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Taxwise Business News – Jun 2018

IN THIS ISSUE

4 Federal Budget tax measures that impact your business

Small and medium sized businesses received a bit of attention from the Government in this year’s 2018-19 Budget.

Making it all the way to number 2 on the Government’s priority list of ‘must-do’s’, the Government stressed that it must “keep backing business to invest and create more jobs, especially small and medium sized businesses”.

With that said, a handful of measures were announced to support these businesses in Australia.

If you are a small or medium sized business owner, we’ve listed a few of the key Budget measures, tax breaks and outcomes that may directly impact you.

1. $20,000 instant asset write-off extended to 30 June 2019

Do you own a small business? Have you been planning any significant purchases?

If so, the great news is: you have another 12 months to take advantage of the $20,000 instant asset write-off scheme!

This tax break only applies to small businesses with an aggregated turnover of less than $10 million.

This Budget initiative means that as a small business owner, you get to improve your cash flow and boost your business activity and investment for another year.

NoteOn 1 July 2019, the threshold will reduce to $1,000 so get shopping!

How does this work?

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return.

This deduction is used for each asset that costs less than $20,000.

You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Example:

Jane owns a plumbing business. She buys five new laptops for her employees. Jane can take advantage of the $20,000 instant asset write off for all of these items because each individual item costs less than $20,000.

Jane also buys five second-hand mobile phones for her employees. The mobile phones are 50% for personal use and 50% for business use. This means only half the full amount of the iPhone can be claimed.

Note!

  • You can use the $20,000 instant asset write-off multiple times. However, each one must cost less than $20,000.
  • Don’t forget that purchases will only qualify if they total $19,999.99 or less, including GST!

2. Personal tax relief for low and middle-income earners

If you earn less than $90,000, you can expect some tax relief in the form of a new low and middle income tax offset and changes to personal income tax brackets.

Low and middle-income tax offset

  • This offset will provide tax relief of up to $530 to low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
  • This offset means around 4.4 million people will receive the full $530 benefit for 2018-19.

Note!The benefit is in addition to the existing low income tax offset and will be available on assessment after a you lodge your tax return.

What are your savings per year?

If you earn…Your savings per year
$37,000 or lessUp to $200
$37,001 – $47,999Between $200 – $530
$48,000 – $90,000Up to $530
$90,001 – $125,333Up to $530, gradually reducing to $0

Changes to personal tax brackets

  • From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.
  • When the low and middle-income tax offset concludes in 2021-22, the benefits will be locked in by increasing the top threshold of the 19% tax bracket from $37,000 to $41,000 and increasing the low income tax offset from $445 to $645 from 1 July 2022.
  • From 1 July 2022, the top threshold of the 32.5% tax bracket will be increased from $90,000 to $120,000, providing a tax cut of up to $1,350 per year.

 

How does this impact small and medium sized businesses?

The immediate relief for low and middle-income earners will be a significant benefit to the nearly 40% of small businesses that are unincorporated.

There will be some tax changes for your employees, so now is the time to review your payroll software, PAYG withholding tax and business processes.

Note!Single Touch Payroll is coming on 1 July 2018! If your business has 20 or more employees, you’ll need to report payments such as salaries and wages, withholding and super information to the ATO directly from your payroll solution at the same time you pay your employees.

Tip!Speak to your payroll software provider or your tax adviser to find out how you can be compliant.

3. New changes to the research and development (R&D) tax incentive

Do you currently claim research and development (R&D) on your tax? If so, here are some changes to the R&D tax incentive that may affect your business, depending on your business’ aggregated annual turnover.

If your aggregated business turnover is $20 million or over

From 1 July 2018, the Government will introduce a new R&D premium for companies which provide higher rates of R&D support for higher R&D intensity.

The R&D premium will provide multiple rates of non-refundable R&D tax offsets, increasing with the intensity of the claimant’s incremental R&D expenditure.

If your aggregated business turnover is under $20 million

The R&D tax incentive will be capped at $4 million on cash refunds.

Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.

This means that for small businesses, there will be a reduction in the offset available and may impact your decision as a small business owner in undertaking and relying on the R&D tax incentive.

Note!The ATO are cracking down on dodgy R&D claims. In particular, they are closely watching businesses that abuse the incentive by claiming ordinary business costs as R&D expenses.

Tip!If you are worried about your R&D spend, speak to your tax adviser to find out more. And don’t forget to keep all your records and documents!

4. Major crackdown on the cash economy

If you are in the habit of making cash payments when you conduct business, you may need to start considering using alternative methods of payment. The Government is seriously cracking down on cash payments over $10,000.

Three new key measures targeting cash economy (aka ‘Black Economy’) activities and illegal phoenixing are being introduced by the Government. These are:

  • Limiting cash payments within Australia to $10,000
  • Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
  • Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry.
Are you ready for tax time Quick tips to help you this EOFY

The end of the financial year is looming – it really is that time of year again. Tax time is always busy so we’re sharing a few quick tips to help you sail through lodgment season.

Some tax time tips . . .

  • Gather and sort your business records now, including cash, online, EFTPOS, bank statements, credit or debit card transactions covering:
    • Sales and other business income
    • Expenses you can claim as a business deduction such as staff wages, contractor expenses, operating expenses and business travel expenses.
  • If you changed your record keeping software during the year, check that all your information has transferred over correctly.

Are you a sole trader?

  • Even if your income is below the tax-free threshold, you still need to lodge a tax return.
  • Do you pay PAYG instalments? Lodge your activity statements and pay all your PAYG instalments before you lodge your tax return so your income tax assessment takes into account the instalments you’ve paid throughout the year.

Are you a partnership?

If you operate your business in a partnership:

  • The partnership lodges a partnership tax return, reporting the partnership’s net income (assessable income less allowable expenses and deductions)

As an individual partner, you report on your individual tax return:

  • Your share of any partnership net income or loss
  • Any other assessable income, such as salary and wages (shown on a Payment Summary), dividends and rental income.

The partnership doesn’t pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

Are you a trust?

If you operate your business through a trust, the trust reports its net income or loss (this is the trust’s income less expenses and deductions) and the trustee is required to lodge a trust tax return.

As a trust beneficiary, you report on your individual tax return any income you receive from the trust.

Are you a company?

If you operate your business through a company, you need to lodge a company tax return.

The company reports its taxable income, tax offsets and credits, PAYG instalments and the amount of tax it is liable to pay on that income or the amount that is refundable.

The company’s income is separate from your personal income.

Tip!Registered tax and BAS agents can help you with your tax.

What’s attracting the ATO’s attention this tax time

Enhancements in technology and data matching mean the ATO is able to detect people and businesses operating outside the tax system this tax time.

The ATO are keeping a watchful eye and looking out for behaviours, characteristics and tax issues that may raise questions and attract their attention.

Behaviours that may attract the ATO’s attention

  • Tax or economic performance that is not comparable to similar businesses
  • Low transparency of your tax affairs
  • Large, one-off or unusual transactions, including the transfer or shifting of wealth
  • Aggressive tax planning
  • Tax outcomes inconsistent with the intent of the tax law
  • Choosing not to comply or regularly taking controversial interpretations of the law, without engaging with the ATO
  • Lifestyle not supported by after-tax income
  • Accessing business assets for tax-free private use
  • Poor governance and risk-management systems.

Other areas of concern . . .

Research and development

  • Claiming R&D tax incentive on business as usual expenses that are not covered by eligible R&D activities
  • How entities apportion overheads between eligible R&D activities and other non-R&D activities
  • Payments to associates
  • Whether or not expenses have been incurred

Fringe benefits tax

  • Situations where an employer-provided motor vehicle is used for private travel of employees. This constitutes a fringe benefit and needs to be declared on your FBT return.

    Note!
    There are circumstances where this benefit may be exempt, such as where the entity was tax exempt or the private use of the vehicle was exempt.

Self-managed super funds

  • Significant management and administration expenses
  • Incorrect calculation of exempt current pension income
  • Incorrect treatment of related party transactions
  • Personal services income diverted to SMSFs
  • Incorrect treatment of non-arm’s length income

Trusts

What attracts the ATO’s attention is a complying superannuation fund (generally an SMSF) that receives income distributions from a trust where the distributions result from:

  • The exercise of a discretion of the trustee
  • The fixed entitlement was not acquired on arm’s length terms
  • The fixed entitlement was acquired using a loan from a related lender and is not on arm’s length terms
  • There are loans between related parties which are not on arm’s length terms which have facilitated
  • The acquisition of assets within the trust
  • The rate of return received by the superannuation fund from its investment is not consistent with an arm’s length return.

Lifestyle assets and private pursuits

The ATO is focusing on assets and private pursuits that generate deductions or are mischaracterised as business activities. Some of these include:

  • Private aircraft ownership or activities
  • Art ownership and dealings
  • Car or motor bike racing activities
  • Luxury and charter boat activities
  • Enthusiast or luxury motor vehicles
  • Grape growing and other farming pursuits
  • Horse breeding, racing and training activities
  • Holiday homes and luxury accommodation provision
  • Sporting clubs and other activities involving participation of the principals or associates of principals of private groups.

Note!If you’re concerned about your tax or super position, speak to your tax adviser or the ATO. You can correct a mistake by making a voluntary disclosure.

Are you making the most of your tax concessions

There’s still time for you to take advantage of small business tax concessions before the end of the financial year.

If you act before 30 June, you can make the most of some concessions. For example:

Instant asset write-off

If you buy and install business assets by 30 June that cost less than $20,000 each, you can deduct the business portion in this year’s tax return.

Pre-paid expenses

You can claim a deduction this year if you prepay an expense that will end in the next financial year, for example, the rent for your business premises or an insurance policy.

Do you need to do a stocktake?

If you estimate that the difference between your opening and closing trading stock is $5,000 or less, you don’t need to do a stocktake. Instead, you can include the same amount for your opening and closing stock in this year’s tax return.

Not-so-small list of small business concessions . . .

Here is a list of the small business tax concessions that may be available to you.

Tip!Speak to your tax adviser to find out which concessions you can tap into.

Income tax

  • Lower company tax rate changes
  • Increased small business income tax offset
  • PAYG instalment concession

Deductions

  • Simplified depreciation rules – instant asset write-off
  • Accelerated depreciation for primary producers
  • Deductions for professional expenses for start-ups
  • Immediate deductions for prepaid expenses

Simplified record-keeping

  • Simplified trading stock rules
  • Two-year amendment period

GST, BAS and excise

  • Simpler BAS
  • Accounting for GST on a cash basis
  • Annual apportionment of GST input tax credits
  • Paying GST by instalments
  • Excise concession

Capital gains tax (CGT)

  • Small business restructure rollover
  • CGT 15-year asset exemption
  • CGT 50% active asset reduction
  • CGT Retirement exemption
  • CGT Rollover
  • Contributions of small business CGT concession amounts to your super fund

Fringe benefits tax (FBT)

  • FBT car parking exemption
  • FBT work-related devices exemption

Superannuation

  • Superannuation clearing house
  • Contributions of small business CGT concession amounts to your super fund.

The Board of Taxation – an advisory body tasked with improving the design and operation of tax laws – will be conducting a review of Australia’s small business tax concessions.

The Board is encouraging small business owners and advisers to have their say in the review process.

The Board is undertaking a review to:

  • Identify ways to improve small business tax concessions to ensure they remain effective, easily accessible, and well-targeted;
  • Identify new concessions and ways to improve existing concessions; and
  • Identify areas in which concessions that are less effective, or not well targeted, could be removed or scaled back to generate savings that can be redeployed in areas where they may have a greater impact.

The Board will make recommendations to the Government on how to efficiently target on the quality and effectiveness of tax laws and advise on the general integrity of the system.

Advice will be provided to the Government in October 2018.

Note!

  • If you’re interested in participating, visit the Board of Taxation website or get in touch with your tax adviser!
  • The deadline for your input is on Friday 20 July.
  • The consultation guide can be found on the Board of Taxation website.

If you are an employer you may have a payroll tax obligation.

Payroll tax is a state and territory tax on the wages you pay as an employer. Payroll tax is calculated on the amount of wages you pay each month and payable in the state or territory of Australia where the services were performed.

Wages liable for payroll tax include:

  • Employee wages
  • Contractor payments
  • Directors’ remuneration
  • Superannuation
  • Allowances
  • Fringe benefits
  • Bonuses and commissions
  • Termination payments

Not all businesses will have a payroll tax obligation. You only have to pay it if your taxable wages (or your group wages) exceed the threshold in your state or territory.

Note!

  • Each state or territory has a different tax threshold as well as registration process.
  • Find out what the threshold is in your state or territory, and if your taxable wages are approaching or have surpassed that threshold. Your tax adviser will be able to tell you if you need to register your business for payroll tax.

Payroll tax is generally lodged and paid to state and territory revenue offices monthly.

Tip!There are various employer-based exemptions for payroll tax. Check with your tax adviser to find out if your business qualifies for an exemption.

From 1 July 2018, if you are purchasing new residential premises or potential residential land you will have to pay the GST directly to the ATO as part of the settlement.

These changes will apply to contracts entered into on or after 1 July 2018.

The amount of GST hasn’t changed, just who is required to pay the GST to the ATO. You as the purchaser now pays the GST directly to the ATO instead of paying it to the developer as part of the purchase price.

You won’t have to register for GST to make this payment.

Property developers will need to give written notification to you when you need to withhold an amount for GST.

This does not affect sales of existing residential properties or the sales of new or existing commercial properties.

Key tax dates
DateObligation
21 June 2018May monthly BAS due
16 July 2018Issue PAYG withholding payment summaries
23 July 2018June monthly BAS due
30 July 2018• June quarter SG due
• June quarterly BAS due
• June quarter PAYG instalment due
1 August 2018August fuel tax credit rates change
14 August 2018PAYG withholding annual report due
21 August 2018July monthly BAS due
28 August 2018• Taxable payments annual report due
• June quarter SG charge statement due

DISCLAIMERTaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Apr 2018

IN THIS ISSUE

A bit confused about Bitcoin? What is it and what does tax have to do with it?

Here, we share a few key facts and the tax consequences that may arise if you are thinking about investing (or have already invested) in Bitcoin.

Note!Any reference to Bitcoin in this article refers to cryptocurrency, or other crypto or digital currencies that have the same characteristics as Bitcoin.

Bitcoin was the first cryptocurrency but now, it is just one of many types of cryptocurrencies. As at 2017, there were around 1,100 different cryptocurrencies in existence.

Cryptocurrencies are a type of global digital currency that uses encryption techniques to buy or sell items. Where traditional currencies are regulated by a central bank, Bitcoin is an unregulated currency. Each transaction is registered on a shared public ledger called a ‘blockchain’.

Tip!Be aware of tax scammers impersonating the ATO and demanding Bitcoin or other cryptocurrency as a form of payment for fake tax debts. Cryptocurrency operates in a virtual world, and once the scammers receive payment, it is virtually impossible to get it back.

The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is treated as an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes.

CGT ‘events’ are the different types of transactions that may result in a capital gain or capital loss. A CGT event happens when you dispose of your cryptocurrency.

Disposing of your cryptocurrency means:

  • Selling, trading or exchanging your cryptocurrency;
  • Converting it to Australian dollars; or
  • Using it to obtain goods or services.

If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

Personal use of cryptocurrency is not subject to income tax or GST in Australia.

Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Note!

  • Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
  • All capital losses you make on personal use assets are disregarded.

If you acquire Bitcoin as an investment, it means you have kept or used your cryptocurrency in a profit-making scheme or in the course of carrying on a business.

The tax consequences are:

  • You may have to pay tax on any capital gain you make on disposal of the cryptocurrency;
  • You will not be entitled to the personal use asset exemption;
  • If you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.

