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Taxwise Individual News – Apr 2013

IN THIS ISSUE

There has been a change of Commissioner at the Australian Taxation Office. Michael D’Ascenzo AO ceased to be Commissioner on 31 December 2012 and Chris Jordan AO commenced as the new Commissioner on 1 January 2013.

With the early announcement of the 2013 federal election, the government will be forced to re-prioritise tax measures it may or may not choose to pursue over the coming months. There may be delays in areas where change was pending and changes sped up in other areas. We will keep you informed of these changes as they are announced by the government.

Following some decisions in cases going against the ATO, the Government has decided to tighten up the rules which target tax avoidance by taxpayers. Draft legislation bringing the changes the Government wishes to make will be introduced in the Autumn sittings of Parliament.

Previous editions of TaxWise have mentioned this change, and now it is on our doorstep.

It is good to be aware that such provisions exist and bear them in mind when embarking on transactions. Your tax agent will be able to advise you if there is any concern about these provisions with respect to your business activities.

In the Mid-Year Economic and Fiscal Outlook report released by the Government in late October 2012, the Government announced a change would be made to the FBT treatment of in-house fringe benefits provided through a salary sacrifice arrangement. An “in-house fringe benefit” is a benefit (goods and services) provided by an employer (or their associate) to an employee that are identical or similar to goods and services ordinarily provided by the employer (associate) to their customers.

Under the proposal, the value of the fringe benefit subject to FBT will become either the lowest price that an identical good or service is sold to the public or the lowest price of the good or service under an arms’ length arrangement.

Note!This change only affects in-house benefits provided through salary sacrifice arrangements. If you receive these kinds of benefits from your employer for goods or services your employer sells in their business through salary sacrifice arrangements, you should see your tax adviser to see if these new rules might affect you.

The Australian Business Register website has recently been upgraded and some new functionality has been added. When registering a new entity, you should now be able to do the following:

  • Register for a business name, an AUSkey, GST, fuel tax credits and PAYG withholding at the same time as applying for an Australian Business Number (ABN); and
  • Have your details pre-filled from one registration to the next – for example, some of the details included on your ABN application should then be pre-filled on your business name application.

However, if you do not take advantage of applying for certain registrations at the initial stages of your ABN application, you will still need to:

  • Apply directly to each agency for additional registrations if you do not elect to apply for these registrations at the same time as you apply for an ABN, or if you already have an ABN;
  • Apply for a business name directly with the Australian Securities & Investments Commission (ASIC) if you are registering an entity that is not an individual or organisation with an Australian Company Number or Australian registered body number;
  • Go to the AUSkey website www.auskey.abr.gov.au to manage your AUSkeys – for example, cancel an AUSkey, or apply for additional AUSkeys.

It is important to look after your AUSkeys for the entities that you have.

Tip!Before going ahead to register an entity, if you are not sure what type of entity you should register, you should seek advice from your accountant or tax agent as there may be different tax implications for different types of entities. Also, it is worth spending time working out what is the best structure for your type of business.

In previous editions of TaxWise, we noted that the new rules comprising the Taxable Payments Reporting System began to apply from 1 July 2012. As a reminder, these rules only affect participants in the Building and Construction Industry with an ABN and require certain payments made to contractors for certain building and construction services to be reported.

The reporting date of 21 July 2013 is fast approaching and businesses likely to be affected should have already started trying to record relevant transactions that they may need to report.

For this first year in which the rules apply, these payments will need to be reported by 21 July 2013, which is very soon after the financial year ends. If you make these payments, it may be worth starting to compile a list of the payments you make to contractors (including the details noted above) to assist you to meet the reporting requirements at year end. This way, you will have compiled all the information you need in one place by year end.

The ATO has indicated that it will send letters to contractors (or their tax agents) who have been identified by the ATO to raise awareness and ensure these contractors are aware of this new obligation.

If you have received one of these letters, see your tax agent who can help you get your records together to meet the requirements here.

To do!It is not too late to start keeping track of payments you make to contractors for the 2012-13 income year and will help you when the time comes to prepare the first report due on 21 July 2013.

The ATO has embarked on a “data matching” program where they will request and collect details of individuals or businesses that have acquired a vehicle with a transaction value of $10,000 or greater in the 2011-2012 and the 2012-2013 financial years from all the motor vehicle registries in all the States and Territories.

The ATO will then electronically match the data with data the ATO has on file to see if individuals and businesses are meeting tax obligations they may have in respect of the vehicles acquired. This program may pick up obligations that have not been met in relation to fringe benefits tax, luxury car tax and Fuel Scheme compliance verification activity.

If you have recently purchased a vehicle for business purposes, check with your tax agent if there are any associated tax obligations you may need to meet.

The Government released in February a draft regulation to provide certainty to the beneficiaries of deceased estates. The regulation will ensure that investment earnings derived by superannuation funds from assets supporting pensions will be exempt from tax. The tax exemption is intended to continue following the death of the pension recipient until all their benefits have been paid out.

This gives effect to an announcement the Government made in the 2012-13 Mid-Year Economic and Fiscal Outlook report.

From 1 July 2013, refunds on individual tax returns will be given by EFT. Individuals whose returns are lodged through the electronic lodgment service will have to provide their bank account details (BSB and account number) where a refund is expected. The ATO has said they will accept details of bank accounts which are also joint accounts or trust accounts for this purpose.

Australian residents aged 16 years and older are now able to apply for a tax file number online so long as they authenticate their “proof of identification” documents at participating Australia Post outlets.

This facility is available from February at over 230 participating Australia Post outlets. A total of 475 outlets will be offering the service by June 2013. You will find a copy of the online form on the ATO website.

Unfortunately current paper TFN applications (available from newsagents) are not accepted as part of the service Australia Post offers.

There is lots of activity going on in relation to self-managed superannuation funds (SMSF). More and more people are deciding to set up their own SMSFs. We highlight below some of the current issues for SMSFs.

1) Regulations relating to audits of SMSFs - StrongerSuper

New regulations will be introduced relating to the SMSF auditor registration regime and the prescribed period for the provision of an audit report and accompanying explanatory material for an SMSF. The Government recently released the draft proposed regulations for public consultation.

The purpose of the regulations is to ensure auditors of SMSFs meet a high standard of competency so that they may carry out their role as auditor of SMSFs to the highest standards.

If you run your own SMSF, it is useful to know that an auditor you obtain to audit your SMSF will be required to meet these high standards.

2) SMSF arrangements to acquire property which contravene superannuation law

The ATO has released a Taxpayer Alert (TA 2012/7) about certain arrangements entered into by SMSFs to acquire property. There are certain arrangements which the ATO consider do not comply with the superannuation laws. These are described in the Taxpayer Alert.

The ATO is concerned that some arrangements, if structured incorrectly, may not be able to be fixed up easily and may require sale of the property.

If you have an SMSF, you need to ensure care is taken when investing in property, particularly where certain types of borrowing arrangements are involved.

3) Pre-retirement super withdrawals

A recent decision of the Administrative Appeals Tribunal held that an individual who withdrew funds from their self-managed super fund without meeting the qualifying conditions for withdrawal was subject to tax on the amounts withdrawn.

If you are thinking about withdrawing funds from your SMSF, speak to your tax agent about whether you have met the qualifying conditions that will allow you to draw the funds out without triggering a liability to tax.

4) Acquisitions and disposals of certain assets by SMSFs and related parties

Some draft legislation was released by the Government which affects certain transactions involving acquisitions and disposals of certain assets (eg real property used in a business) between SMSFs and parties associated with the SMSF.

If you have plans to transfer an asset into your SMSF or for the SMSF to dispose of an asset, you should speak to your tax agent about how these proposed rules may affect your proposed transaction.

The ATO has prepared a publication entitled “Super – what employers need to know” which gives employers an overview of their essential obligations in relation to superannuation and their employees.

This document may be useful for you if you are an employee to ensure you are aware of your employer’s super obligations in respect of you. A copy of the publication can be found on the ATO’s website.

SuperSeeker is a free, online search tool that shows you details of any superannuation accounts that have received contributions in the past two financial years, any lost super reported to the ATO and any super money that the ATO holds. SuperSeeker can also be used to transfer your super online. A link to this tool is here.

In February this year, the Government announced that the SuperSeeker tool had been improved to allow people to see and do more with their super.

Firstly, you will need to register on the website. Once registered, you should be able to see all the superannuation accounts you have contributed to in the previous two financial years. You should also be able to see any superannuation money the ATO is holding that is yours, any lost super you may have and request funds be transferred between your super accounts to consolidate your entire super into one account using the online form.

To do!There are billions of dollars in lost super and some of it may be yours! Register on the SuperSeeker website and see if any of the lost super belongs to you! If you find some, you’ll be able to easily transfer it into your current super account.

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 2014

IN THIS ISSUE

Individuals income tax returns were due on 31 October 2013 and taxpayers who lodge their returns late could face interest and late lodgement penalties.

If you use a tax agent to prepare and lodge your return, depending on your circumstances, you may be eligible to lodge your return at a later date (eg 15 May 2014 or 5 June 2014) and not risk facing interest and late lodgement penalties.

Listed below are a variety of issues that you might need to be aware of when preparing your return or after you have lodged it.

a) Increase in electronic refunds – the ATO has indicated there has been a marked increase in refunds being received electronically by taxpayers during Tax Time 2013. From 1 July 2013, individual taxpayers were required to include bank account details to obtain their refund via EFT. To avoid delay in receiving your refund if you are due one, make sure you include your bank account details on your tax return.

b) Centrelink clients to lodge by 30 June 2014 – the ATO has advised that if you are intending to lodge a lump sum Family Tax Benefit, Child Care Benefit or Single Income Family Supplement (SIFS) claim for the 2012-13 financial year, you must do so by 30 June 2014. This is due to changes to the claim lodgement period administered by the Department of Human Services. Also, if you received or expect to receive Family Tax Benefit, Child Care Benefit and/or SIFS for the 2012-13 financial year, you must lodge your income tax return by 30 June 2014 to receive your benefits.

c) Warning over income tax fraud schemes – there have been some recent tax fraud schemes occurring including schemes arranged by an organised crime syndicate that has allegedly been stealing information and creating fictitious payment summaries to obtain refunds fraudulently. There has also been a huge increase in phishing scams.

