for contracts that have already been entered into, the draft legislation provides a two-year transitional arrangement – contracts entered into before 1 July 2018 will not be affected as long as the transaction settles before 1 July 2020.

Editor: In addition, the GST Act has been amended to ensure that supplies of digital currency receive equivalent GST treatment to supplies of money (particularly foreign currency).

 

Numerous work-related expense claims disallowed

The AAT has denied a taxpayer’s deductions for work-related travel, clothing, self-education and rental property expenses (totalling $116,068 and $140,581 for the 2013 and 2014 income year respectively), and upheld the ATO’s 50% administrative penalty on the tax shortfall for recklessness.

Apart from being unable to prove (or 'substantiate') some claims due to lack of receipts, and documents being in the wrong name, the AAT also criticised the taxpayer for:

  •   claiming work-related travel expenses on the basis of the 'gap' between travel expenses reimbursed by her employer and the ATO’s reasonable rates (which "was clearly not permissible under any taxation law"); and
  •   claiming clothing expenses for "formal clothes of high class”, despite her clothing not being distinctive or unique to her employment at the Department of Finance, and was instead rather conventional in nature (and so was not deductible).

Newsletter: October

No small business tax rate for passive investment companies

The Government has released draft tax legislation to clarify that passive investment companies cannot access the lower company tax rate for small businesses of 27.5%, but will still pay tax at 30%.

The amendment to the tax law will ensure that a company will not qualify for the lower company tax rate if 80% or more of its income is of a passive nature (such as dividends and interest).

The Minister for Revenue and Financial Services said the policy decision made by the Government to cut the tax rate for small companies was meant to lower taxes on business, and was not meant to apply to passive investment companies.

 

ATO to be provided with more super guarantee information

The Government has announced a package of reforms to give the ATO near real-time visibility over superannuation guarantee (SG) compliance by employers. 

The Government will also provide the ATO with additional funding for a SG Taskforce to crackdown on employer non-compliance.

The package includes measures to:

u      require superannuation funds to report contributions received more frequently (at least monthly) to the ATO, enabling the ATO to identify non-compliance and take prompt action;

u      require employers with 19 or fewer employees to transition to single touch payroll (‘STP’) reporting from 1 July 2019;

u      improve the effectiveness of the ATO’s recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees’ super accounts; and

u      give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay SG liabilities.

Editor: Following extensive consultation when STP was originally announced, it was decided that employers with 19 or fewer employees would not be required to comply. 

Given the backflip here, the business community will be hoping the Government does not introduce compulsory real-time payments of SG and PAYG withholding, as well as real-time reporting.

 

 

 

ATO: Combatting the cash economy

The ATO has reminded taxpayers that it uses a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations.  Through 'data matching', it can identify businesses that do not have electronic payment facilities. 

These businesses often advertise as 'cash only' or mainly deal in cash transactions.  When businesses do this, they are more likely to make mistakes or do not keep thorough records. 

The ATO’s ability to match and use data is very sophisticated.  It collects information from a number of sources (including banks, other government agencies and industry suppliers), and also obtains information about purchases of major items, such as cars and real property, and then compares this information against income and expenditure reported by businesses and individuals to the ATO.

Example: Unrealistic personal income leads to unreported millions

The income reported on their personal income tax returns indicated that a couple operating a property development company didn’t seem to have sufficient income to cover their living expenses.

The ATO found their company had failed to report millions of dollars from the sale of properties over a number of years.

They had to pay the correct amount of tax (of more than $4.5 million) based on their income and all their related companies, and also incurred a variety of penalties.

Example: Failing to report online sales

A Nowra court convicted the owner of a computer sales and repair business on eight charges of understating the business’s GST and income tax liabilities.

The ATO investigated discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts, and found that the business had failed to report income from online sales.

The business owner was ordered to pay over $36,000 in unreported tax and more than $18,400 in penalties, and also fined $4,000 (and now has a criminal conviction).

Get it in writing and get a receipt

The ATO also notes that requesting a written contract or tax invoice and getting a receipt for payment may protect a consumer's rights and obligations relating to insurance, warranties, consumer rights and government regulations.

Consumers who support the cash economy, by paying cash and not getting a receipt, risk having no evidence to claim a refund if the goods or services purchased are faulty, or prove who was responsible in case of poor work quality

 

Higher risk trust arrangements targeted

The ATO’s 'Tax Avoidance Taskforce – Trusts' continues the work of the Trusts Taskforce, by targeting higher risk trust arrangements in privately owned and wealthy groups.

The Taskforce will focus on the lodgment of trust tax returns, accurate completion of return labels, present entitlement of exempt entities, distributions to superannuation funds, and inappropriate claiming of CGT concessions by trusts.

Arrangements that attract the attention of the Taskforce include those where:

q      trusts or their beneficiaries who have received substantial income are not registered, or have not lodged tax returns or activity statements;

q      there are offshore dealings involving secrecy or low tax jurisdictions;

q      there are agreements with no apparent commercial basis that direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others;

q      changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, with such changes not credibly explicable for other reasons;

q      there are artificial adjustments to trust income, so that tax outcomes do not reflect the economic substance (e.g., where someone receives substantial benefits from a trust but the tax liability on those benefits is attributed elsewhere, or where the full tax liability is passed to entities with no capacity/intention to pay);

q      transactions have excessively complex features or sham characteristics (e.g., round robin circulation of income among trusts);

q      revenue activities are mischaracterised to achieve concessional CGT treatment (e.g., by using special purpose trusts in an attempt to re-characterise mining or property development income as discountable capital gains); and

q      new trust arrangements have materialised that involve taxpayers or promoters linked to previous non-compliance (e.g., people connected to liquidated entities that had unpaid tax debts).