Tip!You must keep records of:

  • The date of transactions
  • The value of the cryptocurrency in Australian dollars at the time of the transaction
  • What the transaction was for and who the other party was.

Examples of businesses that involve cryptocurrency include:

  • Cryptocurrency traders
  • Cryptocurrency mining businesses
  • Cryptocurrency exchange businesses (including ATMs).

In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you receive money or property in the ordinary course of your business.

If these gains or profits are ordinary income, you may be able to claim deductions. Any capital gains you make are reduced to the extent that they are also ordinary income.

Note!Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income.

While self-managed superannuation funds (SMSFs) are not prohibited from investing in Bitcoin and other cryptocurrencies, trustees are reminded that the investment must:

  • Be allowed for under the fund’s trust deed
  • Be in accordance with the fund’s investment strategy
  • Comply with regulatory requirements concerning investment restrictions.

Did you know that the ATO scrutinises every tax return?

This year, the ATO is cracking down on taxpayers claiming incorrect ‘other’ work-related expenses. It’s important to make sure you don’t claim more than you are entitled to!

The ATO uses real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.

To claim work-related expenses, keep in mind these 4 points:

  1. You must have spent the money yourself.
  2. You were not reimbursed for the money spent.
  3. The expense must be directly related to earning your income.
  4. You must have a record to prove it.

Work expenses reimbursed to you by your employer are not deductible in your personal income tax return. The ATO can seek information from your employer if it suspects you have claimed as a deduction an expense for which you have already been reimbursed.

Tip!If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

  1. Trips between home and work. Generally, you can’t claim a deduction for these because they’re considered private travel.
  2. Car expenses for transporting bulky tools or equipment, unless:
    • you need to use your bulky tools to do your job
    • your employer requires you to transport this equipment
    • there is no secure area to store the equipment at work.
  3. Car expenses that have been salary sacrificed.
  4. Meal expenses for travel, unless you were required to work away from home overnight.
  5. Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.
  6. Everyday clothes you bought to wear to work (e.g. a suit), even if your employer requires you to wear them.
  7. A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.
  8. Higher education contributions charged through the HELP scheme.
  9. Self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count.
  10. Private use of phone or internet expenses – only the work-related portion counts.
  11. Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years, which is called depreciation.

Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.

The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.

Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).

Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).

Tip!

  • If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
  • If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.

You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.

If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.

Expenses for which you may be entitled to claim an immediate deduction include:

  • advertising for tenants
  • body corporate fees and charges
  • council rates
  • water charges
  • land tax
  • cleaning
  • gardening and lawn mowing
  • pest control
  • insurance (building, contents, public liability)
  • interest expenses
  • property agent’s fees and commission
  • repairs and maintenance
  • some legal expenses.

Note!From 1 July 2017, travel expenses relating to a residential investment property are no longer deductible. Under new laws, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property.

You can only claim deductions if you are carrying on a business of property investing or are a corporate tax entity, public unit trust, managed investment trust, unit trust or partnership or super fund that is not an SMSF.

You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).

These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

Tip!Improvement means work that:

  • Provides something new
  • Furthers the income-producing ability or expected life of the property
  • Changes the character of the item you have improved
  • Goes beyond just restoring the efficient functioning of the property.

How this works!

Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.

The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure.

However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used.

Tip!If you invest in a rental property, you’ll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return.

If you’re planning for your retirement, don’t risk your nest egg by getting involved in arrangements that are at odds with tax and superannuation laws!

The ATO has identified a range of new arrangements that are directed towards minimising or avoiding tax. They are designed to help individuals and other related entities to minimise their tax bill by channelling money inappropriately through SMSFs.

If you are involved in an illegal arrangement, you can face severe penalties under tax and super laws. You could lose your retirement savings or your rights, as a trustee, to manage your own super fund.

Often these arrangements are structured in a way so that they appear to satisfy regulatory rules while minimising tax or even providing a tax refund. You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting.

Tip!Seek independent advice from a trusted SMSF tax adviser before entering into ‘too good to be true’ arrangements!

DateObligation
15 May 20182017 income tax return due if lodging through a tax agent if your return not due earlier. Tax to be paid as advised on the notice of assessment.
5 June 20182017 income tax return due for individuals with a lodgement due date of 15 May 2018 if lodging through a tax agent provided you also pay any liability due by this date.

DISCLAIMERTaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Business News – Nov 2017

IN THIS ISSUE

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 was introduced into the House of Representatives on 18 October 2017.

This Bill amends the Income Tax Rates Act 1986 (Cth) (Rates Act) to ensure that, from the 2017-18 income year, a company will qualify for the lower company tax rate for an income year if:

  • No more than 80% of the company’s assessable income for that income year is ‘base rate entity passive income’; and
  • The company’s aggregated turnover for the income year is less than the aggregated turnover threshold for that income year (for the 2017-18 income year, the threshold is less than $25 million).

These amendments will modify the requirements that must be satisfied for a company to qualify as a ‘base rate entity’ by replacing the ‘carrying on a business’ test with a passive income test. Under the passive income test, companies that are generating predominantly passive income (eg rent, royalties etc) will not be eligible for the lower company tax rate.

The purpose of this legislation is to ensure that passive investment companies cannot access the lower company tax rate that is otherwise available small businesses.

Currently, to qualify as a ‘base rate entity’ in order to apply the lower company tax rate, a company must be ‘carrying on a business’ as well as meet the relevant aggregated turnover threshold.

The Bill will apply prospectively from the 2017-18 income year.

An amount of assessable income is ‘base rate entity passive income’ includes items such as:

  • A distribution that is not a ‘non-portfolio dividend’;
  • Franking credits attached to such a distribution;
  • Interest income (as defined in the income tax legislation);
  • A royalty;
  • Rent; and
  • A net capital gain.

The ATO has released draft Taxation Ruling TR 2017/D7 Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? for consultation.

This draft Ruling provides guidance on when a company carries on a business within the meaning of section 23AA of the Rates Act.

A company will be a ‘base rate entity’ under section 23AA if it carries on a business and meets the aggregated turnover requirement. For the purposes of section 23AA, ‘business’ is defined in the income tax law to include ‘any profession, trade, employment, vocation or calling’, but excludes ‘occupation as an employee’.

The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that ‘Limited’ and ‘No Liability’ companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit.

The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company’s business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.

A variety of examples are included in the draft Ruling to assist a taxpayer to understand when a company may be ‘carrying on a business’.

Note!The issue of whether a company is ‘carrying on a business’ is relevant under the current law. However, if the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 becomes law, the draft Ruling will not be relevant from 1 July 2017 going forward.
You should discuss with your tax agent or adviser whether your company may be eligible to access the lower company tax rate.

The ATO has prepared a table that is available on their website which sets out at a glance all the tax concessions that may be available to small businesses. These include:

  • Simplified depreciation rules (eg the instant asset write-off, accelerated depreciation for primary producers);
  • Eligibility for the lower company tax rate;
  • PAYG instalment concessions;
  • Simplified trading stock rules;
  • Simpler BAS;
  • Accounting for GST on a cash basis; and
  • The various small business CGT concessions.

Your tax agent or adviser will be able to assist you to work out which of these concessions your small business may be entitled to.

The ATO has published answers to the most common questions taxpayers have been asking about deductions for small business. Find out more on the ATO website.

The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 (the Bill) passed both the House of Representatives and the Senate on 12 September 2017 and awaits Royal Assent.

The Bill amends the Corporations Act 2001 (Cth) to: create a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency; and Corporations Act 2001 and Payment Systems and Netting Act 1998 (Cth) to make certain contractual rights unenforceable while a company is restructuring under certain formal insolvency processes.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said that the Government has delivered on its commitment under the National Innovation and Science Agenda (NISA) to improve Australia’s corporate insolvency system with the Bill receiving passage through Parliament.

Ms O’Dwyer also said the Bill promotes a culture of entrepreneurship and innovation by providing a ‘safe harbour’ for company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency. It also makes ‘ipso facto’ clauses unenforceable during and after certain formal insolvency procedures.

The safe harbour provisions will commence on Royal Assent. The stay on the operation of ipso facto clauses will commence from 1 July 2018 to provide time for businesses to adapt to the new settings.

The operation of the safe harbour will be subject to an independent review two years after commencement.

The Government will shortly consult with key stakeholders on the Regulations to support the operation of the stay on ipso facto clauses.

To do!Are you a company director? If so, you should consult your tax adviser about whether this legislation impacts on you at all.

The ATO is developing guidance in relation to the tax consequences of trust splitting arrangements.

A trust splitting arrangement occurs when separate trustees are appointed over different assets of an existing discretionary trust. Each trustee is typically controlled by a different party.

The intention of trust splitting is to produce a structure where each trustee is able to deal with the assets it holds independently of the other trustees. In particular, the trustee is able to deal with the assets largely for the benefit of the controlling party.

If you hold assets through trusts, this ATO guidance may be relevant to you.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced on 12 September 2017 that the Government is taking action to crack down on illegal phoenixing activity to ensure those involved face tougher penalties.

The Government’s package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.

The DIN will identify directors with a unique number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers.

The Government will consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including:

  • A next-cab-off-the-rank system for appointing liquidators;
  • Allowing the ATO to retain tax refunds; and
  • Allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.

The Government put out a discussion paper in October containing numerous ideas for how to combat phoenixing behaviours.

Previous editions of TaxWise Business have contained information about Single Touch Payroll, which is a reporting change for employers. It means employers will report payments such as salaries and wages, PAYG withholding and super information to the ATO directly from their payroll solution at the same time they pay their employees.

For employers with 20 or more employees, Single Touch Payroll reporting starts from 1 July 2018. The first year will be a transition and penalties will not apply.

The Government has also announced that it will expand Single Touch Payroll to include employers with 19 or less employees from 1 July 2019. This will be subject to legislation being passed in Parliament.

Therefore, if your business has 20 or more employees, Single Touch Payroll starts for you on 1 July 2018. If you have less than 20 employees, Single Touch Payroll will start for you on 1 July 2019 if the relevant legislation gets passed.

If you are a healthcare practitioner, you may receive a lump sum payment when starting or amending an agreement with a healthcare centre operator. The ATO is concerned that some healthcare practitioners may be incorrectly treating these payments as proceeds from the disposal of a capital asset. This may result in underpayment of tax and expose you to later tax adjustments and penalties.

To do!If you have received one of these payments, talk to your tax agent to make sure you treat it correctly for tax purposes.

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

The Government will provide the ATO with additional funding for a Superannuation Guarantee Taskforce to crackdown on employer non-compliance. The package builds on legislation already announced to close a legal loophole used by unscrupulous employers to short-change employees who make salary-sacrifice contributions to their superannuation.

The package includes measures to:

  • Require superannuation funds to report contributions received more frequently, at least monthly, to the ATO. This will enable the ATO to identify non-compliance and take prompt action;
  • Update payroll reporting through the rollout of Single Touch Payroll (STP). This will reduce the regulatory burden on business and transform compliance by aligning payroll functions with regular reporting of taxation and superannuation obligations;
  • 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
  • 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 superannuation guarantee liabilities.

Tip!If you participate in the sharing economy, you need to understand your tax obligations. Talk to your tax agent or adviser if you are unsure about what your tax obligations are or whether you are meeting them.

The ATO is providing assistance to taxpayers who hold a taxi licence (including a car hire licence).

If you hold a taxi licence (including a hire car licence) and you receive an industry assistance payment from your State Government in relation to the licence (excluding a licence surrender payment), it is probably not a capital receipt. It’s more likely to be ordinary income. There are no GST consequences. More guidance can be found on the ATO website.

In light of a recent Federal Court decision in the matter of Uber B.V. v. Commissioner of Taxation [2017] FCA 110 (Uber), and certain proposed changes to licensing regulations in a number of states and territories, the ATO has released Technical Discussion Paper TDP 2017/2 ‘Fringe Benefits Tax – Definition of Taxi’.

TDP 2017/2 considers the definition of ‘taxi’ contained in the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) and the exemption from fringe benefits tax (FBT) for taxi travel undertaken to or from work or due to illness.

The purpose of this paper is to facilitate consultation between the ATO and the community as part of the process of developing advice on the application of the FBT law. The ATO advises that all views in this paper are preliminary in nature and should not be taken as representing either an ATO view or that the ATO will take a particular view.

The Goods and Services Tax: Simplified Accounting Methods Determination 2017 for Retailers who sell Food – Business Norms, Stock Purchases and Snapshot Methods (F2017L01274) commenced on 28 September 2017. This determination repealed and replaced Simplified GST Accounting Methods Legislative Instrument (No 1) 2007.

The determination provides eligible food retailers with a choice of using a simplified accounting method (SAM) to help them to work out their net amount. It does so by allowing them to estimate their GST-free trading sales and GST-free trading stock acquisitions for a tax period. The three SAMs are:

  • Business norms method;
  • Stock purchases method; and
  • Snapshot method.

The determination is substantially the same as the previous determination that it replaced. If you were eligible to use a particular SAM specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

In the 2016-17 Budget, the Government announced that it will address integrity concerns with the wine equalisation tax (WET) rebate by reducing the WET rebate cap and tightening eligibility criteria.

The scheduled changes include:

  • Strengthening the associated producer provisions, so that from 1 October 2017 the associated producer test applies at any time during the financial year;
  • Reducing the WET rebate cap from $500,000 to $350,000 on 1 July 2018;
  • Introducing tightened eligibility criteria for the producer rebate from 1 July 2018 with some transitional arrangements from 1 January 2018; and
  • Creating a stronger link between rebate claims and the payment of WET by limiting entitlements to WET credits and changes to the quoting rules from 1 July 2018.

The changes were passed into legislation in August 2017.

i) Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017

The Bill extends the crowd-sourced funding (CSF) regime to proprietary companies, making a new funding source available for small businesses, while maintaining adequate investor protections through additional obligations on companies. The measure extends upon the Corporations Amendment (Crowd-sourced Funding) Act 2017 to enable proprietary companies to access CSF without transitioning to public company status.

ii) Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017

Choice of fund for workplace determinations and enterprise agreements

  • The Bill amends the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) to ensure employees under workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions.

Salary sacrifice integrity

  • The Bill also amends the SGAA to improve the integrity of the superannuation system by ensuring that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contributions.

iii) Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

Further to the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, this Bill amends the Rates Act to:

  • Progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023-24 financial year; and
  • Further reduce the corporate tax rate in stages so that by the 2026-27 financial year, the corporate tax rate for all entities will be 25%.

To do!Talk to your tax agent or adviser to see if any of these Bills will impact on you or your business.

DISCLAIMERTaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Nov 2010

IN THIS ISSUE

The ATO’s compliance program for the 2010-11 income year will focus on:

Remuneration of Executives and Directors

The ATO will focus on shares and options received by foreign directors/executives of Australian companies or Australian directors/executives of foreign companies to ensure that such remuneration is reported correctly.

The focus will be on public and private companies, and resident and foreign directors and executives.

High income taxpayers

The ATO will focus on taxpayers with income exceeding $1 million, with increased focus on alienation of personal services income and large deductions or credits.

Unregistered tax return preparers

There will be a focus on tax returns prepared by unregistered preparers claiming to be tax agents.

Third party information

The use of third party information to identify taxpayers that have under-reported income or over reported entitlements will be expanded.

Investment income

The focus will be on investors to ensure that rent and dividends are correctly reported as income, rental deductions are not over-claimed and capital gains are appropriately recorded.

Work-related expenses

The appropriate claiming of work related expenses, including motor vehicle and travel expenses, home office, mobile phone and internet expenses will be a focus for the ATO.

Deductions claimed by specific industry sectors

Specific fact sheets to assist engineers, mechanics and teachers in correctly claiming their expenses have been released.