The ATO warns taxpayers to protect their personal and financial details. You should keep a wary eye out for these schemes and ensure you don’t get caught up in one.

d) Completing private health insurance policy details on your return – the ATO has included information on its website about how to complete your private health insurance policy details on your return which can be found at the ATO website. Of course, your tax agent is well equipped to be able to assist you with completing this part of your return.

e) Incorrect reduction of the tax-free threshold – early on during Tax Time 2013, the tax free threshold amount was incorrectly reduced for some individuals from $18,200 to $416 following a systems deployment on 21-22 September 2013. Taxpayers that were impacted are those in receipt of the following non-refundable tax offsets:

  • Seniors and pensioners tax offset (SAPTO) for the 2013 income year;
  • Pensioner Tax Offset (PTO) for the 2012 income year;
  • Beneficiary Tax Offset (BTO) for the 2012 income year.

The ATO has since put a fix in place. However, if you are claiming one of these tax offsets, it may be worth keeping this issue in mind in case you have also been affected and this was not properly fixed for your account.

f) Net medical expenses tax offset phase out – The net medical expenses tax offset phase out is planned to begin on 1 July 2013. More information about the changes can be found on the ATO website. At the time of writing, the Bill enacting this change had passed both Houses of Parliament but had not yet become law.

Taxpayers and their agents need to ensure that the IT5 and IT6 income tests labels are completed correctly.

The ATO has recently said that it has reviewed a small sample of 2012-13 individual returns lodged since 1 July 2013 and found some possible errors:

  • Other deduction (D15) expenses such as income protection insurance incorrectly attributed to the “Financial investments” sub-label rather than “Other”;
  • General business losses incorrectly attributed to the “Financial investments” sub-label rather than “Other”.
  • Low value pool deductions incorrectly attributed to the “Financial investments” sub-label rather than “Other”.

Getting these labels wrong could impact how your “adjusted taxable income” is calculated for the purpose of working out whether you might be entitled to certain tax offsets or government support payments. It is best to check with your registered tax agent to confirm you are putting the right information in the right part of your return.

Tip!When completing this part of your return, verify that you have completed these labels correctly with your tax agent.

The end of the 2014 income tax year is fast approaching and before you know it, 30 June 2014 will be upon you. Now is the time to think about what you might like to do for the rest of the 2014 financial year as well as start to think about planning for 2015.

If eligible for the net medical expenses tax offset, are you likely to reach the threshold for this year? Are there any tax deductible donations you have been putting off that you might want to make before 30 June 2014? If you are eligible, to qualify for the government’s superannuation co-contribution scheme, contributions must be made by 30 June (and there are other tests that also need to be satisfied). Are you near retirement? If so, is there discretionary income that you might want to consider deferring?

Your tax agent will be able to help you answer all these questions and more that you might have about your own individual situation.

In December 2013, the Assistant Treasurer, Senator Arthur Sinodinos, announced the outcome of consultations over the backlog of 92 announced but unlegislated tax and superannuation measures.

The Government previously announced that 18 measures would proceed, three would be amended and seven would not go ahead including for the former government’s proposal that would have impacted on car fringe benefits and the cap on self-education expenses.

Of the 64 measures that were considered further, 16 will proceed and 48 measures will not proceed. Details are set out in the table attached to the Assistant Treasurer’s media release.

Those that are proceeding that may be relevant to you include:

  • Capital gains tax treatment of certain compensation payments and insurance policies;
  • Superannuation measures around unlawful payments and illegal promotion of early release schemes; and
  • Applying a reverse charge for the supply of going concerns and farmland for GST.

Those that are not proceeding that may be of interest to you include:

  • Capital gains tax relief for taxpayers affected by natural disasters;
  • Capital gains tax: minor amendments ensuring the proper functioning of the capital gains tax provisions for deceased estates; and
  • Capital gains tax: refinements to the law for deceased estates (this would have allowed testamentary trusts to distribute the assets of a deceased without CGT implications).

It is intended that most of these measures pass into law during 2014.

As part of its pre-election promises, the Coalition would abolish the carbon and mining taxes. The abolition of these taxes also involved the wind-back of certain other measures including:

  • The instant asset write-off amount of $6,500 for small businesses – from 1 January 2014, the instant asset write-off will be reduced back to $1,000;
  • The accelerated deprecation for motor vehicles that is available to small businesses – from 1 January 2014, this will no longer be available;
  • The loss carry-back measure – this measure will only apply for the 2013 income year;
  • The Schoolkids’ Bonus will no longer be available;
  • The increase to the superannuation guarantee charge percentage will be deferred by 2 years so that it remains at 9.25% for the 2014, 2015 and 2016 income years. See the table below for the proposed rate increases over the coming year:
YearSuperannuation guarantee charge rate
From 1 July 20139.25%
From 1 July 20149.25%
From 1 July 20159.25%
From 1 July 20169.50%
From 1 July 201710%
From 1 July 201810.50%
From 1 July 201911%
From 1 July 202011.50%
From 1 July 202112%

The Government will also not proceed with the following personal income tax cuts which were to commence on 1 July 2015:

  • Further increase in the tax-free threshold from $18,200 to $19,400;
  • Increase the income tax rate to 33% (from 32.5%) for the income bracket $37,001 – $80,000;
  • Change to the low income superannuation contribution as it will no longer be available.

There are Bills before Parliament containing the repeal of the carbon and minerals rent resource tax and the measures listed above at the time of writing. It is anticipated that these changes will pass through Parliament shortly.

Businesses in the building and construction industry are required to report certain information concerning contractors including their name, ABN, address, total amount paid to them for the year and the total amount of the GST included in that amount.

Recently, the ATO has been telephoning some businesses in the building and construction industry directly to:

  • Test the levels of understanding of the requirements of the new system; and
  • Help businesses to comply with their taxable payments annual reporting obligations.

It has also been contacting them to:

  • Ensure lodged reports are correct and complete;
  • Follow up with businesses that have not yet lodged a report (where ATO records indicate they should have); and
  • Follow up with businesses who have advised the ATO that they are not required to report (where ATO records indicate they have a reporting requirement).

The businesses are being contacted directly even if they are clients of tax agents. As such, this is a big focus area for the ATO.

If you work as a contractor in the building and construction industry, payments that have been made to you by another business are likely to be reported to the ATO through this system.

Note!If you are a contractor and have any concerns about these reports, speak to your tax agent who will be able to assist you with any queries you may have.

Are you about to purchase some property? If so, you should know whether the vendor is registered for GST as this may affect your transaction.

The ATO has advised that it has recently disallowed claims for input tax credits related to the purchase of commercial real property. In these cases, the ATO has noticed that the taxpayers and their agents failed to check that the vendor was registered for GST at the time of settlement.

There is information on the ATO’s website containing advice and information about what to check for.

However, the best source of advice will be your tax adviser who can help ensure you obtain necessary information about the vendor’s GST status prior to your property transaction.

Are you employed by a start-up company? Have you been issued shares or options in an employee share or option scheme? If so, you should be aware that Treasury has recently been consulting on these rules with the tax profession. This consultation may result in some changes to the rules that apply to the taxation of employee shares schemes. However, whether this occurs will depend on the outcome of this consultation.

On 23 October 2013, the ATO issued Taxation Determination TD 2013/20 entitled “Fringe benefits tax: when an employer reimburses an amount of expenditure incurred by an employee to a third party, under a salary sacrifice (or similar) arrangement with that employee where that expenditure is notionally subject to Division 35 of ITAA 1997, is the amount included under s 35-10(2E) increased when applying the ‘otherwise deductible rule’ in s 24 of the Fringe Benefits Tax Assessment Act 1986?”

The answer to the question posed is “Yes. The amount included under the ‘income requirement’ in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) when applying the ‘otherwise deductible rule’ in s 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is increased by the amount of the reimbursement.

To do!If you have salary sacrifice arrangements with your employer, you may wish to speak to your tax adviser about whether this Tax Determination has any impact on your particular circumstances.

Do you earn foreign employment income? If so, you should note that on 27 November 2013, the ATO issued Taxation Ruling TR 2013/7 entitled “Income tax: foreign employment income: interpretation of s 23AG(1AA) of ITAA 1936.”

The Ruling sets out the Commissioner’s views on the interpretation of aspects of subsection 23AG(1AA) of ITAA 1936. This Ruling specifically considers:

  • What is the ‘delivery of Australian official development assistance by the person’s employer’ within the meaning of the relevant provisions;
  • When foreign service is ‘directly attributable’ to the activities listed in the relevant provisions;
  • What is a ‘disciplined force’ within the meaning of the relevant provisions;
  • What is the meaning of ‘deployment’ within the meaning of the relevant provisions; and
  • Who is a ‘member’ of a disciplined force within the meaning of the relevant provisions.

The Ruling applies to Australian resident individuals serving in a foreign country as an employee or office holder.

The Ruling does not consider certain terms in the provisions and does not deal with the period of foreign service. There is other guidance on these issues.

Note!If you derive income from foreign employment, you may wish to speak to your tax adviser about whether this ruling has any impact on your particular circumstances.

In a media release issued on 8 December 2013, the Treasurer, Joe Hockey, announced that the Government will introduce legislation to stop further $900 cheques from being issued to taxpayers who were eligible for one and may not yet have received one 4 years after the Global Financial Crisis.