Superannuation contributions

The ATO will check all requirements in relation to the lodgment of a valid notice of intent to claim or vary a deduction for personal super contributions.

The ATO will also undertake data matching exercises to ensure that deductions for personal super contributions are appropriately claimed.

Superannuation withdrawal

There will be a focus on individuals that may have illegally accessed their super benefits ahead of time.

Internet trading

The ATO is focusing on trades conducted via the internet (including on trading sites such as ebay) to identify taxpayers that may have understated their business income.

Tip!Although the ATO is targeting the specific areas mentioned above, this does not mean that they won’t be looking at other areas too.

With the lodgment date for individuals who lodge through a tax agent fast approaching, it’s time to get serious about the shape of your tax affairs.

Our four step guide to tax return preparation will help ensure you’ve got everything covered.

Four step guide to return preparation

Step 1: Get your records straight

To confidently ensure your tax return accurately reflects your optimum tax position, start by assembling all your tax records.

Relevant records will include things like evidence of:

  • Your income (e.g. Payment Summaries for your salary and wages, dividend and interest income statements, rental property income, and any information on the sale of any of your assets during the year like the sale of an investment property or shares); and
  • Your allowable deductions (e.g. invoices, receipts of expenditure).

You may also be required to provide sufficient details to your employer to allow your employer to accurately calculate their fringe benefits tax liability and your reportable fringe benefits amount in respect of the year ended 31 March.

Your employer may request details such as kilometers traveled in a car that is the subject of a car fringe benefit, details of business travel such as in the form of a log-book and details of entertainment expenses.

While your reportable fringe benefits amount is not “income”, this amount may be taken into account when calculating your income for other purposes (such as eligibility for tax offsets, superannuation co-contribution, exemption from the Medicare levy surcharge and eligibility for the $1,000 exemption in relation to employee share schemes).

Work Related DeductionsIf you are going to claim more than $300 worth of work-related deductions, you will need to be able to substantiate how you calculated the full amount.
If the total amount of your work related expenses is $300 or less, you don’t need written evidence to prove your claim – but the ATO can still ask you how you worked it out!

Step 2: Identify your assessable income

Keep in mind that your total assessable income could well be more than just your salary.

Some of the more common types of assessable income include:

  • Salary and wages
  • Tips, bonuses and gratuities
  • Interest income
  • Dividends
  • Allowances provided by your employer
  • Pensions or annuities
  • Lump sum payments
  • Capital gains on any asset sales during the year.

If you’re not sure whether some income you have received is taxable, it’s best to tell us about it so we can work out the correct tax treatment for you.

Step 3: Maximise your tax deductions

As an employee, you may be able to claim a range of work related expenses, as well as some non-work related items like donations of more than $2 to an approved charity.

Some of the more common work-related deductions include:

  • Self education expenses incurred in developing the skills required for you to do your current job.
    Such costs should be fully deductible in the year in which they are incurred.
    Generally, self education expenses that qualify you to get a new job will not be deductible.
  • Working from home deductions (such as telephone and internet costs).
  • Uniforms or specialised clothing (such as a nurse’s uniform) and associated dry cleaning/laundering costs.
  • Work related travel expenses such as the cost of travel between jobs.
  • Subscriptions and union dues.

In addition, individuals will be entitled to deduct donations to approved charities of more than $2.

Many individuals will also be entitled to claim certain upfront deductions in respect of their rental property, such as:

  • Interest on a loan to:
    • Acquire a rental property or land on which to build a rental property
    • Acquire a depreciating asset
    • Finance renovations to the property
    • Make repairs to the property and associated assets such as electrical appliances.
  • Costs of repairs to the property (but not generally costs of improvement)
  • Cost of preparing a lease agreement

In addition, the following costs can be deducted over time in respect of rental properties:

  • Improvements to the property
  • Cost of replacing assets
  • Decline in value of depreciating assets
  • Borrowing costs (such as loan establishment fees).

Taxpayers cannot deduct the following amounts in respect of their rental property but can add such expenses to the cost base of the property:

  • Stamp duty
  • Legal expenses

You are not entitled to claim deductions for any part of the property or loan that is used for private purposes.

Step 4: Make the most of tax offsets

As with previous years, the ATO is still finding that taxpayers are not taking advantage of a number of rebates (now called “tax offsets”) and other concessions.

Tax offsets can reduce any tax you may have to pay on your taxable income and can in some instances even result in a refund.

Make sure you get advice to ensure you are not overlooking an offset that may be of benefit to you (such as the medical expenses offset).

Plan Ahead!

This is also the time of year when you should be considering some forward planning in readiness for the next tax year.

Changes to the employee share scheme rules (including shares acquired by salary sacrificing), mean it’s a good time to review your current salary packaging arrangements with your employer in readiness for the new financial year.

Tip!Taxpayers that lodge their income tax return through an income tax agent should consult with their agent early in relation to actions required to lodge on time.

The employee share scheme rules announced during the budget in May 2009 have now come into effect and apply to all employee share scheme interests acquired on or after 1 July 2009.

Under the new rules, the market value of any employee share scheme interests you acquired during the income year, less any consideration paid, will be included in your assessable income for the income year unless your interests are subject to a real risk of forfeiture (i.e. if there is a real chance that you will forfeit your entitlement to these interests at a later time; for example if you cease employment with your employer, or fail to meet certain performance criteria).

As a result, you will generally have to pay tax on the value of the interests provided to you in the year in which you are provided with the shares or options. Unless you dispose of the shares or options in the same income year, this means you will have to pay tax before you realise any cash from your interests.

Where there is a real risk of forfeiture, the market value of the interest (less any consideration paid) will generally be included in your assessable income at the time that this risk falls away. This may not be the same year in which you realise the value of your interests in the form of cash.

The new rules also alter the taxation of employee share scheme interests in a number of other ways, such as:

  • The first $1,000 of the market value of your interests (less money you paid to acquire the interests) will be exempt in certain circumstances, where the full amount is taxable to you in the year in which you were provided with the interests and your adjusted taxable income is less than $180,000 for the income year.
  • Any loss you suffer on your employee share scheme interests (other than by genuinely forfeiting the interests) will generally result in a capital loss which will be quarantined so that it can only be offset against capital gains.
    Under the previous rules, taxpayers could in some circumstances amend prior year returns to get a refund of tax paid on interests that were subsequently “out of the money”.
  • Your employer will be required to withhold from payments to you if you have not provided your TFN to your employer.
    Such amounts withheld will be credited back to you but will generally represent a prepayment of your tax obligations.
    As a result, you should ensure that you have quoted your TFN to your employer if you will or have already received employee share scheme interests.
    Most employees are required to quote their TFN on commencement of employment.
  • In relation to the 2010 income year and later periods, you will receive a statement from your employer setting out the number and value of employee share scheme interests that were either provided to you during the income year or ceased to be at real risk of forfeiture during the income year.
    This information will be of assistance to you in filling out your income tax return.
    Notably, your employer is also required to provide such information to the ATO, so the ATO will be able to tally the information in your income tax return against information provided by your employer in relation to the interests provided to you.

Tip!If you received employee share scheme interests during the 2010 income year, you will likely be required to include any discount on issue/provision of those interests in your assessable income for the 2010 income year.
Your employer will provide you with information setting out details of the interests provided that will assist you in calculating the amount of assessable income to include.

The Government’s new paid parental leave (PPL) scheme received Royal Assent on 14 July 2010.

The scheme will apply from 1 January 2011 and will provide eligible working parents with 18 weeks of ‘Parental Leave Pay’ at the National Minimum Wage (currently $570 per week before tax).

The scheme is open to parents of children born or adopted after 1 January 2011.

Either parent or carer of the child (though not both parents) will be eligible for the PPL. The eligible parent is referred to as the ‘primary claimant’.

In order to be eligible, the primary claimant must have:

  • Worked at least 10 months out of the 13 months preceding the actual or expected date of birth or placement of his/her child
  • Worked at least 330 hours during this period (on a casual, part time or permanent basis).
  • Had an adjusted taxable income of $150,000 or less in the income year preceding the child’s date of birth or placement, or the date of claim (whichever occurs earlier)

If a primary claimant is eligible for both the baby bonus and the PPL, they can elect to take the baby bonus instead. However, parents will only be eligible for either the PPL or the baby bonus in respect of the same child.

Tip!If you are the primary carer in relation to a child that is born or adopted after 1 January 2011, and had an adjusted taxable income of less than $150,000 or less in the income year prior to the birth or placement of your child, you will likely be eligible to receive paid parental leave.

The ATO has recently released its final practice statement in respect of the treatment of unpaid present entitlements (UPEs) under a trust in favour of a private company.

The ATO released TR 2010/3 earlier this year, which set out the circumstances in which a present entitlement in favour of a private company which remains unpaid will constitute a “loan” for Division 7A purposes.

Broadly, Division 7A is designed to ensure that private companies distribute profits to shareholders (or associates of shareholders) as taxable dividends, rather than by way of non-arm’s length payments or loans.

Where Division 7A applies, such payments and loans are treated as unfranked dividends in the hands of the shareholders or their associates, provided the private company in question has sufficient distributable surplus at the time at which the payment or loan is made.

The ATO’s ruling broadly states that a private company will be taken to have made a loan to a trust where the private company has a present entitlement to a distribution made by the trust, and this entitlement remains unpaid for a period of time, or the UPE is specifically converted into a loan.

As a result, if the trust is an associate of a shareholder of the private company, such a deemed loan will be subject to Division 7A.

Generally, a trust will be an associate of an individual shareholder if the shareholder stands to benefit under the trust.

However, consequences under Division 7A may be avoided if the “loan” is either put on a commercial footing, or the UPE is set aside in a sub-trust for the exclusive benefit of the private company.

The practice statement sets out:

  • When a UPE that came into existence in previous years will have been subsequently converted into a loan.
  • Self corrective mechanisms to reclassify such loans as UPEs where amounts have been misclassified or treated incorrectly.
  • When a subsisting UPE may be converted into a loan.
  • How to set such a UPE aside on a sub-trust for the exclusive benefit of the private company so that it does not convert into a loan.

Taxpayers that have tax affairs involving a family trust and related company should seek advice from their tax advisor to ensure that an UPE under the trust in favour of the company has not resulted in a deemed dividend that is required to be included in the taxpayer’s assessable income.

Tip!If you are a beneficiary under a trust which has an unpaid present entitlement in favour of a private company of which you are a shareholder, you should consult with your tax advisor to ensure you don’t have to include any deemed dividends in your assessable income.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Sep 2016

IN THIS ISSUE

Key changes

There are a number of key changes and new measures to be aware of when completing your return this Tax Time. The key changes that may be relevant to your circumstances are listed below with links to further information:

  • Immediate deductions for start-up costs – if you are thinking of starting your own business, you may be able to immediately deduct a range of expenses, including professional fees (such as legal and accounting fees) (which began on 1 July 2015).
  • Changes to gender identifiers – the ATO no longer asks for an individual taxpayer’s gender on the tax return form, though the ‘Spouse details’ section does ask for gender (and includes a number of options) and has been retained for administration purposes.
  • Net medical expenses tax offset phase out – from 1 July 2015, the net medical expenses tax offset can only be claimed for a limited number of items including disability aids or aged care. The offset will be abolished from 1 July 2019.
  • First home savers accounts abolished – First Home Saver Accounts were abolished on 1 July 2015 and became ordinary savings accounts. Earnings from these accounts must be included in your tax return.
  • Business services wage assessment tool payment – this tool has a specific application for eligible employees who worked for an Australian disability enterprise and received a lump sum.

Processing of returns

The ATO started processing 2015-16 tax returns on 8 July and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt.

The 2016-17 Federal Budget contains a proposal to raise the income threshold at which the 37% marginal tax rate will start to apply from $80,000 to $87,000. However, at the time of writing, this measure had not yet become law as the Government was in caretaker mode due to the 2016 Federal Election held on 2 July this year.

To benefit from this measure, your taxable income must be more than $80,000. The maximum amount of tax you can save is $315.

See the tables below for the current tax rates that are in the law and apply from 1 July 2016 and the proposed tax rates should the measure become law.

Current rates from 1 July 2016*

Taxable IncomeTax Payable
$0 – $18,000NIL
$18,201 – $37,00019c for each $1 over $18,200
$37,001 – $80,000$3,572 plus 32.5 cents for each $1 over $37,000
$80,001 – $180,000$17,547 plus 37 cents for each $1 over $80,000
$180,001 and over$54,547 plus 45 cents for each $1 over $180,000

*Does not include the Medicare Levy

Proposed rates from 1 July 2016*

Taxable IncomeTax Payable
$0 – $18,000NIL
$37,001 – $87,000$3,572 plus 32.5 cents for each $1 over $37,000
$87,001 – $180,000$19,822 plus 37 cents for each $1 over $87,000
$180,001 and over$54,232 plus 45 cents for each $1 over $180,000

*Does not include the Medicare Levy

If you are claiming work-related expense deductions, you need to satisfy the following:

  • You must have spent the money and were not reimbursed;
  • It must be related to your job; and
  • You must have a record to prove it.

If you receive an allowance from your employer, it does not automatically entitle you to a deduction. You still need to show that you have spent the money and it was related to your job.

The ATO will be paying extra attention to people whose deduction claims are higher than expected, in particular:

  • Car expenses claims including those for transporting bulky tools;
  • Travel;
  • Internet and mobile phone; and
  • Self-education.

To do!Talk to your tax agent about any claims you would like to make in your tax return. They will be able to assist you to ensure you get them right!

The ATO has retired its legacy online lodgement tool e-tax and replaced it with Tax Time 2016 (myTax), which will became available on 1 July 2016. The ATO has said myTax has been expanded to do everything that e-tax could do and more. It has been upgraded and improved since last tax time and is now suitable for any Australian who wants to lodge their own tax return – regardless of their tax affairs.

Australians with rental properties be able to use myTax for their 2015-16 return and will also be able to take advantage of the fully integrated tools and calculators. One of these new tools allows property investors to record depreciation and capital gains.

myTax has replaced e-tax and is no longer just for individuals. Sole traders who prepare their own tax return will be able to lodge online using myTax. myTax has been upgraded to include business and professional items sections for sole traders and distributions from a partnership or trust. myTax also gives sole traders access to new online tools to assist with their tax return.

Do you need to complete a partnership, trust or company tax return as well?

To use myTax, you will need a myGov account. If you use a tax or BAS agent, check with them before creating a myGov account. If you need to complete a partnership, trust or company tax return these will need to be lodged through a tax agent or on paper.

If you are a sole trader planning to use myTax, you will find a number of inbuilt tools to help you save time and avoid mistakes.

  • The new depreciation and capital allowance tool will help you work out the deductible amount for your depreciating assets. It will also reduce your search time when determining the effective life of an asset.
  • The new capital gains tax record keeping tool can help you calculate your capital gains events. Capital gains events might include the sale of a rental property, vacant land, holiday home, real estate or shares in a company or units in a unit trust.

To do!While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns. For specialist advice and to ensure you declare all the income you are supposed to and claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

Some returns may take longer to process. This may be due to a number of reasons, including:

  • You have lodged prior year returns together with this year’s return;
  • The ATO needs to cross-check data with other Government agencies, including Centrelink and Child Support;
  • If you have a debt or insolvency obligation with the ATO;
  • The ATO has queries about the information provided on your return.

To prevent delays in the processing of your return:

  • Try to avoid common errors like including insufficient information or repeating information;
  • Check the personal details you have included are correct;
  • Don’t include information that isn’t necessary.

In May this year, the Government announced that it would conduct a review of working holiday visas and postpone any changes to the current system until January 2017. The Government has listened to rural and regional communities (about possible labour shortages) and those in the tourism sector that have raised these concerns.

The Government has agreed to review the tax and that a further extension to next January was a good outcome for regional Australia.

The backpacker tax was part of the Government’s 2015-16 Budget proposal to change the tax status of temporary working holiday makers from that of ‘resident’ to that of ‘non-resident’ from 1 July 2016. If implemented, people in Australia on a working holiday will lose access to the tax-free threshold and will be subject to the 32.5% ‘backpacker tax’ on income of up to $80,000.

A review of the proposed ‘backpacker tax’ was conducted in August this year with the outcomes not yet known.

As mentioned in the previous edition of TaxWise, if you are employed by a small business, your employer is now able to provide you with multiple work-related devices without incurring fringe benefits tax (FBT) liabilities. This applies even if the devices have similar functions. Devices can include laptops, tablets, mobile phones, calculators and GPS navigators.

  • Items purchased prior to 1 April 2016 but supplied to employees after this date are eligible for the exemption.
  • Multiple devices bought and given to employees before 1 April 2016 are not eligible. In these cases, the exemption only applies to one item for that FBT year.

With Tax Time underway, the ATO is encouraging people to check which work-related expenses they are entitled to claim and understand what records they need to keep. The ATO will be paying extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses – including those for transporting bulky tools, and deductions for travel, internet and mobile phone, and self-education.

The ATO advises that there has been a change in the rules for calculating car expenses this year and people need to use a logbook or the cents per kilometre method to support their claims. In particular, if claims are substantially higher than others in similar occupations, earning similar amounts of income, a message will appear, asking taxpayers to check their claims.

The ATO will also take a closer look at any unusual deductions and contact employers to validate these claims. Therefore, it is best to get your claims right from the start. Your tax agent is the best person to help you do that.

The ATO has been sending an email or SMS to clients with ‘Division 293’ tax liabilities to let them know a notice of assessment is issuing to their myGov inbox.

Division 293 applies to individuals whose income is greater than $300,000 and imposes additional tax on concessional contributions individuals affected make to their superannuation.

This additional message is being sent to reinforce that clients should check the notice in myGov as it contains important information about tax on their super contributions.

The notice you receive might also include notice of a deferred debt amount. Deferred debt amounts are assessed on your defined benefit contributions. The amount of defined benefit contributions represents the annual increase in a defined benefit superannuation account. This amount is based on the benefit an individual is expected to receive when they leave the fund.

To do!If you have received one of these messages, speak to your tax agent to find out what you should do next to ensure you meet all your relevant obligations.

In the 2016-17 Federal Budget, the Government announced that, from 1 July 2017, certain individuals under age 75 will be able to claim an income tax deduction for personal superannuation contributions. These amounts will then count towards an individual’s concessional contributions cap and be subject to 15% contributions tax in the fund.

Currently, only individuals who derive less than 10% of their income from employment sources can claim this tax deduction.

To access the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction with their superannuation provider. Generally this notice will need to be lodged before they lodge their income tax return. Individuals can choose how much of their personal superannuation contribution to claim a deduction for.

Certain untaxed and defined benefit superannuation funds will be prescribed, meaning members will not be eligible to claim a deduction for contributions to these funds. If a member of a prescribed fund wishes to claim a deduction, they may choose to make a personal contribution to another superannuation fund.

Legislation is currently being developed for this measure.

To do!If you would like to make additional contributions to your superannuation and you want to know if you can claim a tax deduction for them, you should speak with your tax agent.

If you earn income through the sharing economy, you have tax obligations that you should know about.

The sharing economy refers to the sharing of goods and services where the buyers (users) and sellers (providers) are connected through a facilitator who may be operating through an app or a website.

Examples of sharing economy services include:

  • Ride-sourcing – providing taxi travel services to transport passengers for a fare;
  • Renting out a room or a whole house or unit on a short term basis;
  • Renting out parking spaces;
  • Providing personal services, for example:
    • Web or trade services;
    • Completing odd jobs, errands, deliveries etc.

If you provide sharing economy services, you may need to:

  • Assess whether you are carrying on an enterprise;
  • Register for an Australian business number (ABN) and/or GST;
  • Account for GST when you make taxable supplies of goods and services;
  • Declare your income; and
  • Determine if you can claim GST credits/input tax credits and income tax deductions for your expenses.

The nature of the goods or services you provide and the extent of your activities will determine what you need to do for tax purposes.

Tip!Seek advice from your tax agent about what your income tax and GST obligations are if you earn income from or provide services in the sharing economy.

From 1 July 2017, overseas businesses will be required to pay GST on international sales of digital products and services provided to Australian consumers.

If you sell digital products or services to Australian consumers and you meet the registration turnover threshold of over $75,000 Australian in sales, you will be required to register for, report and pay GST on sales made. If you sell through an electronic distribution platform, for example, an app store, the platform operator is responsible for registering, reporting and paying the GST.

Examples of digital products include downloaded movies, games and electronic books. Examples of services include architectural, legal or educational services. The new law applies very broadly to sales of anything except non-digital goods or real property.

New rules have been introduced to strengthen the foreign resident capital gains tax regime to assist in the collection of the CGT liabilities of foreign residents.

Australian residents buying or selling real property with a market value of $2 million or more need to be aware of the new withholding tax rules which came into effect on 1 July 2016.

Australian residents who are selling a ‘taxable Australian property’ with a market value of $2 million or more need to obtain a clearance certificate from the ATO to confirm a 10% withholding amount does not need to be withheld from the transaction.

A seller (either Australian resident or foreign resident) needs to provide a clearance certificate to the buyer by settlement, or the buyer will be required to withhold 10% of the sales price and pay this to the ATO. A seller can claim a credit for the withholding amount paid to the ATO against the final tax assessed in their income tax return. A purchaser can vary down the 10% non-final withholding tax if the seller has received a variation notice from the ATO and provided it to the purchaser prior to settlement.

Note!Though conveyancers do know about these new rules, your tax agent is best placed to assist you in applying for a clearance certificate (if you are a seller) and helping you with your obligations (if you are a buyer).

The ATO has published a new overview for directors on what information they can expect to obtain from the ATO regarding their companies, particularly for companies in liquidation.

Once a company is insolvent, its pre-insolvency ‘covered entities’ are no longer relevant for the purpose of accessing information about the company. This has implications for former directors trying to obtain information about their company from the ATO.

In the 2016-17 Federal Budget, it was announced that from 7.30pm (AEST) on 3 May 2016 there will be a lifetime cap of $500,000 on non-concessional superannuation contributions.

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will be indexed to the Average Weekly Ordinary Time Earnings (AWOTE), increasing in $50,000 increments.

If an individual has exceeded the cap prior to commencement, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system.

If an individual makes contributions after commencement that causes them to exceed their cap, they will be notified by the ATO to withdraw the excess from their superannuation account. Individuals who choose not to withdraw the excess amount will be subject to the current penalty arrangements.

Non-concessional contributions made into defined benefit accounts will be included in an individual’s lifetime non-concessional cap.

Following the Federal election, in August, the Treasurer, the Hon Scott Morrison MP, confirmed that there will be changes to the Government’s proposal for a lifetime cap of $500,000 on non-concessional superannuation contributions. Mr Morrison said draft legislation on the measures will be coming out shortly with one of the exemptions being “If you have entered into a contract before Budget night to settle on a property asset out of your self-managed super fund and you are using after tax contributions to settle that contract – well, that won’t be included.” At the time of writing, draft legislation had not yet been released.

Tip!Your tax agent will be keeping abreast of the changes to this proposal. Chat to them about how this proposal might affect your personal circumstances.

There has been an increase in aggressive retirement planning schemes, where individuals avoid paying tax by channelling money inappropriately through a self-managed superannuation fund (SMSF).

The ATO has now introduced Super Scheme Smart – a new initiative aimed at educating individuals about the potential pitfalls of retirement planning schemes that are of increasing concern to the ATO. Super Scheme Smart provides information and resources including an information pack, case studies and videos. More information can be found on the ATO’s website here.

While retirement planning schemes can vary, there are four common features that people should be aware of. Usually these schemes:

  1. Are artificially contrived and complex, usually connected with a SMSF;
  2. Involve a lot of paper shuffling;
  3. Are designed to leave the taxpayer with minimal or zero tax, or even a tax refund;
  4. Aim to give a present day tax benefit by adopting the arrangement.

You are most at risk of being targeted by promoters of this scheme if you are:

  • Approaching retirement;
  • Trustees of self-managed superannuation funds (SMSFs);
  • Self-funded retirees looking for the best ways to maximise their retirement assets and income.

Some current examples that the ATO is concerned about include:

  • Dividend stripping;
  • Non-arm’s length limited recourse borrowing arrangements (LRBAs); and
  • Personal services income.

Promoters of retirement planning schemes may incur significant punishment including prosecution and where intermediaries are found to have been encouraging clients to adopt these arrangements, the ATO will consider the application of the promoter penalty laws. The ATO may also consider referring the matter to the Tax Practitioners Board.

Individuals caught using an illegal scheme identified by the ATO may incur severe penalties under tax laws. This includes risking loss of their retirement nest egg and also their rights as a trustee to manage and operate a SMSF.

The ATO is encouraging people to report tax avoidance schemes via a confidential call to 1800 177 006, or via email to [email protected]. For more information about the specific schemes, visit ato.gov.au/superschemesmart.

The ATO is currently reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid income tax obligations as described in TA 2016/6 Diverting personal services income to self-managed superannuation funds.

The ATO has requested that individuals contact them to resolve any issues and to minimise potential income tax and superannuation regulatory implications for the fund and the individual.

Issues affecting the SMSF will be addressed on a case-by-case basis, but the ATO has advised that they will take the individual’s cooperation into account when determining the final outcome.

Individuals and trustees who are not currently subject to ATO compliance action, and who come forward before 31 January 2017, will have administrative penalties remitted in full. However, shortfall interest charges still apply.

To read about these arrangements and how the ATO can help, click here.

To do!If you have any concerns about what income amounts are going into your SMSF, talk to your tax agent.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Sep 2015

IN THIS ISSUE

As part of the introduction of the carbon tax, two rounds of personal income tax cuts were to occur. The first round commenced on 1 July 2012. However, the second round of personal income tax cuts, scheduled to have begun on 1 July 2015, have recently been repealed.

The second round of tax cuts was intended to have done the following:

  • Increase the tax free threshold to $19,400;
  • Increase the second personal marginal tax rate to 33 per cent;
  • Reduce the maximum value of the Low Income Tax Offset (LITO) to $300;
  • Reduce the withdrawal rate of the LITO to 1 per cent; and
  • Increase the threshold below which a person may receive LITO to a taxable income of $67,000.

As a result of the repeal, none of these changes will be made.

The following changes will be made to the Medicare levy starting from the 2014-2015 income year:

  • Increase the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
  • Increase the Medicare levy low-income threshold for single taxpayers eligible for the seniors and pensioners tax offset (SAPTO), in line with movements in the CPI, so that they do not have a Medicare levy liability where they do not have an income tax liability; and
  • Increase the Medicare levy surcharge low-income threshold in line with movements in the CPI.

Medicare levy low-income thresholds

  • The individual income threshold for the 2014-2015 income year is $20,896.
  • The family income threshold for the 2014-2015 income year is $35,261.
  • The child-student component of the family income threshold for the 2014-2015 income year is $3,238.
  • The threshold for single taxpayers eligible for the SAPTO for the 2014-2015 income year is $32,279

Phase-out-limits

  • The individual phase-out limit for the 2014-2015 income year is $50,119
  • The phase-out limit for taxpayers couples eligible for the SAPTO for the 2014-2015 income year is $41,790each.

The Tax and Superannuation Laws Amendment (2015 Measures No 1) Bill 2015 that has recently passed into law makes amendments in the following areas:

1) Cessation of the First Home Saver Accounts Scheme

The Bill repeals the legislation providing for the First Home Saver Accounts (FHSAs) scheme, including the related tax concessions for the 2015-2016 income year and later income years.

The repeal of the FHSAs scheme applies from 1 July 2015 for accounts opened in respect of applications made before 7.30 pm on 13 May 2014. Generally, accounts opened after this date will not be eligible to be first home saver accounts.

2) Abolishing the dependent spouse tax offset

The Bill amends the tax legislation to:

  • Abolish the dependent spouse tax offset (DSTO) from 1 July 2014;
  • Expand the dependant (invalid and carer) tax offset (DICTO) by removing the exclusion in relation to spouses previously covered by the dependent spouse tax offset;
  • Remove an entitlement to DSTO where it is made available as a component of another tax offset, and replace that component with a component made up of DICTO; and
  • Rewrite the notional tax offsets covering children, students and sole parents that are available as components of other tax offsets.

This measure applies to the 2014-2015 income year and all later income years.

These measures have now been passed into law.

To do!If you have been eligible for any of these tax offsets in the past, you should speak with your tax agent to find out how these changes may impact you.

Proposed changes to the taxation of employee share schemes have now become law. The changes include:

  • Reversing some of the changes made in 2009 to the taxing point for rights for employees of all corporate tax entities;
  • Introducing a further taxation concession for employees of certain small start-up companies; and
  • Supporting the ATO to work with industry to develop and approve safe harbour valuation methods and standardised documentation that will streamline the process of establishing and maintaining an ESS.

Despite these changes already being made, changes to further improve the taxation of employee share schemes may be coming shortly. Keep an eye out for further information in future editions of TaxWise.

1) Modernising the calculation of work-related car expense deductions

Following the announcement in the 2015-16 Federal Budget, exposure draft legislation was released in July this year to “modernise and simplify” the calculation of work-related car expenses.

The four available methods will be reduced to two. The “cents per kilometre” and “logbook” methods will be retained and the “12 per cent of original value” and the “one-third of actual expenses” methods will be removed.

The “cents per kilometre” method will be amended so that the three current rates based on engine size will be replaced with one rate set at 66 cents per kilometre, which applies to all motor vehicles.

Revisions to the rate will be made by the Commissioner in future income years.

Though not law yet, this change applies from 1 July 2015.

2) PAYG withholding variation: allowances – cents per km car expenses

On 17 June 2015 the ATO made a legislative instrument which varies the amount of withholding required by a payer under the PAYG withholding system for allowance payments in certain circumstances: Taxation Administration Act 1953 – Pay as you go withholding – PAYG Withholding Variation: Allowances (legislative instrument F2015L01047; registered 30 June 2015).

The legislative instrument revokes and replaces the previous instrument, Taxation Administration Act 1953 – PAYG Withholding Variation: Allowances (legislative instrument F2013L00521; registered 21 March 2013). That instrument provided a variation to the rate of withholding from a number of allowances when certain conditions are met. Broadly, the variation applies in certain cases when the allowance is expected to be fully expended on tax deductible items and the payee would not be required to substantiate expenditure incurred in relation to the allowance.

The new instrument differs from the previous instrument in only one respect. The variation for cents per kilometre car expense payments has been adjusted because of the proposed change to the calculation rules noted above.

The variation for cents per kilometre car expense payments will now apply for up to 5,000 business kilometres at:

  • 66 cents per kilometre for the year commencing on 1 July 2015, or
  • The rate published by the Commissioner for later years.

Where the allowance for car expenses is no more than the published rate, then no withholding will be required for payments up to 5,000 kilometres for a financial year. Withholding will be required from payments for distances travelled beyond 5,000 kilometres in a financial year.

If the per kilometre rate paid exceeds the published rate withholding will be required from the amount of each payment which exceeds the amount calculated at the published rate.

To do!Your employer also needs to be aware of the changes to the PAYG withholding requirements.
Seek advice from your tax adviser about how best to manage these changes that apply for the 2015-16 financial year onwards.