The ATO has advised that excess super concessional contributions made from 1 July 2013 will be included in an individual’s assessable income and taxed at their marginal tax rate. As part of the assessment process clients will receive a non-refundable tax offset of 15% of their excess concessional contributions along with an additional excess concessional contribution charge.

From 1 January 2014, employers need to make superannuation contributions to a fund that offers a MySuper product for any employee who does not select a preferred fund.

If an employer has not heard from their super fund about their MySuper arrangements, they should contact the fund now.
Employees should speak to their employer about this or their super fund if they are unsure what arrangements their super fund has put in place to meet the MySuper requirements.

a) Nurses, midwives and direct carers – claiming work-related expenses – there is information on the ATO website for work-related expenses that can be claimed by nurses, midwives and direct carers.

b) Assets in the professional photography services industry – the ATO is reviewing the assets used in the professional photography services industry as a business defined within ANZSIC code 69910, with a view to making new effective-life determinations. When finalised, they will be added them to the effective life schedule that will apply to new assets purchased or installed on or after 1 July 2015.

c) Requesting copies of tax documents from the ATO – The ATO has advised that a taxpayer or their authorised representative can use “Copies of tax documents request – individuals and authorised representatives” form to request copies of tax returns, payment summaries and notices of assessment. You can access the document for individuals 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 – Apr 2017

IN THIS ISSUE

1) Earning less than $40,000

Change to spouse tax offset

From 1 July 2017, the spouse’s income threshold will increase to $40,000. The current 18% tax offset of up to $540 will remain and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $40,000. As is currently the case, the offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.

New low income superannuation tax offset

From 1 July 2017, the new low income superannuation tax offset (LISTO) will be introduced and will replace the low income superannuation contribution (LISC).

Eligible individuals with an adjusted taxable income of up to $37,000 will receive a LISTO contribution into their superannuation fund. The LISTO will equal 15% of total concessional (pre-tax) superannuation contributions for an income year. However, this will be capped at $500.

LISTO is intended to support low-income earners and ensure they do not have to have more tax on their superannuation contributions than they would pay on their salary and wages.

2) Part-time workers or time out of the workforce

Carrying forward unused concessional contributions

To improve flexibility in the superannuation system, from 1 July 2018, individuals will be able to make ‘carry-forward’ concessional superannuation contributions if they have a total superannuation balance of less than $500,000. Individuals will be able to access their unused concessional contributions cap for an income year on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which an individual will be able to access unused concessional contributions is the 2019-20 income year.

Change in eligibility for co-contributions

Currently, to receive a government co-contribution you must meet the following requirements:

  • Have made one or more eligible personal superannuation contributions to your superannuation during the income year;
  • Pass the two income tests (‘income threshold’ and ‘10% eligible income’ tests);
  • Be less than 71 years old at the end of the income year;
  • Not hold a temporary visa at any time during the income year (unless you are a New Zealand citizen or it was a prescribed visa); and
  • Lodge your tax return for the relevant income year.

From 1 July 2017, in addition to the above requirements:

  • You must have a total superannuation balance of less than the transfer balance cap ($1.6 million for the 2017-18 income year) at the end of the previous income year; and
  • You must not have contributed more than your non-concessional contributions cap.

3) Making extra contributions to your superannuation

Changes to personal superannuation contributions deductions

From 1 July 2017, all individuals under age 75 will be able to claim a deduction for personal contributions they make to their superannuation funds. Currently only individuals who derive less than 10% of their income from employment can claim this tax deduction. However, this condition is being removed to bring more flexibility into the superannuation system and allow more people to utilise their concessional contributions cap. Note that all the other conditions are remaining.

Individuals will have to lodge a notice of their intention to claim the deduction with their superannuation provider should they wish to claim this deduction. Generally, this notice will need to be lodged before lodging your income tax return. You can choose how much of your personal superannuation contribution to claim a deduction for.

Note that these amounts count towards an individual’s concessional contributions cap and will be subject to 15% contributions tax in the fund.

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. Therefore, should you intend to make extra personal contributions, you will have to consider if your fund can receive them.

Note also that the government announced that it will retain the work test for individuals aged 65 to 74.

Change to the concessional (pre-tax) contributions cap

From 1 July 2017, the concessional contributions cap is $25,000 for everyone. Prior to this, it was $35,000 for people 49 years and older at the end of the previous income year and $30,000 for everyone else. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down).

  • Before 30 June 2017: If you would like to make extra concessional contributions, check how much concessional contributions have been made on your behalf to all your super funds since 1 July 2016, first estimate the amount of contributions that will be made on your behalf (eg by your employer) before 30 June 2017 or through an existing salary sacrifice arrangement, then work out the gap between these amounts and the amount of concessional cap that is relevant to you that remains before you make additional concessional contributions.
  • After 1 July 2017: If you would like to make extra concessional contributions, ensure that your concessional contributions made throughout the year from yourself, made on your behalf or through a salary sacrifice arrangement do not exceed $25,000.

Change to non-concessional (post-tax) contributions cap

From 1 July 2017, the annual non-concessional contributions cap will be reduced from $180,000 to $100,000 per year. This will remain available to individuals between 65 and 74 years old if they meet the work test. The cap is set at four times the concessional contributions cap (ie 4 x $25,000) and will be indexed in line with the concessional contributions cap.

In addition, from 1 July 2017, your non-concessional contributions cap will be nil for the income year if you have a total superannuation balance greater than or equal to the general transfer balance cap (which is $1.6 million for the 2017-18 income year) at the end of June of the previous income year. In this case, if you make non-concessional contributions in that year, they will be treated as ‘excess non-concessional contributions’ and taxed at a much higher rate.

There is a ‘bring-forward’ arrangement for individuals under 65, who may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward the non-concessional contributions cap for a two- or three-year period. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future-year caps.

From 1 July 2017, the non-concessional contributions cap amount you can bring forward, and whether you have a two or three-year bring-forward period, will depend on your total superannuation balance at the end of June of the previous income year.

For 2017-18, to access the non-concessional bring-forward arrangement:

  • You must be under 65 years of age for one day during the triggering year (the first year); and
  • You must have a total superannuation balance of less than $1.5 million.

The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for an income year if your total superannuation balance is greater than or equal to the general transfer cap at the end of the previous income year.

4) Earning close to or over $250,000

Change to Division 293 income threshold

Currently, individuals with income and concessional superannuation contributions greater than $300,000 will trigger a Division 293 assessment.

From 1 July 2017, the government will lower the Division 293 income threshold to $250,000. An individual with income, and concessional superannuation contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the lesser of:

  1. The excess, or
  2. The concessional contributions (except excess contributions).

The ATO will send an email or SMS to individuals who will receive their first Division 293 tax assessment or, who will receive it in myGov if they have linked their account to the ATO. These emails and SMS will only issue during peak assessment periods – you may have already received one in November 2016 or could do so between April and early June 2017.

5) Approaching retirement

Change to transition to retirement income streams

From 1 July 2017, the tax-exempt status of earnings from assets that support a Transition to Retirement Scheme (TRIS) will be removed. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.

TRIS are currently available to assist individuals to gradually move to retirement by accessing a limited amount of their superannuation. Where a superannuation fund member is currently receiving a TRIS, their fund receives the earnings on the assets used to support the TRIS on a tax-free basis.

Earnings on assets supporting transition to retirement income streams will now be taxed concessionally at 15%. This change will apply irrespective of when the transition to retirement income stream commenced.

Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes.

The intent of this change is to ensure that TRIS are used to support individuals who are still in the workforce and are transitioning out, rather than being accessed mainly for tax purposes.

Innovative retirement income stream products

Currently, there are rules restricting the development of new retirement income products. From 1 July 2017, the government will remove these barriers by extending the tax exemption on earnings in the retirement phase to innovative products, such as deferred lifetime annuities and group self-annuitisation products. The intent of the change is to provide greater choice and flexibility for retirees to manage the risk of outliving their retirement savings.

6) For retirees

New transfer balance cap for pension phase accounts

From 1 July 2017, the superannuation transfer balance cap of $1.6 million will apply. This means there will be a limit on how much of your superannuation you can transfer from your accumulation superannuation account to a tax-free ‘retirement phase’ account to receive an account-based pension income.

The transfer balance cap will start at $1.6 million, and will be indexed in line with the consumer price index (CPI), rounded down to the nearest $100,000.

Individuals will need to track their own individual transfer balance cap. The amount of indexation you are entitled to will be calculated proportionally based on your available cap space. Only the amount of remaining cap space is indexed. Individuals will not be entitled to indexation if they exceed their transfer balance cap. However, you will be able to make transfers into the retirement phase so long as you have not reached your transfer balance cap.

Retirement phase income streams that started before 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017. New pension accounts starting from 1 July 2017 will count towards the transfer balance cap when they commence.

If you are currently in excess of your transfer balance cap, then you may have to remove the excess from the retirement phase account and pay tax on the earnings in excess of the cap.

Different tax rules will apply if you receive a capped defined benefit income stream as you usually cannot transfer or remove excess amounts from these pensions. These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including some self-managed superannuation funds (SMSFs).

If you have to move assets out of your retirement phase account back into your accumulation account to be under the cap before 1 July 2017, capital gains tax (CGT) relief is available to your superannuation fund to reset the cost base(s) of these assets. CGT relief is available if your fund holds the assets between 9 November 2016 and 30 June 2017.

Removal of the anti-detriment payment

From 1 July 2017, the government will remove the ‘anti-detriment’ provision preventing superannuation funds from claiming a deduction in their own tax return for a top-up payment made as part of a death benefit payment where the beneficiary is the dependant of the person.

The top-up amount represents a refund of a member’s lifetime superannuation contribution tax payments into an estate. Removing the ability of the superannuation fund to claim this deduction is intended to ensure consistent treatment of lump sum death benefits across all superannuation funds.

Superannuation funds may continue to claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti-detriment payments as part of a death benefit if the member dies on or after 1 July 2017.