1) Early access to superannuation for people with terminal illness

On 7 May 2015 the Assistant Treasurer announced that the government will amend the provision for accessing superannuation for people suffering a terminal illness. This follows representations by Breast Cancer Network Australia and other organisations: Assistant Treasurer’s media release “Early access to superannuation for people with terminal illness” (7 May 2015).

Under the current provision for early access to superannuation, a person with a terminal illness is required to obtain a certification from medical specialists that he or she has less than 12 months to live.

This has proven difficult for some people, including women with secondary breast cancer diagnosis. Understandably, they want access to their money as they may experience significant financial burden associated with treatment costs or want to make the most of their time with their families.

On 25 June 2015, the government amended the relevant regulations to change the life expectancy period to 24 months, with the change taking effect from 1 July 2015.

2) Superannuation guarantee: choice of super fund

On 28 May 2015, the Small Business Minister introduced a bill to remove the obligation for employers to offer a choice of superannuation funds to temporary resident employees, or when superannuation funds merge. The changes are to apply from 1 July 2015.

In particular, these changes are intended to reduce compliance costs for businesses operating in industries that employ a high volume of individuals on working holiday visas, such as in hospitality and agriculture.

Employees in these situations will retain the right to choose a superannuation fund if they wish to do so. Employers will not be required to give employees a standard choice form if the employee holds a temporary visa as defined by the Migration Act 1958 nor in the circumstance when their superannuation benefits are transferred from a chosen fund or a default fund to a successor fund as a result of a superannuation fund merger arrangement.

These changes have now become law.

3) Excess super contributions changes

The ATO has advised that from July 2015, it expects to start issuing elections to individuals with excess non-concessional contributions in 2013-2014. The election allows individuals to tell the ATO how they would like their excess non-concessional contributions to be treated.
Upon receipt of an election, where an individual has chosen to have their excess non-concessional contributions (and associated earnings) withdrawn from their super fund, the ATO will issue the nominated super fund with a release authority to have the money withdrawn. Funds can expect to start receiving release authorities from July 2015.

Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.

From 1 July 2013, individuals have the option of withdrawing their excess non-concessional contributions along with 85% of associated earnings for those excess contributions from their superannuation fund. The full associated earnings amount will be included in assessable income and taxed at marginal tax rate in the year the excess contributions were made. The individual will also receive a 15% tax offset to recognise that the associated earnings are taxed in the fund.

4) Claiming ATO-held super

If you have superannuation that the ATO is holding on your behalf, you are now able to claim that superannuation through the MyGov website. The ATO has recently enhanced this function to allow ATO-held super to be paid directly to individuals, where eligible. Previously, ATO-held super had to be transferred to an existing super fund. For more go to the ATO website.

Tip!Superannuation is often an area that most of us don’t pay much attention to. It’s a good idea to stay on top of superannuation changes, particularly the changes that affect your personal circumstances, and any super that you might have forgotten about. Your tax adviser will be able to assist you with any of your superannuation queries.

1) Channelling dividends through SMSFs

The ATO has warned members of self-managed super funds (SMSF) against claiming franking credit benefits by channelling dividends from shares in private companies through SMSFs.

The practice occurs when a member of an SMSF with interests in a private company transfers his or her interest to a SMSF and then distributes retained profits and franking credits through the SMSF. The SMSF then claims the franking credit tax offset which results in the tax paid by the company being refunded directly to the SMSF which can then be distributed to the member tax free.

The ATO believes that SMSF members approaching retirement age are more likely to get involved in these schemes because profits from shares are tax exempt as they are treated as supporting the payment of pensions. The ATO may undertake compliance activity seeking to apply the taxation and superannuation provisions, including anti-avoidance rules to such arrangements. The ATO will also consult on the application of relevant anti-avoidance provisions and consider a public ruling on such arrangements.

Any taxpayers involved in similar arrangements should review their taxation affairs and consider seeking independent advice from an advisor not involved with the arrangement.

2) ATO trusts letter campaign for SMSF clients

The ATO is reviewing the returns of self-managed superannuation funds (SMSFs) which have received distributions from a discretionary trust.

Distributions of income to SMSFs from discretionary trusts are considered to be non-arm’s length income, which is taxed at the highest marginal rate.

Trustees of SMSFs (or their advisors) will receive an ATO letter asking them to contact the trustee of the distributing trust and review the trust deed and any resolutions to determine whether the amount reported in the annual return is non-arm’s length income. Returns may need to be amended as a result of this review.

To do!Seek the assistance of your tax agent or adviser if you receive one of these letters.

In June this year, the ATO issued a draft taxation determination TD 2015/D2 entitled “Income tax: if a retiring partner receives an amount representing their individual interest in the net income of the partnership for an income year, is the amount assessable under section 92 of the Income Tax Assessment Act 1936?”

The draft determination answers this question as ‘yes’. Subject to paragraph 3 of the draft determination, the amount is included in the partner’s assessable income for the income year under section 92 of the ITAA 1936.

This is the case regardless of:

  • How the payment is labelled or described (including whether the payment is expressed to be consideration for something provided or given up by the partner); and
  • The timing of the partner’s retirement (including whether the partner retires before the end of the income year); and
  • The timing of the payment.

However, according to the draft determination, an amount is not assessable under section 92 to the extent that it represents net income of the partnership which is attributable to both a period when the partner was not a resident of Australia, and sources outside of Australia.

To do!If you are part of a partnership, it would be useful to keep track of the progress of the ATO’s ruling on this issue, particularly if one of your partners, or you, is close to retiring from the partnership.

More of the small business tax measures announced in the 2015-16 Federal Budget have recently passed through Parliament, including:

  • Tax rate cut for other business entities – A 5% tax discount for individual taxpayers capped at $1,000 with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will be introduced from the 2015-16 income year.
    The amount of the tax offset is 5% of the income tax payable on the portion of an individual’s income that is small business income, that is 5% of the person’s “total net small business income”. An individual’s “total net small business income” is comprised of the “net small business income” they make as a small business entity, together with any share of the “net small business income” of a small business entity that is included in the individual’s assessable income.

In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled to the extent the deductions are attributable to the income. Where an individual has a share of the net small business income of another entity included in his or her assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent the deductions are attributable to the share of the entity’s net small business income.

  • Electronic devices and FBT – The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.
    The exemption is extended to small businesses that provide employees with more than one work-related portable electronic device, even where the devices have substantially identical functions.
    Currently, a portable electronic device is not exempt from FBT if, earlier in the same FBT year, the employer has provided the employee, by way of an expense payment or property benefit, with an item that has substantially identical functions.
    For small businesses, this limitation will be removed with respect to portable electronic devices. Small business employers will be allowed an FBT exemption for multiple portable electronic devices provided to the same employee in the same FBT year, even if those devices have substantially identical functions.
  • Professional expenses – new businesses will be able to claim an immediate deduction for professional expenses (eg for the cost of advice from lawyers, accountants and other professionals) associated with starting a business from the 2015-16 income year.
    This will include government fees and charges as well as costs associated with raising capital that are presently only deductible over five years.
    For expenses to be immediately deductible, the entity claiming the deduction must be:

    • A small business entity; or
    • Not carrying on a business and not connected with, or an affiliate of, an entity that carries on a business that is not a small business entity;
      for the income year in which the deduction is claimed.

Immediate deductibility will be available for only two categories of expenditure:

  • Expenditure on advice or services relating to the structure or the operation of the proposed business (including costs associated with raising capital, whether debt or equity); and
  • Payment to an Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure.

The amendments do not apply to expenditure incurred in relation to an ongoing business or a business that has ceased to operate (including expenditure relating to the liquidation or winding up of an entity).

The amendments will apply to expenditure incurred in the 2015-2016 income year and later income years. The amendments will have retrospective application to a small group of taxpayers with substituted accounting periods for the 2015-2016 income year that commence before 1 July 2015.

Tip!Do you have a small business? Are you thinking of setting up a new small business? If so, you should speak to your tax adviser to see if any of these new measures might apply to your business.

In late June 2015, exposure draft legislation was released for consultation in relation to the 2015-2016 Federal Budget measure that will limit the FBT concessions on salary packaged entertainment benefits.

The measure, which applies from 1 April 2016, will introduce a separate single grossed-up cap of $5,000 for salary packaged meal entertainment and entertainment facility leasing expenses (entertainment benefits) for employees of public benevolent institutions, health promotion charities and employees of public and not-for profit-hospitals and public ambulance services. Currently these employees can salary package entertainment benefits with no FBT payable by the employer and without the benefits being reported.

All salary packaged entertainment benefits will also become reportable fringe benefits.

Note!If you have salary packaged entertainment benefits from your employer, you should consult your tax adviser to see if this proposed law change affects you in any way.

On 1 July 2015 the ATO issued taxation determination TD 2015/14 “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year?”

The determination sets out the amounts that the Commissioner considers are reasonable (reasonable amounts) for the substantiation exception in the income tax legislation for the 2015-2016 income year in relation to claims made for:

  • Overtime meal allowance expenses – for food and drink in connection with overtime worked and where a meal allowance has been paid under an industrial instrument;
  • Domestic travel allowance expenses – accommodation, food and drink, and incidentals that are covered by the allowance;
  • Travel allowance expenses for employee truck drivers – food and drink that are covered by the allowance; and
  • Overseas travel allowance expenses – food and drink and incidentals that are covered by the allowance.

On Budget Night, the Commonwealth Treasury released an exposure draft Bill and associated explanatory material which amend the GST law to give effect to the 2015-2016 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

This measure does not commence until 1 July 2017, so there is quite a long lead time before this measure will be enacted. However, it is good to be aware that this change will soon be coming.

At the Australian Leaders’ Retreat held in Sydney on 22 July 2015, the Prime Minister, First Ministers from each State and Territory, and the President of the Australian Local Government Association agreed to keep Commonwealth and State tax changes on the table including the GST and the Medicare levy: Australian Leaders’ Retreat Communiqué (23 July 2015).

As a first step, there was agreement in principle to broaden the GST to cover overseas online transactions under $1,000. This matter will be referred to the meeting of Treasurers that was to be held on 21 August 2015 to progress in detail.

At the time of writing, no further details on proposed changes to the $1,000 were available and the Treasurers’ meeting had not yet occurred.

Should the proposed changes be proceeded with, later issues of TaxWise Individual will contain any necessary updates.

The ATO says that it will have an increased focus on rental property deductions this Tax Time and is encouraging rental owners to double-check that their claims are correct before lodging their tax returns.

In particular, the ATO is paying close attention to:

  • Excessive deductions claimed for holiday homes;
  • Husbands and wives splitting rental income and deductions for jointly owned properties where such claims are not supported;
  • Claims for repairs and maintenance shortly after the property was purchased; and
  • Interest deductions claimed for the private proportion of loans.

While the ATO will be paying closer attention to these issues in 2015, it will also be actively educating rental property owners about what they can and cannot claim.

For example, the ATO will be writing to rental property owners in popular holiday locations, reminding them to claim only the deductions they are entitled to, for the periods the property is rented out or is genuinely available for rent.

Your tax adviser will be able to assist you with ensuring you make the correct claims against your rental property.

Tip!Your tax adviser is well-equipped to assist you to make appropriate claims for deductions against rental income you may have earned. Seek their advice and assistance to ensure you claim the right amounts.

The ATO has warned that this year the ATO will be focusing on unusually high work-related expense claims across all industries and occupations, a much wider approach than in previous years.

The ATO says that its ability to identify and investigate claims that differ from the norm is improving each year at a rapid rate due to enhancements in technology and the use of data.

This means that every return is scrutinised and it is becoming a lot easier to identify claims that are significantly higher than those claimed by people with similar occupations and employment income.

In addition to focusing on work-related expense claims that are significantly higher than expected, the ATO will also be paying particular attention to claims:

  • That have already been reimbursed by employers; and
  • For private expenses such as travel from home to work.

Note!If you have not yet done your 2014-15 income year tax return, you should make sure that any claims you intend to make you are entitled to. If you are unsure what you are entitled to claim or how much of an expense you can claim, you should always seek the advice and assistance of a tax agent. Also, they will be able to tell you about expenses you might be able to claim that you hadn’t even thought of!

Tip!The ATO has released some handy information about claiming mobile phone, internet and home phone expenses.

The ATO has launched a tool for individuals who are employees claiming work-related expenses. The myDeductions tool is intended to make it easier and more convenient to keep individual income tax-related deductions all in one place.

The myDeductions tool can be used to:

  • Capture and classify work-related expenses, gifts and donations or the cost of managing tax affairs
  • Store photographs of receipts
  • Record car trips.

Tip!This might be a handy new tool to record your deductions throughout the year, but your tax agent is still the best source of information to help you know what you should be recording. Consider sitting down with them now to talk about the kinds of expenses you should retain information about throughout the income year to help you prepare for your 2015-16 return.

Have you been selling goods online? If so, you should note that the ATO has announced that it has set up the ‘2014 Online Selling Data Matching Program’ through which it will request and collect online selling data relating to registrants that sold goods and services of a total value of $10,000 or more for the period from 1 July 2013 to 30 June 2014.

The data the ATO acquires will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with registration, reporting, lodgement and payment obligations under taxation law.

‘Data providers’ are included in the program based on the following principles:

  • The data owner or its subsidiary operates a business in Australia that is governed by Australian law;
  • The data owner provides an online market place for businesses and individuals to buy and sell goods and services;
  • The data owner tracks the activity of registered sellers;
  • The data owner has clients whose annual trading activity amounts to $10,000 or more;
  • The data owner has trading activity for the year in focus;
  • Where the client base of a data owner does not present an omitted or unreported income risk, or the administrative or financial cost of collecting the data exceeds the benefit the data may provide, the data owner may be excluded from the program.

Data will be sought from eBay Australia & New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au.

Through this program, the ATO will be able to:

  • Address the compliance behaviour of individuals and businesses selling goods and services via the online selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgment and reporting for goods and services tax; and
  • Be more strategic in its approach to determine appropriate educational and compliance strategies to encourage voluntary compliance for taxpayers in the online selling market to ensure they meet their taxation obligations.

It is expected that records relating to between 15,000 and 25,000 individuals will be matched.

Note!If you have been selling goods online and you are concerned about whether you may be caught up in the ATO’s data matching program, speak with your tax agent to find out whether are likely to become involved in this program.

1) The sharing economy and tax

The ATO has released advice about the tax treatments of income earned from “sharing economy” activities. The “sharing economy” (also referred to as collaborative consumption, peer-to-peer or similar terms) is a way of connecting buyers (“users”) and sellers (“providers”) for economic activity.

These activities are typically promoted via a website or app and include:

  • Renting out a room, property or a car park (eg ‘Air BnB’);
  • Providing odd jobs, errands, deliveries or more skilled services on an ad hoc basis; and
  • Using a car to transport passengers for a fare (ride-sourcing) (eg Uber).

The ATO points out that the same tax laws that apply to activities conducted in a conventional manner apply to activities in the sharing economy. If you have provided any of these services, you might have income to declare, expenses to claim and GST obligations to meet.

2) The Uber ruling – ATO advice on taxi travel services through ride-sourcing

The ATO has released advice on the tax consequences of a range of collaborative consumption activities, including taxi travel through ride-sourcing (also known as ride-sharing or ride-hailing), provided as part of the “sharing economy”. There are both GST and income tax implications for persons who make money from such activities.

In particular, the ATO has confirmed that people who provide ride-sourcing services are providing “taxi travel” under the GST law. The existing tax law applies and so drivers are required to register for GST regardless of their turnover. That is, if you provide taxi travel in the course of carrying on an enterprise, you must register for GST no matter what your turnover might be; the normal registration turnover threshold does not apply. “Taxi travel” is defined in the GST Act as travel that involves transporting passengers, by taxi or limousine, for fares. This includes making a car available for public hire and using it to transport passengers for a fare.