To do!These changes to superannuation are significant and will affect individual taxpayers differently, depending at what stage of working life individuals are at – low income earners or high income earners, in or out of the work force for the time being, nearing retirement or in retirement. Be ‘SuperWise’ – you should speak to your tax adviser to help determine how the changes impact on you, for example, whether you should take advantage of any of the changing caps now to top up your superannuation or reconsider how to plan for your retirement.

The ATO has released three new tools you can use to work out if you are eligible to be paid superannuation contributions from your employer, and how much. There is also a tool to report employers failing to pay super contributions.

  • The eligibility tool works out if you are entitled to super guarantee contributions.
  • The estimate tool calculates your estimated superannuation guarantee amount, based on quarterly earnings.
  • The complaint tool can be used to report employers who are not paying super contributions correctly.

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.

Under these arrangements, an individual performs services for a client. The individual does not directly receive any, or adequate, remuneration for the services they provide. Instead, the client is instructed to pay fees or remuneration for the service provided by the individual to a company, trust or other non-individual entity. The relevant non-individual entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment. The purported outcome of the arrangement is that the income is either exempt from tax or taxed concessionally rather than being subject to tax at the individual’s marginal tax rate.

The ATO is aware that there have been many superannuation changes since July 2016 including extensive superannuation reforms enacted in November 2016. SMSF trustees and advisors have been required to understand how those changes impact their funds and to address them.

The due date to contact the ATO in relation to TA 2016/6 has been extended to 30 April 2017.

If you have an arrangement as described in TA 2016/6 or a similar arrangement, please contact the ATO (email: [email protected] and put ‘TA 2016/6′ in the subject line, include the SMSF trustee name(s), contact details and a time that is convenient for the ATO to call you so that the ATO can work with you to resolve any issues in a timely manner, and minimise the impact on the you and the fund.

On 25 January 2017, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, released a statement about the government’s new multi-agency working group that will investigate and develop practical recommendations to deal with superannuation guarantee non-compliance.

Chaired by the ATO and comprising senior representatives from The Treasury, the Department of Employment, ASIC and APRA, the working group will identify the drivers of non-compliance, develop ways to improve compliance and policy options to ensure the law remains fit for purpose for Australia’s $2 trillion superannuation system.

The final report of the working group was due at the end of March. At the time of writing, the report was not available.

Tip!You should ensure your employer is paying the right amount of superannuation guarantee on your behalf. If you are unsure of what the correct amount should be, seek advice from your tax professional.

The ATO is collecting data from financial institutions and online selling sites as part of their data matching programs for credit and debit cards, online selling and ride-sourcing.

The data will include:

  • The total amount of credit and debit card payments businesses received
  • Online sellers who have sold at least $12,000 worth of goods or services
  • Payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator.

The ATO matches this data with information they have from income tax returns, activity statements and other ATO records to identify any discrepancies.

Tip!If you need to correct a mistake you have made in your income tax return, you should talk to your tax agent.

Ride-sourcing data matching

The ATO’s ride-sourcing data matching program has been developed to address the compliance risk of the registration, lodgment and reporting of businesses offering ride-sourcing services as a driver. It is estimated up to 74,000 individuals (ride-sourcing drivers) offer, or have offered, this service.

The ATO will request details of all payments made to ride-sourcing providers from accounts held by a ride-sourcing facilitator’s financial institution for the 2016-17 and 2017-18 income years.

They will match the data provided by the facilitator’s financial institution against our records. This will identify ride-sourcing drivers that may not be meeting their registration, reporting, lodgment and/or payment obligations.

Where the ATO is unable to match a driver’s details against ATO records, they will obtain further information from the financial institution where the driver’s account is held.

The protocol has been prepared to meet the requirements of the Office of the Australian Information Commissioner’s Guidelines on Data Matching in Australian Government Administration (2014) (the Guidelines).

This will impact you if you offer ride-sourcing as a way to earn income.

On 14 December 2016, Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced that the government had established a taskforce to crack down on the ‘Black Economy’. Ms O’Dwyer said, “While there is no single, internationally-agreed definition, typically, the ‘black economy’ refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The ‘black economy’ can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.”

The ‘Black Economy’ Taskforce, to be chaired by former chair of the B20 anti-corruption taskforce, Mr Michael Andrew AO, will provide an interim report to government by April 2017. Tackling the ‘black economy’ requires a whole of government approach and participants will include the Reserve Bank of Australia, the Australian Federal Police, ASIC, APRA, AUSTRAC, and the Departments of Human Services and Immigration.

The Taskforce will provide a final report in October 2017 which will include an overarching whole of government policy framework and detailed proposals for action to counter the ‘black economy’.

In the 2016-17 Budget, the government announced it will make targeted amendments to improve the operation and administration of Division 7A of the Income Tax Assessment Act 1936.

The amendments will apply from 1 July 2018 and will introduce:

  • A self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly;
  • Appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers;
  • Simplified rules regarding complying Division 7A loans, including in relation to loan duration and the minimum interest rate; and
  • A number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers.

The proposed changes draw on a number of recommendations from the Board of Taxation’s post-implementation review into Division 7A.

To do!This change may impact you if you have private loans from your business. In that case, you should seek advice from your tax professional.

The ATO recently released Taxpayer Alert TA 2016/12 cautioning against arrangements that minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts.

Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to improperly gain favourable tax breaks, or sometimes pay no tax at all.

The ATO identified these arrangements through ongoing monitoring and reviews by the Trusts Taskforce, and continues to look for these arrangements using sophisticated analytics.

The Trusts Taskforce was established in 2013 to undertake targeted compliance action against people involved in tax avoidance or evasion using trusts. Since this time, the ATO has raised $772 million in liabilities and collected $164.5 million. In addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation.

If you take items from your business’ trading stock for your own use, make sure you include the value of these items as part of your business’ assessable income.

To do this, you should record the actual value of the goods (excluding GST) or use estimates provided by the ATO if you are a sole trader or in a partnership. The ATO estimates are updated yearly and are available for the following industries:

  • Bakery
  • Butchery
  • Restaurant/café
  • Caterer
  • Delicatessen
  • Fruiterer/greengrocer
  • Takeaway food shop
  • Mixed business (including milk bar, general store and convenience store).

For more information on amounts the ATO accepts as estimates and small business benchmarks, visit the ATO’s website.

Note!Seek advice from your tax agent or adviser if you are unsure how to treat stock used for private purposes in your accounts for tax purposes.

1. GST – applying to digital products and other services imported by consumers

In the 2015-16 Budget, the government announced that the application of the GST will be extended to cross-border supplies of digital products and other services imported by Australian consumers.

This includes digital products such as streaming or downloading of movies, music, apps, games, e-books as well as services such as architectural or legal services. Under the new law, overseas businesses will be required to pay GST on these sales from 1 July 2017.

If you have interactions with overseas businesses that supply digital products and services to Australian consumers, let them know they may be subject to the transitional rule for GST.

The transitional rule applies to businesses that:

  • Meet the registration turnover threshold of A$75,000; and
  • Supply digital products and services before 1 July 2017 and continue after this date. The portion after 1 July 2017 is subject to GST.

A simplified system will be available on the ATO website from 1 April 2017 for these businesses to electronically register, lodge and pay GST.

To do!Talk to your tax agent about the GST implications for you if goods and supplies you have been acquiring from an overseas business that you may have been using in your business become subject to GST.

2. GST on low value imported (physical) goods

In the 2016-17 Budget, the government confirmed that from 1 July 2017, the GST will be extended to low value imports of physical goods imported by consumers.

In summary, the reforms will:

  • Make supplies of goods valued at $1,000 or less at the time of supply connected with Australia if the goods are, broadly, purchased by consumers and are brought to Australia with the assistance of the supplier;
  • Treat the operator of an electronic distribution platform as the supplier of low value goods if the goods are purchased through the platform by consumers and brought to Australia with the assistance of either the supplier or the operator;
  • Treat re-deliverers as the suppliers of low value goods if the goods are delivered outside Australia as part of the supply and the re-deliverer assists with their delivery into Australia as part of, broadly, a shopping or mailbox service that it provides under an arrangement with the consumer;
  • Allow non-resident suppliers of low value goods that are connected with Australia only because of these amendments to elect to be a limited registration entity and as such access the simplified registration and reporting system; and
  • Prevent double taxation by making importations of goods non-taxable importations if the supply of the goods is a taxable supply only as a result of these amendments and notice is provided in the approved form.

A vendor registration model will be used where non-residents with an Australian turnover of $75,000 or more will be required to register and charge the GST.

At the time of writing, the Treasury Laws Amendment (GST on Low Value Goods) Bill 2017 which contains this measure was sitting before Parliament.

3. When to charge GST (and when not to)

i) When to charge GST

If you are registered for GST, most of the sales you make in Australia will include GST.

Sales which include GST (taxable sales) are:

  • Made for payment (monetary or other);
  • Made in the course of operating your business (including any capital assets sold); and
  • Connected with Australia.

For these taxable sales, you:

  • Include GST in the price;
  • Issue a tax invoice to the buyer;
  • Pay the GST you’ve collected when you lodge your activity statement.

ii) When not to charge GST

You do not include GST in the price of goods and services that are:

  • GST free – such as most basic foods, some education courses and health care products and services.
  • Input taxed – such as lending money and renting out residential premises.

4. Claiming GST credits – refresher

You can claim a credit for any GST included in the price of goods and services that you purchase for your business and use to make either taxable or GST-free sales. This is called a GST credit.

You can’t claim a GST credit for the GST included in the price of purchases you use to make your input taxed sales.

Note!Your tax agent knows when you can and can’t claim GST credits. They will be able to ensure you put the right information into your activity statement and make the right claims for GST purposes.

5. Ride-sourcing and GST

On 17 February 2017, ride-sourcing company Uber lost its battle with the ATO over whether its drivers have to pay 10% GST on their earnings.

In a judgment handed down by the Federal Court, it was ruled that ride-sourcing is considered to be taxi travel and Uber will therefore need to pay GST on travel.

If you earn income through providing ride-sourcing services, you need to:

  • Keep records
  • Have an Australian business number (ABN)
  • Be registered for GST, regardless of how much you earn
  • Lodge business activity statements (BAS)
  • Pay the GST portion of the full fare received from passengers for each trip you provide
  • Include your income from ride-sourcing in your income tax returns.

Drivers are also entitled to claim income tax deductions and GST credits (for GST paid) on expenses (you may need to apportion these so you only claim amounts relating to providing ride-sourcing services).

The ATO’s data matching activities will identify if you provide ride-sourcing services. If you do, you may receive a letter from them explaining your tax obligations.

New rules apply to vendors disposing of certain taxable Australian property under contracts entered into from 1 July 2016. A 10% non-final withholding will be applied to these transactions at settlement.

Australian resident vendors selling real property will need to obtain a clearance certificate from the ATO prior to settlement, to ensure they don’t incur the 10% non-final withholding.

This new withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 10% of the purchase price and pay it to the ATO, where a vendor enters into a contract on or after 1 July 2016 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).

The foreign resident vendor must lodge a tax return at the end of the income year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

  • Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement:
    • For Australian real property, a clearance certificate obtained from the ATO
    • For other asset types, a vendor declaration they are not a foreign resident.
  • Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.

Note!If you are buying or selling property and a foreign resident party is involved in the transaction, talk to your tax agent to ensure you meet your tax obligations in relation to this transaction.

From 1 January 2017, the first $37,000 of a working holiday maker’s income is taxed at 15%, with the balance taxed at ordinary rates.

The tax on any departing Australia superannuation payment made to working holiday makers after 1 July 2017 has also increased to 65%.

A person is a working holiday maker if they have a visa subclass 417 (Working Holiday) or 462 (Work and Holiday).

When they lodge an income tax return, the ATO will work out how much tax they should have paid. If they have paid too much, the ATO will give a refund. If they have not paid enough, the ATO will send the working holiday maker a bill.

a) Employer registration

Employers employing working holiday makers must be registered.
Once an employer is registered, a withholding rate of 15% applies to the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply.

If an employer does not register, they must withhold tax at 32.5% for the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply. Penalties may apply to the employer for failing to register.

b) Change in tax rate for super payments to working holiday makers

From 1 July 2017, departing Australia superannuation payments (DASPs) made to working holiday makers (WHMs) will be taxed at 65%.

If an individual holds or has held a 417 (Working Holiday) or 462 (Work and Holiday) visa, they are classified as a WHM.

This change is related to a new income tax rate for WHMs which was introduced by the Australian government in December 2016. Payments made before 1 July 2017 will be taxed at the current rate, which is 38% for a taxed-element. Employers of working holiday makers will need to be aware of their relevant obligations.

To do!If you are a working holiday maker, you should seek the advice of a tax professional to ensure you have been taxed correctly.

1. Deductions – what the ATO is paying extra attention to

The ATO has been paying extra attention to people claiming higher than expected deductions during TaxTime 2016.

Individuals should make sure their claims for work-related expenses are right by using the series of occupation guides or other general advice available on the ATO website, which help people in specific industries understand and correctly claim the expenses they may be entitled to.

If you use myTax to lodge your return, your claims are compared with the claims of taxpayers in similar occupations and with similar income, giving you a real-time warning if your claims are unusually high in comparison.

You can visit the ATO to learn more about work-related expenses and the occupation guides. However, it is best to seek the advice of a tax professional if you are unsure what deductions you are entitled to or how much you can claim.

2. Keeping track of deductions made easy

The ATO’s myDeductions tool in the ATO app can help you keep track of your work-related expenses, car trip data, gifts and donations. You can record your expenses on the go using your phone or device. Come tax time, you can then email your deductions file to your tax agent to review, who can then advise you on your claims and lodge your tax return.

You can also keep the file on record in case you need it later. If you use the upload feature in the app, your tax agent can access your data via the Practitioner Lodgment Service and check it before lodging.

3. Work-related travel expenses not deductible

Re Reany and Commissioner of Taxation [2016] AATA 672

The Administrative Appeals Tribunal (AAT) has found that a first class sheet metal worker employed at an alumina refinery in Western Australia was not entitled to deductions for the cost of transporting his tools and equipment between his home and his workplace.

It is accepted that one exception to the general rule that the cost of travel between home and work is not deductible is where an employee is required by his or her employer to carry bulky tools or equipment from home to work and no secure storage is provided by the employer to the employee to store the tools and equipment at the worksite.

In this case, the evidence established that the taxpayer’s employer provided him with a locker to store his tools and equipment at his primary place of work. The taxpayer said that it was his decision to take his tools and equipment home each night as he did not believe the storage lockers provided by the employer to be secure.

The AAT found that the taxpayer was not entitled to a deduction for any amount of his work related travel expenses as he was not required by his employer to carry his bulky tools and equipment from home to work. By his own admission, this was the taxpayer’s own personal choice, arising out of his unsupported safety concerns.

Note!If you are in a similar situation and are claiming a deduction for the cost of travel from home to work because you are taking bulky tools home with you, you should seek advice from your tax professional to confirm whether you are entitled to this deduction.

1) Holiday homes – tax deductions

If you own a holiday home you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent. Even if you do not rent it out, there are capital gains tax implications when you sell it.

The ATO has provided information and examples on the following scenarios, please visit their website:

  • Holiday homes – not rented out;
  • Holiday homes – rented out;
  • Holiday homes that are not genuinely available for rent; and
  • Claiming deductions.

Money you earn from renting out a room in your house is rental income. This applies to rooms rented by traditional means or through a sharing economy website or app.

The ATO has examples on its website to help you understand how claiming deductions works when renting rooms, or your main residence, on an occasional basis.

To do!If you are renting a room out or your home out using a service like Airbnb or Stayz, you should seek advice from your tax professional to ensure you are not only declaring the right amount of income, but also claiming deductions you may be entitled to for earning income this way.

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 2017

IN THIS ISSUE

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time.

These include:

  • Working holiday makers tax rate
  • Norfolk Island tax
  • Tax relief for New Zealand special visa holders
  • Foreign resident capital gains withholding
  • Reportable fringe benefits
  • Business services wage assessment tool payments
  • Farm management deposit reforms
  • Primary production averaging reforms
  • Expanded access to small business concessions
  • Small business income tax offset changes
  • Reduction to the small business company tax rate
  • Early stage venture capital limited partnership
  • Early stage investor tax incentives
  • Significant global entities
  • Limited recourse borrowing arrangement reporting
  • Transitional capital gains tax relief for super funds
  • Increasing access to company losses.

Key dates for Tax Time

The ATO started full processing of 2016-17 tax returns on 7 July 2017 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.

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible. Go to this timeline to view the key dates for Tax Time 2017.

The ATO is paying attention to people who are over-claiming work-related expenses.

To get your deductions right, you need to satisfy the following rules:

  • You must have spent the money and were not reimbursed;
  • It must be directly related to earning your income, and not of a private nature;
  • You must have a record to prove it.

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!

If you are a sole trader and have simple tax affairs, the ATO’s myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

To learn more, visit the ATO website.

Tip!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 claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

To do!If you own a rental property, talk to your tax agent about whether these changes affect you in any way.

The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.

Claiming deductions for your holiday home?

Make sure it is genuinely available for rent by answering these four questions:

  • How do you advertise your rental property?
  • What location and condition is your rental property in?
  • Do you have reasonable conditions for renting the property and charge market rate?
  • Do you accept interested tenants, unless you have a good reason not to?

The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

  • For real property disposals where the contract price is $750,000 and above (previously $2 million);
  • The FRCGW withholding tax rate is now 12.5% (previously 10%).

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.

Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Main residence exemption

From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing” contribution into superannuation.

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions.

For the 2017-18 income year, the:

  • Concessional contribution cap is $25,000
  • Non-concessional contribution cap is $100,000 (conditions apply)
  • CGT cap amount is $1,445,000
  • Div 293 tax threshold amount is $250,000
  • Low rate cap amount is $200,000
  • ETP cap for life benefit termination payments is $200,000
  • ETP cap for death benefit termination payments is $200,00.

The full list of rates and thresholds can be found on the ATO website.

Most of the changes to the superannuation system commenced on 1 July 2017.

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

i) Change to personal super contributions deductions

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition.

From 1 July 2017, the 10% work test for claiming a deduction for personal super contributions will be removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

ii) Changes to concessional contributions – constitutionally protected and unfunded defined benefit funds

From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap.

The ATO has released information on the following topics, which can be accessed on the ATO website.

  • What are CPFs and unfunded defined benefit funds?
  • What are the changes?
  • New rules for accumulation interests
  • New rules for defined benefit interests
  • Excess concessional contributions.

iii) Removal of election to treat super income streams as lump sums

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes.

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change.

iv) New transfer balance cap – child death benefit recipients

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams.

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18).

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests.

v) New transfer balance cap – death benefit income streams

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams.

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary:

  • Reversionary – the income stream reverts to you automatically upon the member’s death
  • Non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these).

vi) Transfer balance account – credits and debits

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

Note!There have been a lot of changes to the superannuation rules recently. It is worth sitting down with your tax adviser or tax agent to discuss how these changes might affect you.

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • Non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • Modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time.

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year.

For tips on how to avoid tax time traps, visit the ATO website.

If you have graduated from studies in early childhood education, maths, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit.

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments.

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611.

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program.

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years.

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to 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);
  • The Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
  • The Medicare levy surcharge low-income threshold in line with movements in the CPI.