Drivers who offer taxi travel must register for GST, charge GST on the full fare, lodge business activity statements and report the income in their tax returns.

However, recognising that some taxpayers may need to take some corrective actions, the ATO gave drivers until 1 August 2015 to get an ABN and register for GST.

There is also advice on the provision of accommodation supplies, parking services and making offers to provide goods or services to a consumer.

For more information, including advice about the involvement of “facilitators” (third parties who operate a website or mobile device application used to facilitate a transaction between a driver and a passenger), refer to the ATO website here, and here.

The ATO is again warning the public to be aware of an aggressive phone scam circulating where fraudsters are intimidating people into paying a fake tax debt over the phone by threatening jail or arrest: ATO media release (6 July 2015).

Second Commissioner Geoff Leeper has said that the ATO is very concerned about taxpayer privacy and is reminding people of the key differences between a scam of this nature and a genuine call from the ATO.

“We make thousands of outbound calls to taxpayers a week, but there are some key differences to a legitimate call from the ATO and a call from a potential scammer” said Mr Leeper.

“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on
13 28 69,” said Mr Leeper.

Important information taxpayers should remember:

  • The ATO would never cold call you about a debt. If you have a debt you will receive a letter or SMS to remind you that a payment is due in the first instance.
  • The ATO would never threaten jail or arrest.
  • If you receive a call from the ATO and are concerned about its legitimacy, ask for the caller’s name and phone them back through the ATO’s switchboard on 13 28 69.

Mr Leeper also said that scammers pretending to be from the ATO are generally more common during tax time and encouraged people to be vigilant and to protect their personal information.

If people think they may have fallen victim to a phone scam, they should contact the ATO on 13 28 69.

For more information and examples of recent scams visit the ATO website or SCAMwatch.

Note!If you are unsure about any contact you have received that is purportedly from the ATO, always contact your tax agent to see if the contact is legitimate, especially if your tax agent is your primary point of contact with the ATO and not your personal contact information.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Sep 2013

IN THIS ISSUE

With the certainty of the 2013 Federal Election being held on 7 September 2013, for the last few weeks, the Government has been in Caretaker mode. Until the Election passes and the new Government settles in, apart from Election promises made, we are unlikely to see much activity in the tax space.

However, prior to the Election officially being called, there was significant activity in the tax space as noted below.

The ATO has published its “Compliance in focus 2013-14” document. This document sets out what the ATO is doing to manage the risks to and maintain the integrity of Australia’s taxation and superannuation systems for the next 12 months.

In relation to individuals, the ATO will be focusing on the following:

  • Individuals who fail to declare income or make incorrect claims for deductions and benefits;
  • The tax risks associated with the use of complex business structures;
  • Correct reporting of taxable income by wealthy individuals; and
  • Participation in tax planning schemes.

The ATO will also be focusing on ensuring correct reporting by individuals of:

  • Private health insurance rebates;
  • Flood levy exemptions;
  • Taxable government grants and payments; and
  • Certain payments to contractors in the building and construction industry.

This year, incorrect claims for work-related expenses made individuals in the following occupations will be a focus for the ATO:

  • Building and construction labourers, construction supervisors and project managers; and
  • Sales and marketing managers.

Guides for members of particular industries

To assist taxpayers to prepare their tax returns, the ATO issues a guide about claiming work-related expenses for particular industries.

Guides for members of industries, such as tradespeople and business professionals, can be found here on the ATO website. There may be a guide available for your particular industry.

Tip!Speak to your tax agent if you have any concerns about the ATO Compliance Program and how it may affect you in preparing your tax return.

If your income falls under the tax-free threshold for the 2013 income year, that is it is less than $18,200, generally you should not have to lodge a tax return. However, there are certain reasons why you may still need to lodge a tax return form with the ATO.

The most common of these are:

  • If you are entitled to the private health insurance rebate;
  • If you had pay as you go (PAYG) withheld from payments you received during the year;
  • If you had a reportable fringe benefits amount on your PAYG payment summary;
  • If you had reportable employer superannuation contributions on your PAYG payment summary;
  • If you made a loss or can claim a loss made in a previous year; and
  • If you were an Australian resident for tax purposes and had exempt foreign employment income and $1 or more of other income.

To do!If you are unsure about whether you need to lodge a tax return for the 2013 income year, talk to your tax agent. They will be able to advise you. Even if none of the reasons listed above apply to you, it is worth double-checking with your tax agent to ensure you meet any obligations you might have that you did not know about.

With the introduction of the Government’s new initiative, DisabilityCare Australia, comes an increase in the Medicare Levy. From 1 July 2014, the Medicare Levy will increase by 0.5% to 2% to assist to fund the DisabilityCare Australia program.

All proceeds raised by the 0.5% increase to the Medicare Levy will go into the new DisabilityCare Australia Fund.

This change will affect your 2014 tax return onwards.

Given the changes to how the rebate for private health insurance is to apply, the ATO has included a detailed explanation on its website, which can be accessed here. In the table below is a quick summary of how the rebate phases out according to your income level for individuals and families (with persons under 65 years old) for the 2013 and 2014 income years.

To do!To ensure that you are claiming the right amount of the rebate, talk to your tax agent to ensure you get it right.

In the 2013-14 Federal Budget handed down in May this year, the Government announced that it would phase out the net medical expenses tax offset (NMETO). Transitional arrangements will apply for people who claim the NMETO in the 2013 income year. That is:

  • Taxpayers who claimed the NMETO in the current year (2012-13) will be able to continue to claim the offset in the 2013-14 income year if they have eligible out-of-pocket medical expenses above the relevant thresholds.
  • Taxpayers who are eligible to claim the NMETO in the 2013-14 year can continue to do so in the 2014-15 year.
  • Until 1 July 2019, the NMETO will continue to be available for certain out-of-pocket medical expenses only (disability aids, attendant care or aged care expenses) when the DisabilityCare Australia program is expected to become fully operational and aged care reforms have been in place for several years.

If so, you need to be aware of the fact that there have been some changes to the taxation of employment termination payments (ETP) that apply from 1 July 2012. The ETP section of the PAYG payment summary now includes a spot where an ETP code has to be included. The codes describe the type of payment the ETP is and will ensure the correct rate of tax is applied.

Your employer should be using these new codes. Similarly, you will also need to include the relevant codes in your 2013 income tax return. This will ensure the ATO system “knows” what type of payment your ETP is and will apply the correct rate of tax.

Your tax agent will be able to assist you to ensure that the correct code is included in your tax return when completing the ETP section.

To do!If you have received an ETP and no code has been included in your PAYG payment summary, you will need to contact your employer to have this corrected.

Recently, amendments were made to the Regulations which govern how the “seniors and pensioners tax offset” (SAPTO) applies to foreign residents.

The amendments correct an unintended consequence arising from amendments to the regulations which took account of changes to the personal income tax rates and thresholds made as part of the Government’s Clean Energy Future Plan in 2012. An amendment was required to reflect the fact that the former “pensioner tax offset” and “senior Australians tax offset” have now merged.

The original amendment worked for the most part but had an unintended consequence in the 2012 income year for the amount of SAPTO available for transfer for foreign residents whose eligible spouse had taxable income greater than the tax-free threshold. Note that foreign residents are not usually afforded the benefit of the tax-free threshold.

From 1 July 2012, businesses in the building and construction industry will need to report to the ATO each year the total payments they make to each contractor for building and construction services. The first Taxable payments annual report was due by 21 July 2013 (or by 28 July 2013 for those who lodge activity statements quarterly). An extension was granted to tax agents to lodge these reports on behalf of their clients to 26 August 2013.

Businesses are required to report each contractor’s ABN, name and address, the total amount paid for the year and the total GST included in that amount. You should be able to find most of the information you need for the report in the invoices received from contractors.

Separately, if you are a contractor, you will need to:

  • Lodge your 2012-2013 tax returns by the due date and include all income
  • Lodge any prior year tax returns as soon as possible
  • Consider making a voluntary disclosure if a mistake may have been made in a previously lodged tax return. Where the contractor voluntarily advises the ATO of any errors or omissions, any penalties that apply may be reduced.

The information reported will allow the ATO to identify those contractors who have either not included all their income in their tax return, or not lodged tax returns.

To do!If you have received notification from the ATO, but you do not believe you have any information to provide to the ATO or that you have received the notification by mistake, it is best to contact the ATO to advise them of this. Your tax agent will be able to assist you with this process.

Earlier this year, the ATO wrote to some taxpayers asking them to review their tax return for the 2011-12 income year to work out if the business income they have reported may, in full or in part, be classified as personal services income (PSI) and subject to the PSI rules.

If you received such a letter, you should speak to your tax agent to confirm whether there is any action that you need to take and if there is likely to be any impact on your 2013 tax return.

In April this year, the Government announced that the deduction for work-related self-education expenses claimed by employees would be capped at $2,000 per annum, rather than remain unlimited as it is currently. This measure has been the subject of a lot of discontent from all sectors including where further education is a continuing requirement of a profession, education providers, taxpayers likely to be adversely affected by the measure as well as the tax profession. A discussion paper considering the design of the measure was released at the end of May this year.

If you are an employee claiming work-related self-education expenses, these expenses will be subject to a cap of $2,000 from 1 July 2015 when this measure is intended to start to apply.

Given a cap is intended to apply, some individuals may look to their employer to assist in funding their education expenditure. There could be FBT implications if the cost of education is salary-sacrificed by an employee or there could be other possible FBT implications for employers providing education to employees. There are also possible implications if you are a sole trader or if you derive personal services income.

If, as part of your work or employment, you are required to undertake further education or choose to do so, this is a measure to keep an eye on. Your tax adviser will be able to keep you abreast of the progress of this measure.

On 16 July 2013, the Treasurer, Chris Bowen, announced that the statutory formula to calculate car fringe benefits would be removed and that only the operating cost method would be available. The operating cost method requires log books to be kept over a twelve week period every 5 years as well as all costs associated with the car (eg registration, servicing, insurance) to be tracked for the purpose of calculating the value of the fringe benefit provided by an employer who provides a car to an employee.

The removal of the statutory formula is to take effect from 1 April 2014 and is estimated to save the Government $1.8 billion over the forward estimates period.

Note that this measure is just a proposal, though it is something employees who receive car fringe benefits from their employers should keep in mind and therefore is a measure that potentially affected employees should keep an eye on.

A factsheet entitled “A fairer treatment for FBT on cars” is available if you are interested in finding out more information about the proposal. The fact sheet can be accessed here.

If so, you should note that the ATO has put together a Property page on its website. It is a repository for easily accessible information relevant to all property related transactions. There may be information on this page to help you better understand your tax obligations at different points in the lifecycle of acquiring, owning and selling property.

The property page contains information on topics including:

  • Buying, selling and renting property;
  • Inheriting a dwelling;
  • Vacant land;
  • Subdividing;
  • Property development, building and renovating; and
  • Property used to run a business.

Of course, your tax adviser will always be able to assist you with any tax queries you have in relation to property ownership.

From 1 July 2012, changes were made to the tax and superannuation laws to reduce the scope for companies avoiding liabilities and payments of employee entitlements.

If you are a director of a company, you may have received a letter from the ATO if your company has unpaid pay as you go (PAYG) withholding amounts. The letter explains your obligations as a director and your personal risk in relation to your company’s PAYG withholding debt.

The letter encourages directors to ensure their company addresses the outstanding PAYG withholding debt either by paying it immediately or establishing with the ATO an agreed payment arrangement.

If you are a director and have not received a letter like this, depending on whether your company meets its PAYG withholding obligations, you may receive one in the future. It is worth bearing in mind your obligations in relation to the tax and superannuation laws.

The Assistant Treasurer has announced a measure to combat “dividend washing”.

Dividend washing occurs when a person sells shares ex-dividend and the person selling the shares retains the right to the dividend and the franking credits. Then the same person immediately buys equivalent cum-dividend shares (which include the right to an additional dividend and franking credits). This can be done with listed shares where a special “cum-dividend” market is created for the shares for the two days after they go ex-dividend. This allows the same person to obtain the dividend and franking credits twice while only holding one set of shares.

The measure will prevent investors who have been able to engage in this practice from claiming both sets of franking credits on the one parcel of shares. Per the Assistant Treasurer’s press release on 28 June 2013, “The measure will not have an impact on typical ‘mum and dad’ investors, as it will only apply to investors that have franking credit tax offset entitlements in excess of $5000.”

Taxpayers with investments in shares shouldn’t be impacted by this new measure unless they have engaged in dividend washing which is, of course, discouraged. The measure is intended to apply from 1 July 2013.

In a media release issued in June this year, the ATO recently warned investors about new and complex tax avoidance schemes being marketed as people get ready to lodge their 2013 tax returns.

“It is important for anyone considering an investment or any other arrangement that will affect their tax liabilities to do their research and seek independent advice,” the Commissioner, Chris Jordan said.

Some recent schemes have offered people financial security, opportunities of wealth creation and others have even attempted to exploit a social or environmental conscience.

Be wary of someone offering you a scheme that might assist you to avoid tax, particularly at this time of year when you are likely to be focused on doing your tax return.

Note!Always speak to a registered tax agent about any scheme that might be offered to you as a way of reducing or avoiding tax. Registered tax agents are professionals that are able to give you proper advice about your tax affairs.

The Government announced in June this year that it will review the policy around employee share schemes (ESS). The review is part of the Government’s Advancing Australia as a Digital Economy: Update to the National Digital Economy Strategy project for Australia to become a trusted hub in the global digital economy.

The Government will consult with stakeholders to determine the most effective measures to address the barriers faced by start-up companies in running ESS, including:

  • Developing guidance to reduce the administrative burden (meaning the cost of valuing shares and options) of establishing an ESS;
  • Adjusting the valuation methodology of options; and
  • Examining the point at which share options are taxed for start-up companies.

From 1 July 2014, tax advice provided by a financial planner in the context of providing financial advice will be subject to regulation by the Tax Practitioners Board, which also governs tax and BAS agents.

If you see a financial planner and possible tax implications of investments are discussed, it may be worthwhile chatting to your registered tax agent to be certain of your potential tax obligations with investments you may be contemplating.

The current Treasurer, Chris Bowen, has promised that a re-elected Rudd Labor Government would make no major changes to superannuation tax policy for a five-year period, commencing immediately. Given the constant changes to the taxation of superannuation over recent years, this may be welcome relief.

The Government will also bring forward legislation to establish the Super Council to ensure any future changes to superannuation are consistent with an agreed Charter of Superannuation Adequacy and Sustainability. The Charter will include the commitment to a five-year moratorium on changes to superannuation tax policy. The Government will make an announcement on the membership of the Council in due course.

However, prior to this announcement, a number of other changes to super recently made their way into law including:

  1. There will be a temporary increase to the concessional contributions cap to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The temporary cap will cease when the general cap indexes to $35,000;
  2. From the 2012-13 income year, individuals who are high income earners with a combined income and concessionally taxed contributions exceeding $300,000 in an income year will have their concessional contributions made to their super fund over and above the $300,000 threshold subject to tax at 15% in the fund (which ordinarily applies to concessional contributions) with a further 15% payable.
  3. From the 2013-14 income year, if you make concessional contributions to your superannuation fund that exceed the concessional contributions cap (ie excess concessional contributions):
    1. They will be included as part of your assessable income; and
    2. You will be entitled to a tax offset equal to 15% of your excess concessional contributions; but
    3. An excess concessional contributions charge may apply; and
    4. You may elect to withdraw up to 85% of the excess contributions. The amount withdrawn from the super fund is not assessable (nor exempt) income. The limit of 85% applies as the remaining 15% equates to the tax the super fund would have paid when the whole amount was received.

Tip!If you have any concerns about the super contributions you have made or your employer has made on your behalf, it is a good idea to pull out your latest statement from your super fund and sit down with your tax adviser to go through it and see if any of the changes noted above may apply to you.