In addition:

  • The singles threshold will increase from $21,335 to $21,655.
  • The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
  • The single seniors and pensioners threshold will increase from $33,738 to $34,244.
  • The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

The Government has passed the Treasury Laws Amendment (GST Low Value goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018.

Businesses that meet the registration threshold of A$75,000 will need to take action now to review their business systems to ensure that they are able to comply.

The existing processes to collect GST on imports above $1,000 at the border are unchanged.

In summary, the reforms:

  • Make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier;
  • Treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator;
  • Treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer;
  • Allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and
  • Prevent double taxation.

More information on the new GST on low value imported goods can be found on the ATO website.

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking.

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 Business News – Sep 2017

IN THIS ISSUE

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time.

These include:

  • Working holiday makers tax rate
  • Norfolk Island tax
  • Tax relief for New Zealand special visa holders
  • Foreign resident capital gains withholding
  • Reportable fringe benefits
  • Business services wage assessment tool payments
  • Farm management deposit reforms
  • Primary production averaging reforms
  • Expanded access to small business concessions
  • Small business income tax offset changes
  • Reduction to the small business company tax rate
  • Early stage venture capital limited partnership
  • Early stage investor tax incentives
  • Significant global entities
  • Limited recourse borrowing arrangement reporting
  • Transitional capital gains tax relief for super funds
  • Increasing access to company losses.

Key dates for Tax Time

The ATO started full processing of 2016-17 tax returns on 7 July 2017 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.

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible.

Go to this timeline to view the key dates for Tax Time 2017.

i) Tax Concessions

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return.

Find out about:

  • Expanded access to small business concessions
  • Increased small business income tax offset
  • Company tax rate cut for small businesses
  • Simper depreciation rules – instant asset write-off

a) Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • The small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • Capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

b) Increased small business income tax offset

You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

  • Increased to 8%, with a limit of $1,000 each year
  • Applies to small businesses with turnover less than $5 million.

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

c) Company tax rate cut for small businesses

For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

If you lodged your 2016–17 company tax return early:

  • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
  • If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.

Tax rate cuts – “not meant to apply to passive investment companies”

On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O’Dwyer MP, issued a statement on the tax rate cuts for small companies.

Minister O’Dwyer said, “Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Minister O’Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.

d) Instant asset write-off extension

Australia’s 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off immediately thanks to legislation passed by the Senate on 15 June 2017, advised Small Business Minister Michael McCormack recently. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

The Small Business Minister said recent tax cuts for small business – which delivered a 27.5% tax rate – also redefined ‘small business’, meaning more Australian businesses are now eligible for the instant asset write-off.

More businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately after this legislation passed the Senate. Multiple claims can be made under the program.

‘Small business’ has also been redefined for tax purposes as having a turnover less than $10 million, up from $2 million.

For more information on support for small business, please visit the Small business website.

To do!If you are not clear about how the recent changes for small businesses apply to you or your business, you should speak with your tax agent or adviser.

The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO’s tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

The ATO acknowledges that most business owners are honest, but that there are some businesses that operate in the cash and hidden economy, gaining an unfair advantage over those who declare their income and do the right thing.

The ATO has been running information sessions on this. More information about the ATO’s work focusing on ‘cash-only’ businesses, including visiting these businesses and what the ATO will be doing where these businesses are not compliant can be found on the ATO’s website.

i) Simpler BAS

From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.

The ATO automatically transitioned eligible small business’ GST reporting methods to Simpler BAS from 1 July 2017.

ii) GST on low value imported goods – Summary of reforms

The Government has passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018.

Businesses that meet the A$75,000 registration threshold will need to take action now to review their business systems to ensure that they are able to comply.

The existing processes to collect GST on imports above $1,000 at the border are unchanged.

In summary, the reforms:

  • Make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier;
  • Treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator;
  • Treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer;
  • Allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and
  • prevent double taxation.

More information on the new GST on low value imported goods can be found on the ATO website.

Treasurer’s press release on GST low value goods

The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017.

The Treasurer said, “Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018.”

Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia.

iii) Buy services or digital products from overseas?

From 1 July 2017, GST will apply to imported services and digital products.
Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST.

Reminder from the ATO re Applying GST to imported services and digital products

The ATO has issued a reminder that if overseas suppliers sell imported services or digital products to Australian consumers and they meet the GST registration turnover threshold, they need to register for GST. They will meet the registration turnover threshold if their taxable sales to Australian consumers in a 12-month period are A$75,000 or more. Once registered, they will need to report and pay GST on sales to the ATO.

iv) GST - Simplified Accounting Methods determination for food retailers

The Goods and Services Tax: Simplified Accounting Methods Determination for Food Retailers – Business Norms, Stock Purchases and Snapshot Methods determination will repeal and replace Simplified GST Accounting Methods Legislative Instrument (No 1) 2007 – F2007L02577, registered on 14 August 2007.

This draft determination is substantially the same as the previous determination that it replaces. If you were eligible to use a particular simplified accounting method (SAM) specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

v) GST input tax credits disallowed – tax invoices not enough

Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer, evidence from various sources, including third parties, showed that all relevant development works were completed prior to the dates of the purported invoices, and the taxpayer had already claimed the input tax credits in its BASs for previous tax periods.

The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.

The Tribunal observed that the mere existence of a “tax invoice” is not, by itself, sufficient to establish that a “taxable supply” (under s 9-5 of the GST Act) and corresponding “creditable acquisition” (under s 11-5 of the GST Act), had, in fact, occurred.

vi) GST – removing the double taxation of digital currency

On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money.

Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST.

This measure will ensure purchases of digital currency are no longer subject to the GST.

No changes to the income tax treatment of digital currency are proposed.

Note!There are a number of changes to GST which may have an impact on your business. You should sit down with your tax agent or adviser to discuss if any of these changes affect you or your business.

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • Non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • Modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO.

Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register.

i) Key super rates and thresholds

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions.

For the 2017-18 income year, the:

  • Concessional contribution cap is $25,000
  • Non-concessional contribution cap is $100,000 (conditions apply)
  • CGT cap amount is $1,445,000
  • Div 293 tax threshold amount is $250,000
  • Low rate cap amount is $200,000
  • ETP cap for life benefit termination payments is $200,000
  • ETP cap for death benefit termination payments is $200,00.

The full list of rates and thresholds can be found on the ATO website.

ii) SuperStream roadmap

The SuperStream roadmap provides a picture of the changes for the next 18 months. The information on this web page details the changes impacting the superannuation industry up until the end of 2018. The ATO will update the information on this page every quarter. If your business has transitioned to SuperStream, it is worth keeping an eye on this web page for the latest information. You can always talk to your tax agent or adviser about this too.

Previous editions of TaxWise Business contained details of Single Touch Payroll. Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018. The ATO will help and support you to transition during the first year of reporting.

More information can be found on the ATO website.

i) Withholding on salary and wages

The way tax is calculated on salary and wages has changed.

From 1 July 2017, the:

  • Temporary budget repair levy has been removed
  • Medicare levy low-income threshold increased.

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ii) TFN withholding for closely held trusts

Beneficiaries need to quote their tax file number (TFN) to the trustee to avoid having amounts withheld from their payments or unpaid entitlements.

If a beneficiary doesn’t quote their TFN before a payment or entitlement occurs, the trustee must withhold from the payment or entitlement, pay the withheld amount to the ATO, and lodge an annual report with details of all withheld amounts.

iii) Withholding in business transactions

should quote their Australian business number (ABN) when supplying goods or services to another enterprise. If the supplier does not quote their ABN, the general rule is that the payer must withhold 47% (from 1 July 2017) from their payment and send the withheld amount to the ATO.

iv) Withholding from unused leave payments on termination of employment

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments. Information on how to work out the amount to withhold from payments of unused annual and unused long service leave when an employee leaves can be found on the ATO website.

v) Withholding from dividends paid to foreign residents

If you pay dividends to a foreign resident, the unfranked component of each of those payments is subject to a final withholding tax. Information on when and how much to withhold from dividends you pay to foreign residents can be found on the ATO website.

Tip!Businesses need to get their withholding obligations right. If you are unsure if your business is meeting its withholding requirements or are unsure how any of these changes may affect your business meeting its withholding obligations, you should speak with your tax agent or adviser.

The ATO's compliance approach to employers

The ATO has provided details of its approach to compliance by employers with their obligations.

The ATO says that its compliance approach supports employers who engage with the ATO and want to get things right. The ATO takes firmer action against those unwilling to meet their obligations. The approach is based on the relevant facts and circumstances of each case.

For more information, see the ATO website.

From 1 July 2017, changes to administrative rules about who needs to pay PAYG instalments may affect your clients.

The ATO will automatically remove companies, superannuation funds, and self-managed superannuation funds from the PAYG instalment system if their notional tax is less than $500. This will apply even if their instalment rate is greater than zero percent, and includes those registered for GST.

If you are in the building and construction industry and you paid contractors during 2016-17, your Taxable Payments Annual Report was due by 28 August 2017.

i) Certainty for stakeholders who rely on ATO systems

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking.

ii) Affected by recent company payroll issues?

If you have used the services of payroll company Plutus Payroll Australia Pty Ltd and associated entities, the ATO has applied a range of support measures to help you meet your tax and super obligations.

The ATO has developed some scenarios that they are aware of for Plutus payroll and associated companies. Whether your situation falls within a particular scenario will depend on your circumstances. For more information, go to the ATO website.

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 – Jun 2011

IN THIS ISSUE

As the end of the financial year approaches, it’s time to take stock again of what the next year is likely to bring, tax-wise. Taking a proactive approach to planning is essential to ensure that you are well prepared for the year ahead.

Planning requires consideration of a number of factors, including:

  • Your personal circumstances; and
  • Your current year and projected salary/ business and investment income.

All of these factors will affect your end of income year tax strategies, as well as your tax planning for the next income year.