New regulations have been made which will allow Australians and New Zealanders to take their superannuation with them when they move permanently from one country to the other. The regulations began to apply from 1 July 2013.

On 31 July 2013, the ATO issued Taxation Ruling TR 2013/5 entitled “Income tax: when a superannuation income stream commences and ceases”.

This Ruling explains when a superannuation income stream commences and when it ceases, and consequently when a superannuation income stream is payable. These concepts are relevant to determining the income tax consequences for both the superannuation fund and the member in relation to superannuation income stream benefits paid. This Ruling applies with effect from 1 July 2007.

If you receive an income stream from a superannuation fund or are likely to start receiving one soon, talk to your tax agent about what this may mean for you

The ATO has published on its website some useful information about the superannuation contribution and cap amounts that apply in certain circumstances. These can be accessed here.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Nov 2012

IN THIS ISSUE

Another financial year has passed and we are well into the new one. The ATO has released its new Compliance Program for 2012-13. We highlight the main focus areas of the ATO in relation to Individuals, that is, all the things you need to be aware of that the ATO will be focusing on over the next 12 months.

The ATO will be focusing on the following areas:

  • Incorrect or fraudulent refunds for over-claims and deliberate fraud (including errors and misunderstanding of entitlements, lack of supporting documentation for certain claims, deliberately false claims and ID fraud);
  • Review of work-related expenses for certain occupations with high levels of claims;
  • People getting caught up in tax-avoidance schemes; and
  • Income that has been omitted including dividends, interest, capital gains and foreign source income.

The ATO will also be targeting the following three professions when it comes to claiming “work-related expenses”:

  • IT Professionals;
  • Certain Australian Defence Force Members and
  • Plumbers who are employees.

The ATO has developed guides for claiming work-related expenses in these three professions to assist members of these professions in claiming the right amounts of expenses they are entitled to and helping them to avoid making mistakes.

To assist taxpayers with their returns, it is a good idea to see a registered tax agent. Also, depending on your circumstances, you should check with your registered agent about when your return is (or was) due.

In the table below are the new tax rates that affect individuals who are residents and non-residents of Australia from 1 July 2012:

Residents

Taxable IncomeAmount to Taxt Payable
$0 – $18,200Nill
$18,201 – $37,00019c for each $1 between $18,201 and $37,000
$37,001 – $80,000$3,572 plus 32.5c for each $1 between $37,001 and $80,000
$80,001 – $180,000$17,547 plus 37c for each $1 between $80,001 and $180,000
$180,001 and over$54,547 plus 45c for each $1 over $180,000

Non-Residents

Taxable IncomeRate
$0 – $80,00032.5c for each $1
$80,001 – $180,000$26,000 plus 37c for each $1 between $80,001 and $180,000
$180,001 and over$63,000 plus 45c for each $1 over $180,000

If you are a non-resident and need to apply for a tax file number, the ATO requires new “proof of identity” standards to be met. These are outlined in a new document they have published called entitled “Proof of identity – for individuals and businesses resident outside Australia”. A link to this publication is here (http://www.ato.gov.au/businesses/content.aspx?doc=/content/00124974.htm).

The ATO has published information about the Household Assistance Package that has been made available by the Government as a result of various tax reform measures including the carbon tax. Specific information that affects individuals can be found here (http://www.ato.gov.au/individuals/content.aspx?doc=/content/00322112.htm). Information about certain changes, such as in relation to the Medicare Levy Surcharge and to certain tax offsets, can be found throughout this issue of TaxWise.

Below are some of the tax offsets that changed with effect from 1 July 2012:

  • Net medical expenses tax offset (NMETO) – a means test has been introduced for this tax offset. For taxpayers with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in the 2012-13 income year), the amount above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter). The rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses incurred.
  • Combining of the “dependency tax offsets” – The eight dependency tax offsets have now been consolidated into a single, streamlined and non-refundable offset (including the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets). This consolidated offset is based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. Tax offsets for multiple dependants will still be able to be claimed by eligible taxpayers.
  • Mature age worker tax offset (MAWTO) – The MAWTO phases out for taxpayers born on or after 1 July 1957. This does not affect any person who currently receives MAWTO (taxpayers who are aged 55 years or older in the 2011 – 12 income year).

The new SchoolKids Bonus, which replaces the Education Tax Refund, starts on 1 January 2013 and will be paid each January and July. The SchoolKids Bonus will be paid in two instalments, totalling $410 for each primary school child and $820 for each secondary school child per year. See your tax agent to find out if you are eligible for the SchoolKids Bonus. For more information about the SchoolKids Bonus, visit the Department of Human Services website here (http://www.humanservices.gov.au/customer/services/schoolkids-bonus).

The Education Tax Refund was paid out in full starting from 20 June 2012 to all eligible families and therefore there is no requirement to make a claim for it in the 2012 Income Tax Return.

To do!If you believe you are eligible for the Education Tax Refund and did not receive a lump sum payment, see your tax agent who can assist in investigating this for you.

Since 1 July 2012, the private health insurance rebate and who is required to pay the Medicare levy surcharge (which is payable when an individual or family doesn’t have sufficient private hospital cover from a private health insurer) has become means tested. This will apply to all 2013 and later income year tax returns.

The table below shows what percentage rebate certain taxpayers in particular income brackets are eligible to claim and also who has to pay the Medicare levy surcharge (and how much). The three-tiered scaling will likely result in those falling in the higher income brackets having increased private health insurance payments and a higher Medicare levy surcharge obligation (if this applies).

#No changeTier 1Tier 2Tier 3
Singles (income)≤ $84,000$84,001 – $97,000$97,001 – $130,000≥ $130,001
Families (income)≤ $168,000$168,001 – $194,000$194,001 – $260,000≥ $260,001
% of insurance premium = rebate *30%20%10%0%
Medicare levy surcharge %0%1%1.25%1.5%

*If you are an older taxpayer (65 years or older), the rebate amounts are higher.

The way you claim your rebate (either directly from your private health insurer, through your tax return or from Medicare) should not change.

There are some important things you should know about super:

  1. You might be eligible for a low income super contribution – if you have adjusted taxable income of up to $37,000, you may be eligible for the low income super contribution which is a government payment of up to $500 to eligible taxpayers. See the ATO website for more information.
  2. You might be able to get a refund of excess concessional contributions tax – the ATO is making a once-only offer to taxpayers for excess amounts of super that have been contributed to their super account on which excess concessional contributions tax may be payable (the annual cap is $25,000 above which a contribution will be considered “excess”). Taxpayers may withdraw the excess amount (if the excess amount is less than $10,000) from their super fund (though the excess amount will be added to their assessable income and taxed at their applicable tax rate).
  3. You should review your super contributions now before 30 June 2013 rolls around – as the super contributions cap is now $25,000 (reduced from $50,000 for taxpayers aged 50 and over), it is wise to monitor the amount of contributions being made to your super fund so you know if/when you may be nearing the $25,000 cap and whether you may be liable for excess concessional contributions tax.

Your tax agent will be able to help you answer all your superannuation-related questions.

Note!It is a good idea to keep an eye on your super contributions and ensure the right amounts are being contributed on your behalf.

The Government has also introduced another Bill in relation to the “Stronger Super” reforms in relation to “MySuper”. The Bill imposes various obligations on super funds, particularly where a “MySuper” product is offered, including:

  • Requiring all superannuation funds to provide life and TPD insurance to members (excluding defined benefit members) on an opt-out basis;
  • Requiring the disclosure and publication of key information in relation to superannuation funds;
  • Allowing only funds that offer a MySuper product and exempt public sector superannuation schemes to be eligible as default funds in modern awards and enterprise agreements;
  • Allowing exceptions from MySuper for members of defined benefit funds; and
  • Requiring trustees to transfer certain existing balances of members to MySuper.

If the superannuation fund you are a part of is going to offer a MySuper product, you should be aware of the requirements above that the super fund will need to meet.

The ATO has recently put together some tools and comprehensive information to assist businesses and individuals to work out whether they are an “employee” or “contractor”. Links to the tools and information are below:

If you are unsure about whether you are an employee or contractor, or whether you could be a contractor rather than an employee, it is a good idea to have a look through the information now available on the ATO website and talk to your registered tax agent about your particular circumstances.

Tip!Just because you have an ABN and have given it to the person for whom you are doing work doesn’t necessarily make you a contractor. Therefore, it is a good idea to be clear on what your status is (ie “employee” or “contractor”) to ensure the right amount of tax is being withheld from payments made to you and superannuation guarantee payments are made on your behalf if you are in fact an employee.

The new Living Away From Home (LAFH) allowance provisions began to apply from 1 October 2012. The new LAFH provisions ensure that recipients of the LAFH allowances that meet the requirements will be tax-free and not included in the recipient’s assessable income.

Since the previous issue of TaxWise, in which it was noted that the LAFH provisions would be moved into the income tax law and taken out of the fringe benefits tax law, after much detailed consultation with the tax profession, the Government agreed not to complicate things too much and to leave the LAFH provisions within the FBT space, which is where they had always been.

However, the rules still have the effect of limiting access to the concession to employees who are required to live away from a home they maintain in Australia and require employees to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

The ATO has published detailed information relevant for individuals subject to a LAFH arrangement on their website (see link).

There are also transitional rules which apply to arrangements that were in place at 7.30pm on 8 May 2012. The new rules will apply to these existing arrangements on the earlier of the existing arrangement changing (after 8 May 2012) or 1 July 2014 when the transitional period ends.

To do!If you are subject to a LAFH arrangement, speak to your tax agent to find out how the new rules might affect your current arrangement.

In September 2012, the ATO wrote to several taxpayers who have reported personal services income, but who may have incorrectly self-assessed themselves as conducting a personal services income business. If you have received a letter of this kind, it is best to talk to a registered tax agent about what this might mean for you. If you already have a tax agent, your agent should have also received a copy of the letter that was sent to you. It is important to work out whether you have correctly determined if you conducted a personal services business (and have derived personal services income) as your reporting obligations may be affected and it may impact certain deductions you may or may not be able to claim.

For the 2012-13 income year, the ATO has released Taxation Determination TD 2012/17 entitled “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2012-13 income year?” which sets out the amounts considered “reasonable” for travel and meal allowances for which there will be no substantiation requirements.

This includes amounts such as:

  • Overtime meal allowance expenses – for food and drink in connection with overtime worked and where a meal allowance has been paid under an industrial instrument;
  • Domestic travel allowance expenses – accommodation, food and drink, and incidentals that are covered by the allowance;
  • Travel allowance expenses for employee truck drivers – food, drink and incidentals that are covered by the allowance; and
  • Overseas travel allowance expenses – food, drink and incidentals that are covered by the allowance.

If in your occupation you are entitled to such an allowance, such as truck drivers, you may wish to have a look at the “reasonable” amounts included in the Taxation Determination for which you may not have to keep documentation substantiating the expense. Where your expenses incurred exceed the specified “reasonable” amounts, you will need to keep written records of the expenses incurred.

If you pay PAYG Instalments, there may be an opportunity for you to change to account for your PAYG Instalment obligations on an annual basis rather than the report and pay on a quarterly basis. Your tax agent may already have received a letter advising which of their clients may be entitled to make this change (which could include you). Though the cut-off date was 29 October 2012, this may be something to keep in mind for next year.

New withholding rates that apply to employment termination payments have been set out in a new Schedule issued by the Commissioner. The Schedule sets out the withholding rates that might apply (Nil, 16.5%, 31.5%, 46.5%) to the various components of an employment termination payment (including a benefit received for a genuine redundancy, compensation or similar such payment; payment of unused annual leave and long service leave; a “golden handshake” etc) which is also determined by your age when you receive the payment. The Schedule can be accessed through this link.

If you receive an employment termination payment during the 2012-13 income year, it is a good idea to check the Schedule to make sure the right amount of tax (if any) is withheld from the payment.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Nov 2011

IN THIS ISSUE

On 1 July 2011, the ATO released its compliance program for the 2011-12
income year.

Each year, the Commissioner sets out in the compliance program the ATO’s views on the most significant tax compliance risk areas for individuals, small to medium enterprises, high net worth individuals, large businesses and the not-for-profit sector.

An overview of the areas that are likely to affect you is set out below for your information.

Notably, these are the ATO’s areas of focus only. Falling into one of these areas does not mean you have done anything wrong, or will be required to pay additional taxes.

However, at the ATO’s discretion, one or more of the items on your tax return may be queried and you may be required to substantiate one or more claims on your income tax return.

If you receive any documentation from the ATO in relation to a risk review or audit, you should contact your tax adviser to discuss.
This year, the ATO will be focusing on a range of areas in relation to individuals, including the following:

Employees v contractors

The ATO will be checking to make sure employees and contractors have been correctly classified as such, from an employer as well as service provider/employee perspective. The ATO is of the view that persons inappropriately classified as contractors may be under-reporting income, but may also be missing out on entitlements such as superannuation, leave and workers compensation.

Specific industries being watched by the ATO include:

  • Building and construction
  • Call centres
  • Cleaning
  • Security
  • Logistics
  • Retail
  • Tourism and hospitality
  • Education
  • Aged care
  • Health
  • Telecommunications.

The ATO is also concentrating on the following industries to make sure employers are fulfilling their superannuation guarantee surcharge obligations:

  • Cafes and restaurants
  • Real estate
  • Carpentry
  • Computers system design
  • Accommodation
  • Accounting.

If you are concerned about your classification or suspect that relevant factors may not have been taken into account when determining your classification with your “employer”, you should contact your tax adviser to discuss.

Personal services income

Income earned primarily through the provision of personal services or exertion is taxed in the hands of that person regardless of the entity that derives the income, pursuant to specific personal services income rules.
The ATO is watching for taxpayers who ignore these rules and report such income in the hands of a company, trust or another person where the personal services rules would apply to tax the income in the hands of the primary service provider.

Work-related expenses

The ATO continues to focus on claims for work-related expenses (which continue to climb) and will be especially focusing on workers in the following industries in the coming year:

  • Real estate employees
  • Carpenters and joiners
  • Earthmoving plant operators
  • Flight attendants.

Overseas income

The ATO continues to use data-mining techniques to make sure taxpayers are reporting all of their overseas income.

Remember – Australian tax residents are taxed on their worldwide income, ie income derived from all sources. Where tax has been paid in a foreign jurisdiction, you will likely get a rebate or offset so that you may not be required to pay top-up tax in relation to your overseas income, but you still need to report it!

Pre-filling

It is essential that you double check information that is pre-filled into your tax return. Australians are increasingly reliant on pre-filled information to complete their income tax returns, but the ATO is reminding taxpayers that this information may not be absolutely correct in all instances and should be checked against primary sources prior to lodgment.

Split loans

Split loans (for example, where one loan is used for two or more purposes, especially where at least one purpose is business-related, and at least one is personal) are again under the microscope. If you have such a loan, make sure costs in relation to the loan are apportioned correctly. If you are unsure, speak to your tax adviser.

Refund fraud

The ATO has gone to a lot of effort to build fraud detection tools into their data-checking systems, but it is still important to be wary of potentially fraudulent transactions in relation to your tax file number.

If you receive any correspondence from the ATO that relates, for example, to a return that you haven’t lodged, make sure you contact your tax adviser or the ATO as soon as possible.

Executives, directors and other highly paid individuals will have their tax affairs watched more closely by the ATO, with a specific focus on:

  • Large deductions
  • Incorrect calculations of net capital gains
    or losses
  • Deductions for contributions to SMSFs
  • Large revenue loss claims
  • Appropriate disclosure of partnership or trust income
  • Personal services income
  • Loans with related entities
  • Employee share schemes.

Tip!Although the ATO is targeting the areas mentioned above, businesses should not think that this means that the ATO will not be looking at other areas too. They will!

The carbon tax has passed the House of Representatives and looks set to pass the Senate later this year. This means that, unless and until the legislation is repealed down the track, the carbon tax is here to stay and will come into effect from 1 July 2012.

For individual taxpayers, the part of this package that will be of most interest will be the accompanying “compensation measures”.

The most significant of these changes is the increase in the tax-free threshold from $6,000 (currently) to $18,200 in 2012-13, with a consequent increase in some marginal tax rates.

The low income tax offset (LITO) will be reduced from $1,500 to $445, with the benefit being reflected in the new tax-free threshold.

This means that, when the threshold is combined with the LITO, each taxpayer will not need to start paying tax until their income exceeds $20,542.

In the 2015-16 year, the government has announced that the tax-free threshold will again be increased to $19,400, with a further increase in one marginal tax rate. The LITO will be reduced to $300. The effective tax-free threshold applying to individuals will rise to $20,979.

The table below shows the current and proposed marginal tax rates and thresholds as part of the carbon tax package:

#Current Threshold ($)Current Margiral Rate2013-14 Threshold ($)2012-13 Marginal Rate2015-16 Threshold ($)2015-16 Marginal Rate
1st rate6,00115%18,20119%19,40119%
2nd rate37,00130%37,00132,50%37,00133%
3rd rate80,00137%80,00137%38,00137%
4th rate180,00145%180,00145%180,00145%
LITOCurrent Up to $1,500Current 4% withdrawal rate on income over $30,0002012-13 Up to $4452012-13 1.5% withdrawal rate on income over $37,0002015-16 Up to $3002015-16 1% withdrawal rate on income over $37,000
Effective tax-fee threshold*16,00016,00020,54220,54220,97920,979

* Includes the effect of the tax-free threshold and the LITO.

 

Separately, the Treasurer also announced following the Tax Forum in October 2011 that the government will, when the Budget is in a sufficiently strong position, “increase the tax-free threshold further, to at least $21,000, and remove the low income tax offset entirely”.

There is no detail yet on the timing of any such change. However, we will bring you further news as soon as such detail is available.

In addition to the above, the government will also be increasing family payments, pensions, benefits and allowances.

If you are unsure of how the carbon tax compensation package will affect your circumstances, you should seek advice from your tax advisor.

To do!You should speak to your tax adviser about what preparation you may need to undertake before the carbon tax and related tax changes are implemented on 1 July 2012.

For most of us, tax time is a difficult and frustrating experience of collecting receipts, answering reams of questions from our tax agent, and poring over the details of the tax return once prepared – all while we look after all of our other responsibilities.

From the year beginning 1 July 2012, that experience may get a little easier with the government’s release of exposure draft legislation to introduce a standard deduction for work expenses of $500 in the 2012-13 income year, which will increase to $1,000 in the 2013-14 income year.

This standard deduction will be available to all individual taxpayers in lieu of deductions for work-related expenses (such as uniforms, business and mobile telephone costs, and subscriptions) and the cost of managing your tax affairs.

Of course, you will still be able to claim a higher deduction if you can substantiate the higher amount. For many taxpayers who are not sure of how much they are entitled to deduct, this will mean needing to tally up the deductions to which you are entitled to determine if the standard deduction is worthwhile.

However, some taxpayers whose deductions are below the threshold will benefit significantly from a reduction in the administrative burden of filing their income tax return.

Note!The standard deduction will be available to all individual taxpayers from the 2012-13 year onwards. You should consult your tax adviser to determine if the standard deduction will be a worthwhile option for you.

As part of the suite of tax reforms announced after the report of the Henry Review was released, the government announced it would provide a discount of 50% on the net interest income earned by individuals (including via a trust or partnership).

This reform has moved one step closer with Treasury’s release of a discussion paper to progress the reform and iron out implementation issues.

The discount will apply to the first $500 of net interest income earned in the 2012-13 income year, and then go up to the first $1,000 of interest income earned in each year thereafter.

These amendments were intended to level the playing field between different investment choices for individuals and to make savings a more attractive investment choice than is currently the case (from a tax perspective).

While the amounts may not be large, they may influence how much you leave in the bank as of 1 July 2012, so you should talk to your tax or financial adviser to consider your options.

The discount will apply to interest received from deposits held with any bank, building society or credit union, as well as interest on bonds, debentures and annuity products.

Note!If you have or intend to maintain savings and derive interest income, from 1 July 2012 you will be able to apply a 50% discount to the first $500 of interest income earned that year. This amount will go up to $1,000 in the following year.
This may affect your investment decisions, so you should consult your tax or financial adviser to plan appropriately for these changes.

Recently, the government announced its intention to create (as part of broader superannuation reforms) a new simple, low-cost default superannuation product called “MySuper”.

Further proposed detail of these reforms has now been released, including proposed changes to superannuation guarantee requirements, the application process for MySuper, the MySuper authorisation process, the characteristics of a MySuper product, and the permitted fees and charging rules associated within a MySuper product.

If you think such a product may benefit you, you should speak to your financial adviser about the potential benefits and implications.

Note!The government is soon to create a new, low-cost default super product called “My super”. If you think this may assist you, you should consult your financial adviser.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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Taxwise Individual News – Apr 2015

IN THIS ISSUE

Income thresholds

Legislation was passed in October 2014 to pause for three years the income thresholds which determine the tiers for the Medicare levy surcharge and government rebate on private health insurance from the 2015-16 financial year. Usually the income amounts would be increased by an indexed amount, but this is not going to happen for the next three years. The tables below set out the income levels for singles and families and confirm the income amounts will remain the same from the 2015 to the 2018 income years:

Singles

Income YearBase TierTier 1Tier 2Tier 3
2013-14$88,000 or less$88,001 – $102,000$102,001 – $136,000$136,001 or more
2014-15$90,000 or less$99,001 – $105,000$105,001 – $140,000$140,001 or more
2015-16$90,000 or less$99,001 – $105,000$105,001 – $140,000$140,001 or more
2016-17$90,000 or less$99,001 – $105,000$105,001 – $140,000$140,001 or more
2017-18$90,000 or less$99,001 – $105,000$105,001 – $140,000$140,001 or more

Family

Income YearBase TierTier 1Tier 2Tier 3
2013-14$176,000 or less$176,001 – $204,000$204,001 – $272,000$272,001 or more
2014-15$180,000 or less$180,001 – $210,000$210,001 – $280,000$280,001 or more
2015-16$180,000 or less$180,001 – $210,000$210,001 – $280,000$280,001 or more
2016-17$180,000 or less$180,001 – $210,000$210,001 – $280,000$280,001 or more
2017-18$180,000 or less$180,001 – $210,000$210,001 – $280,000$280,001 or more

It is anticipated indexation to increase the income amounts will begin again from the 2018-19 income year.

Private health insurance rebate percentage

From 1 April each year, the private health insurance rebate percentages for premiums paid will be subject to an annual adjustment. The rebate adjustment factor is based on a formula that uses the Consumer Price Index and the average annual increase in premiums. The first annual adjustment occurred on 1 April 2014.

This means there will be two different rebates to enter in your tax return for each tax year:

  • From 1 July 2014 to 31 March 2015, and
  • From 1 April 2015 to 30 June 2015.

These different rebates appear on your private health insurance statement as two separate lines. Both must be entered on your tax return.

The rebate amount for the period 1 July 2014 to 31 March 2015 is:

Age RangeBase TierTier 1Tier 2Tier 3
Under 65 years29.04%19.36%9.68%0%
65 – 69 years33.88%24.20%15.52%0%
70 years and over38.72%29.04%19.36%0%

The rebate amount for the period 1 April 2015 to 30 June 2015 is:

Age RangeBase TierTier 1Tier 2Tier 3
Under 65 years27.820%18.547%9.273%0%
65 – 69 years32.457%23.184%13.910%0%
70 years and over37.094%27.820%18.547%0%

Please note: These figures became available 9 April 2015.

Private health insurance rebate - reversal of amendments

The ATO has advised that it regularly matches data with health insurers to identify taxpayers who received the private health insurance (PHI) rebate through reduced premiums and have also claimed them in their income tax return. When this double claim occurs, the ATO automatically amends the taxpayer’s assessment to remove the rebate.

The ATO has reviewed amendments to reverse double claims for the PHI rebate and has identified some that have been made outside the taxpayer’s period of review.

The ATO says that in limited circumstances an assessment may be amended at any time to give effect to the provisions that relate to the PHI rebate.
The ATO has advised that if there are taxpayers affected, the ATO will write to the taxpayer’s registered contact (this could be your tax agent) about this decision and tell them a notice of amended assessment will issue soon. If you have been affected by this, you may have already received a notice of amended assessment, in which case, you should talk to your tax agent about it.

Medicare Levy Surcharge amounts

The following Medicare Levy surcharge amounts apply for the 2014-15 Income Year depending on which income tier you fall into (refer to the income tables above):

Income TierBase TierTier 1Tier 2Tier 3
Surchange amount0%1%1.25%1.5%

To do!Completing your private health insurance rebate information in your tax return has become a little tricky with the introduction of an annual adjustment on 1 April for the private health insurance rebate percentages as now you have double the information to include in your return. See your tax agent for help in completing this part of return.

As we’ve noted in previous editions of TaxWise, the phase-out of Net Medical Expenses Tax Offset (NMETO) began on 1 July 2013. To be eligible to claim the NMETO in the 2014-15 income year, you need to have been able to claim the offset and received it in your 2013-14 return. The NMETO is no longer available after 30 June 2015 unless the medical expenses you are claiming relate to specific medical items, such as disability aids, attendant care or aged care. However, only these expenses will be able to be claimed up to the 2018-19 income year.

Note!The Net Medical Expenses Tax Offset is being phased out. You should check with your tax agent if you are still eligible to claim it.

Previous editions of TaxWise have noted the change in the superannuation guarantee rate amounts. The rates have been included again as, if you are an employee, you should make sure your employer is contributing the right amount into your superannuation account:

YearSuperannuation guarantee rate percentage
From 1 July 20139.25%
From 1 July 20149.5%
From 1 July 20159.5%
From 1 July 20169.5%
From 1 July 20179.5%
From 1 July 20189.5%
From 1 July 20199.5%
From 1 July 20209.5%
From 1 July 202110%
From 1 July 202210.5%
From 1 July 202311%
From 1 July 202411.5%
From 1 July 202512%

Note!Check you are getting the right amount of super being paid into your super fund.

With the super guarantee rate having changed, it is worth remembering what the contributions caps are as well.

The concessional contributions general cap includes:

  • Employer contributions (including contributions made under a salary sacrifice arrangement);
  • Personal contributions claimed as a tax deduction by a self-employed person.

The non-concessional contributions cap includes personal contributions for which you do not claim an income tax deduction.

Both of these are noted in the table below.

Income YearConcessional contributions general capNon-concessional contributions cap
2014-15$30,000**$180,000
2014-15 2015-16$30,000$180,000

**If you are 49 years old or over on 30 June 2014, the concessional contributions cap is temporarily increased for the 2014-15 income year to $35,000. This cap is not indexed and will cease to apply when the indexed cap that otherwise applies reaches $35,000.

From 1 July 2013, if you exceed your concessional contributions cap, the excess amount will be included in your assessable income and taxed at your marginal rate. An interest charge also applies.

You can choose to release out of your super fund up to 85% of the excess contribution made if you complete an election form. If you do elect to release an amount, the ATO will issue your super fund with an ‘excess concessional contributions release authority’. Your super fund must pay the amount to be released to the ATO (as well as return the release authority statement) within 7 days.

The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

To do!It is worth checking your super fund account to ensure no excess contributions have gone in, or if they have, considering whether you want to withdraw them. Talk to your tax agent if you are unsure whether the right amount of super has been paid into your account.

Following on from the above, the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 amends some provisions that relate to the taxation of excess super contributions to:

  • Provide individuals with an option to be taxed on the earnings associated with their excess superannuation non-concessional contribution at their marginal tax rate;
  • Ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan are not disadvantaged through the transfer; and
  • Remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred, and allow taxation officers to record or disclose personal information in certain circumstances.

If you are concerned you have made excess contributions to your super fund, speak to your tax agent about whether you are likely to be affected by any of these recent changes.

The Bill received Royal Assent on 19 March 2015.

The ATO noted in a recent media release that Australians with multiple superannuation accounts could be paying thousands of dollars in unnecessary fees every year. According to new figures released by the ATO, 45% of working Australians have more than one superannuation account.

The ATO is encouraging taxpayers with multiple accounts to consider consolidating their superannuation into one preferred account. Australian Prudential and Regulation Authority (APRA) figures show the median figure for fees and charges paid by Australians for a low cost superannuation account is $532 per year.

To do!Do you have multiple super fund accounts and are wasting money on unnecessarily paying fees in all the funds? If so, it is time to combine all your super into one account. Your tax agent can help you to do this.

If you want to claim any of the following family assistance payments for the 2014 financial year, you must lodge your claim with the Department of Human Services (Centrelink) by 30 June 2015 to be eligible:

  • Family Tax Benefit
  • Child Care Benefit
  • Single Income Family Supplement (SIFS).

Your tax agent will be able to help you make this claim.

Recently, the ATO published on its website information about what to do if a private company has, for example, made a loan to a shareholder that is a ‘deemed dividend’ for tax purposes. A taxpayer can take corrective action by, for example, putting the right loan documentation in place, to ensure that the amount is not captured by the ‘deemed dividend’ rules (colloquially known as “Division 7A”).

Your tax agent will be able to assist you if you have any concerns about loans or other arrangements you may have in place with a private company, so it is always best to consult your tax professional for help with these sorts of things.

Note!If you have a loan from a private company, check with your tax adviser to see if you need to take any corrective action.

If you have Activity Statements to lodge, even if your Activity Statement is nil for a particular period, the Activity Statement still needs to be lodged. Failure to lodge an activity statement, even one with zero obligations, may delay processing and result in penalties.

It is good to stay on top of these obligations and obtain the assistance of your tax agent to ensure you lodge your Activity Statement on time, every time.

Tip!The ATO has published some tips for getting your Activity Statement right which you can find on the ATO website.

The ATO has published the following information about the taxable payments reporting obligations of persons in the building and construction industry:

The ATO has advised that it has redeveloped the letters it is sending to agents and taxpayers regarding reviews of rental legal and/or borrowing expense claims to make the letter clearer. In feedback, the ATO was asked to provide information on the specific area of the expense claims it is reviewing. The re-drafted letters now identify:

  • Return label and amounts in question;
  • The proposed adjustments;
  • What to do in the event of a disagreement

To do!You should see your tax adviser if you have a rental property and receive one of these letters.

If you are selling or closing down a business, there are some important tax obligations for the business that you should attend to, such as:

  • Ensuring all outstanding Activity Statements and returns (income tax, FBT) have been lodged;
  • Put in all requests for any refunds owed to your business;
  • Cancel any PAYG withholding registrations for the business; and
  • Cancel the business’ ABN (which should also result in the cancellation of other registrations such as GST).

More information can be found on the ATO’s website.

a) Are you a director of a company?

The ATO advises that it has created a new page on its website with information about the director penalty regime, which is all about what happens when a company deducts PAYG withholding amounts from its employees’ salaries and wages, but fails to remit those amounts to the ATO. To access the page, go to the ATO website.

b) Deductibility of working with children checks

The ATO advises that the requirement for people to obtain a Working with Children check will be introduced in NSW and exists in many other states.

For information about when the cost of a working with children check is deductible, check the ATO website.

c) GST - avoiding common errors

For ATO advice about avoiding common errors that may occur when completing activity statements, accounting for GST and claiming GST credits, go to the ATO website.

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