Your personal circumstances

Superannuation

Depending on your age, it may suit you to consider salary sacrificing greater amounts into superannuation before the end of the income year, so long as you do not exceed the concessional superannuation cap limits.

By way of reminder, there are caps on how much super you can contribute each year before being required to pay excess contributions tax at the rate of 46.5% of the excess. The superannuation contribution caps apply per financial year. There are two types:

  1. Concessional (before tax) contribution caps. Concessional contributions include:
    • All employer contributions (including salary sacrifice); and
    • Personal contributions for which you claim an income tax deduction (eg self-employed people).

    The concessional contribution cap is $25,000 per income year generally, and $50,000 per income year for taxpayers aged 50 years old and over for the 2011 and 2012 income years. As noted below, this is set to change in respect of the 2013 income year onwards. 2. Non-concessional (after tax) contribution caps.

  2. Non-concessional contributions include:
    • Personal member contributions (no tax deduction claimed);
    • Spouse contributions; and
    • Any excessive concessional contributions.

The non-concessional contributions cap is $150,000.

You should consider making additional contributions before the end of the income year to take full advantage of these caps. But make sure you do not exceed the contributions caps under any circumstances – just a few extra dollars can result in a substantial tax liability for excess super contributions tax.

In addition to the above, the government announced during the 2011-12 Budget that:

  • From 1 July 2012, persons who have been subject to excess contributions tax for the first time (due to making excess concessional contributions of less than $10,000) will be provided the option of having excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax at the rate of 46.5% on excess contributions.
  • From 1 July 2012, individuals aged over 50 years of age with total superannuation balances of less than $500,000 will have their superannuation contributions cap set to $50,000 in order to assist such individuals in contributing greater amounts into superannuation to fund their retirement.

Investment

Minors in receipt of unearned income

The Low Income Tax Offset is a tax rebate for individuals on lower incomes. It provides individuals with a total tax liability under the threshold with an offset equal to the tax liability. As such, the offset effectively increases the tax free threshold for low income earners. The maximum amount of the offset is $1,500.

Under current tax laws, people under 18 years of age (minors) face the following tax scale in relation to their “unearned” i.e. passive income.

  • $0 to $416 = NIL
  • $417 to $1445 = NIL + 66c for every $1 over $416
  • $1446 and over = 47% flat rate on the entire amount

On the basis of this schedule, it is currently possible to distribute $3,333 of passive income to a minor tax-free (depending on that minor’s other income sources). This is because a minor earning $3,333 would otherwise face a tax bill of $1,500 (i.e. 47% of $3,333), and the minor is entitled to an offset in respect of that entire tax liability reducing the total tax payable to nil.

The government announced in the 2011-12 Budget that the low income tax offset will not be able to be used to offset tax payable by minors in respect of their unearned income from 1 July 2011 onwards. This means that this is the last income year in which minors will be able to receive $3,333 of unearned income, effectively tax-free. From the 2012 income year onwards, this number will fall to $416, after which amount penalty tax rates will apply (as set out above).

This change will affect you if:

  • You currently have a family trust and distribute routinely to minors; and/or
  • There are minors in your family who receive passive income as a result of direct ownership of assets such as shares, units in managed funds, property etc.

In either scenario, you will need to consider whether it would be better for you and your family to rearrange affairs in order to ensure that these penalty rates of taxation are not payable by minors in receipt of unearned income over the threshold in the 2012 income year onwards.

If you have family members that you provide for, it may be worth considering whether tax-effective products such as education funds or insurance bonds may be suitable for you instead.

Tip!You should seek advice from your tax adviser and financial planner in relation to whether alternative investment structures may be better suited to your circumstances in light of announced Budget changes.

Capital gains and losses – timing

Due to falling rates of personal taxation in recent years, many taxpayers have ‘pre-poned’ the incurrence of capital losses. A capital loss is broadly the negative difference between what you paid for an investment and what you received when you sold that investment. Historically, by pre-poning a capital loss you could utilise it to reduce your capital gains in the earlier income year, effectively lowering the tax rate that would otherwise apply to that capital gain.

However, in the 2012 income year, effective tax rates will actually increase for a segment of the taxpayer population due to the requirement to pay the flood levy.

As such, you may be better off “crystallising” capital losses and offsetting them against capital gains in the 2012 income year. What that means is you may be able to reduce the total taxable capital gains that fall in the 2012 income year, and therefore the effective tax rate that will be applied to those gains. But remember – if you cannot offset your capital losses against capital gains in any income year, the losses will be quarantined and carried forward until you derive capital gains. What that means is if you incur a capital loss in the 2012 income year that you cannot utilise, you won’t be able to use it to reduce your salary or business income.

Current and projected income

If you anticipate that your salary or business income is likely to increase in the next income year, it may be worth considering ways in which you can defer incurring any deductions available to you until the next financial year.

Alternatively you could pre-pone any income (such as bonuses) to this income year. For example, Betty works for Simple Pty Ltd. According to Betty’s employment contract, she is entitled to receive a bonus based on performance once every calendar year. Betty can choose when she would like her bonus to be calculated and paid during the year. If Betty is liable to pay the flood levy in the 2012 income year, she may be better off asking for her bonus to be calculated and paid before 30 June 2011.

Remember, it is crucial that these options are legitimately available to you and are exercised for commercial reasons other than tax. Also, the 2012 income year will likely be the last income year in which you will be required to substantiate deductions less than $500 – as re-announced during the 2011-12 Budget, the government is seeking to introduce a standard deduction of $500 for the 2013 income year. The government intends to increase the standard deduction amount to $1,000 for the 2014 income year. Speak to your tax adviser before considering the standard deduction as you may be entitled to a higher deduction.

Use of private company assets

If you hold shares or are the associate of someone who holds shares in a private company, you should bear in mind that the laws were changed last year so that any assets owned by a private company (such as for example a holiday house) that are used by either the shareholders or associates of the shareholders will result in a “deemed dividend” that must be included in the assessable income of the shareholder. The value of the deemed dividend is the market value of the use of or right to use the assets in question. Speak with your tax adviser for further clarification on this.

The government announced during Budget 2011-12 that the availability of deductions in respect of income that is Youth Allowance or other government benefits will be legislated away for the 2012 income year onwards. However, eligible taxpayers will still be entitled to claim deductions for the current and past income years.

In recognition of the fact that many taxpayers will not have retained their receipts in relation to such deductions for past income years, the ATO announced earlier this year that students in receipt of Youth Allowance would be entitled to automatic $550 deductions for the 2007, 2008, 2009 and 2010 income years. Students who have an entitlement to a deduction of a greater amount and are able to substantiate the higher entitlements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In late May 2011, the ATO announced that this treatment would be extended to recipients of Austudy and Abstudy. As with Youth Allowance recipients, taxpayers who have an entitlement to a deduction of a greater amount and are able to substantiate the higher requirements may file their 2011 income tax return (or an amendment to earlier income tax returns) accordingly.

In addition, the ATO has acknowledged that recipients of Jobstart and Newstart allowance may also be entitled to claim certain deductions. However such taxpayers will not be entitled to the automatic $550 deduction. Ordinary substantiation requirements will typically apply.

Tip!If you have been in receipt of Youth Allowance, Austudy, Abstudy, or Jobstart or Newstart allowance, you may be entitled to certain deductions against this income for the 2007 to 2011 income years. You should consult with your tax adviser to obtain further details.

The ATO recently issued a taxpayer alert in relation to the claiming of holiday travel as work related or self-education expenses. Broadly, the ATO is looking at arrangements where taxpayers have undertaken domestic or overseas travel to a holiday destination and, have also undertaken educational or work related activities whilst on the trip.

In such circumstances, the ATO has noted that the cost of the travel will typically only be deductible to the extent that the expenses relate to the education or work related activity. Where an expense has a dual purpose, the cost needs to be apportioned on a reasonable basis as between the deductible and non-deductible components. See your tax adviser to ascertain how much of the cost is deductible for tax purposes.

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 toconsult their tax adviser for advice on specific matters.

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Taxwise Individual News – Jun 2012

IN THIS ISSUE

The end of the financial year is fast approaching and it’s time to start planning to prepare for your 2012 Income Tax Return. Now is a good time to start thinking about your tax affairs. Some things you could look at are:

  • Make sure you gather all your receipts to claim work-related expenses that exceed $300;
  • Consider whether any tax offsets are available to you – do you have large medical expenses you could claim an offset for? Are you entitled to the Low Income Tax Offset? Are there any other tax offsets for dependents you might be entitled to?
  • Making additional contributions to your superfund – should you top up super contributions this year?
  • Think about whether you had planned to make any donations to deductible gift recipients and making those donations (and getting a receipt for them) before the financial year ends; and
  • If you have a rental property, think about what expenses you might be able to claim against the rental income you have earned.

Talk to your tax adviser about what other things you need to think about before 30 June rolls around. Your tax adviser knows you and your tax affairs and can help you make sure you claim all deductions and tax offsets you are entitled to and get your tax return right!

Note!The standard deduction of $500 that was set to begin on 1 July 2012 is no longer going to be introduced. So, you must continue to keep your receipts so you can claim all your relevant work-related expenses which exceed $300 in total in the 2011-12 and future income years.

From 1 July 2011, as part of the 2012-13 Budget announcements, the following changes apply to the Medicare Levy low income thresholds:

  • The low income threshold for individuals will be increased to $19,404 (from $18,839);
  • The low income threshold for families will be increased to $32,743 (from $31,789) and the additional amount for each dependent child or student will be increased to $3,007 (from $2,919).
  • The low income threshold amount for single pensioners below Age Pension age will be increased to $30,451 (from $30,439) to ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.

From 1 July 2012, access to the private health insurance rebate becomes means tested by reference to how much income an individual earns. Not all taxpayers will be entitled to the 30% rebate.Some higher income-earning taxpayers will be June 2012 entitled to a lesser rebate amount and individuals and families whose income is higher than the top threshold amount will no longer be entitled to any rebate at all.

The three tier income thresholds also apply to calculate who has to pay the Medicare levy surcharge and how much they have to pay. The table summarises how much rebate an individual can claim if they have private health insurance and how much Medicare levy surcharge an individual has to pay if they don’t have sufficient private hospital cover from a private health insurer.

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, 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. If you are a higher income earner, the cost to you personally of your private health insurance is likely to be more because of this change.

To do!If you are concerned about how these changes might affect you in the coming income year, speak to your tax agent about the possible impact of these changes.

From 1 July 2012, the following tax rebates are going to change:

  • Net medical expenses tax offset (NMETO) – a means test will be 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 threshold above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter) and 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 will be consolidated into a single, streamlined and non-refundable offset. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets. The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. For taxpayers who can claim more than one offset amount in relation to multiple dependants who are genuinely unable to work will still be able to do so.
  • Mature age worker tax offset (MAWTO) – The MAWTO will be phased out for taxpayers born on or after 1 July 1957. This will not affect any person who currently receives MAWTO. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in the current income year (2011-12).

The previous edition of TaxWise referred to recently announced changes to the living-away-from-home allowance (LAFHA). The proposed changes are to:

  • Remove the taxation of LAFHA from the FBT space into the income tax space, meaning that employees, rather than employers, will be liable to tax on any LAFHA received that is not exempt;
  • Limit access to the tax exemption for temporary residents to individuals who maintain a residence in Australia and who are required to live away from it for work purposes;
  • Require individuals to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

These changes are due to apply from 1 July 2012.

a) Small business: instant asset write-off and simplified depreciation

An “instant write-off” amount of $6,500 (increased from $1,000) will apply to small businesses who acquire “low cost” assets from 1 July 2012. In addition, an instant write-off for the first $5,000 of the cost of a motor vehicle purchased by a small business will also be available (unless the vehicle can be written off immediately).

Other changes simplifying depreciation for small businesses include the creation of a “general small business pool” (which will be made up of depreciating assets in the “general small business pool” and the “long life small business pool”). Assets will be depreciated at a rate of 15% in the first year and at 30% in each subsequent year. If you are currently considering some new asset purchases, your tax agent is the best person to help you decide when you should make those purchases.

b) Entrepreneurs’ tax offset changes

The entrepreneurs tax offset ceases to be available on 30 June 2012. The new small business asset instant write-offs and depreciation pool in effect replace this tax offset.

NOTEIf you are planning on claiming the entrepreneurs’ tax offset this year, talk to your tax agent soon!

A) Previous announcements

In March 2012, certain changes to the superannuation provisions were introduced into parliament, including the following:

  • A temporary pause in indexation of the superannuation concessional contributions cap so that it will remain fixed at $25,000 for individuals under 50 years of age up to and including the 2013-14 financial year, commencing 1 July 2013;
  • From 1 July 2011, eligible individuals will be able to have refunded to them contributions to their superannuation fund that exceeded the concessional contributions cap (amounts up to $10,000 only). This amount will be treated as assessable income to the individual (and subject to tax at the individual’s applicable marginal tax rate for the year) rather than being subject to “excess contributions tax”.
  • Allowing the ATO to disclose an individual’s superannuation interests and benefits to a regulated superannuation fund or public sector superannuation scheme, an approved deposit fund, retirement savings account (RSA) provider or their administrators. The purpose of this change is to assist administrators of these bodies to gain access to a member’s superannuation interests, including amounts held by the ATO, and help their members consolidate their superannuation interests; and
  • Employers must include on employees payslips the amount of superannuation contributions they will make on behalf of an employee (as well as the date on which they expect to pay the contribution into the superannuation fund). The employer must also specify on the payslip the name and number (if applicable) of the fund to which the contribution has been or will be paid.

B) Budget 2012-13 announcements

The following announcements were made in the 2012-13 Budget in relation to superannuation changes:

  • Increasing concessional contributions caps (also known as pre-tax contributions) for individuals over 50 with low superannuation balances announced in the 2010-11 Budget has been deferred and will now start on 1 July 2014. This measure is intended to allow individuals aged 50 and over with superannuation balances below $500,000 to contribute up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 (the higher cap for individuals aged over 50 would then be $55,000).
  • Individuals with income greater than $300,000 (including superannuation contributions) will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy). That is, the flat superannuation contributions tax rate will increase from a rate of 15% to a rate of 30%.
  • From 1 July 2012, the tax offset that applies to Employment Termination Payments (ETP) will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset. Amounts above $180,000 (known as the “whole-of-income cap”), will be taxed at marginal rates. This cap will complement the existing ETP cap (which will be $175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

All developers of residential premises should take note that the GST provisions have been amended to ensure that sales of residential premises that have been constructed under certain arrangements known as “development lease arrangements” will be subject to GST (i.e. they will be treated as sales of new residential premises). Even if there has previously been a “wholesale supply” of the newly built premises to the developer, this will still be the case. This is something that developers who are building residential properties under these types of arrangements should be aware of.

There are also some changes under the GST law confirming the GST treatment of new residential premises in the case where they have been subdivided or strata-titled.

You should be aware that these changes will apply from 27 January 2011. If you are a builder who has constructed new residential premises since 27 January 2011, you should see your tax agent to see if these amendments affect the GST treatment you have applied to your project. You might need to consider amending your previously lodged Activity Statements if these amendments impact your business.

To do!See your tax agent if you are concerned how these new GST provisions might affect the GST treatment of a residential development you have undertaken. You might need to amend your Activity Statements as well!

If you are in the building and construction industry and you have an Australian Business Number (ABN), you may need to report certain payments you make to contractors for certain building and construction services.

You need to report certain details in relation to thecontractor to whom you make payments, including their ABN, name, address and amount you paid them (including GST). Generally, these amounts need to be reported to the ATO by 21 July, which is very soon after the financial year end.

As these rules apply from 1 July 2012, it might be a good time now to look at the kinds of records you keep in relation to payments you make to contractors and see if you need to change anything to help you comply with these new rules. Your tax agent can assist you with the types of records you might need to start keeping to help you meet this obligation. It might turn out that you don’t need to change any of your record-keeping details and you will be able to meet this obligation.

Tip!You should take the opportunity now to consider the impact of this reporting obligation and make any necessary changes now so you are ready for 21 July 2013! See your tax agent if you need help with this.

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 Business News – Feb 2017

IN THIS ISSUE

The ATO is collecting data from financial institutions and online selling sites as part of their data matching programs for credit and debit cards, online selling and ride sourcing.

The data will include:

  • The total amount of credit and debit card payments businesses received.
  • Online sellers who have sold at least $12,000 worth of goods or services.
  • Payments made to ride sourcing drivers from accounts held by the ride sourcing facilitator.

The ATO matches this data with information they have from income tax returns, activity statements and other ATO records to identify any discrepancies.

Tip!If you need to correct a mistake you have made in your income tax return, you should talk to your tax agent.

Ride sourcing data matching

The ATO’s ride sourcing data matching program has been developed to address the compliance risk of the registration, lodgment and reporting of businesses offering ride sourcing services as a driver. It is estimated up to 74,000 individuals (ridesourcing drivers) offer, or have offered, this service.

The ATO will request details of all payments made to ride sourcing providers from accounts held by a ride sourcing facilitator’s financial institution for the2016-17 and 2017-18 financial years.

They will match the data provided by the facilitator’s financial institution against our records. This will identify ride sourcing drivers that may not be meeting their registration, reporting, lodgment and/or payment obligations.

Where the ATO is unable to match a driver’s details against ATO records, they will obtain further information from the financial institution where the driver’s account is held.

The protocol has been prepared to meet the requirements of the Office of the Australian Information Commissioner’s Guidelines on Data Matching in Australian Government Administration (2014) (the Guidelines).

This will impact you if you offer ride sourcing as part of your business.

Single Touch Payroll is a government initiative to simplify business reporting obligations. In the previous issue of TaxWise Business, we noted that the Budget Savings (Omnibus) Bill 2016 which contains the Single Touch Payroll rules, had been introduced into Parliament. This has now become law.

The Single Touch payroll regime will enable employers to report salary or wages, pay as you go (PAYG) withholding and superannuation information to the ATO from their payroll solution, at the same time they pay their employees. This will mean simpler reporting obligations and more options for completing tax and super forms electronically.

Single Touch Payroll reporting will be available to all employers from 1 July 2017.

However, only employers with 20 or more employees will have to report this way under the law. They must start reporting through Single Touch Payroll from 1 July 2018.

Further information is available on the ATO website:
Simpler-reporting-with-Single-Touch-Payroll.

To do!If you are an employer with 20 or more employees, you will need to look into your reporting to the ATO to ensure it complies with the requirements of the Single Touch Payroll regime.

On 14 December 2016, Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced that the government had established a taskforce to crack down on the ‘Black Economy’. Ms O’Dwyer said, “While there is no single, internationally-agreed definition, typically, the ‘black economy’ refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (andsuperannuation) obligations. The ‘black economy’can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.”

The ‘Black Economy’ Taskforce, to be chaired by former chair of the B20 anti-corruption taskforce, Mr Michael Andrew AO, will provide an interim report togovernment in March 2017. Tackling the ‘black economy’ requires a whole of government approach and participants will include the Reserve Bank of Australia, the Australian Federal Police, ASIC, APRA, AUSTRAC, and the Departments of Human Services and Immigration.

The Taskforce will provide a final report in October 2017 which will include an overarching whole of government policy framework and detailed proposals for action to counter the ‘black economy’.

In the 2016-17 Budget, the government announced it will maketargeted amendments to improve the operation and administration of Division 7A of the Income Tax Assessment Act 1936.

The amendments will apply from 1 July 2018 and will introduce:

  • a self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly;
  • appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers;
  • simplified rules regarding complying Division 7A loans, including in relation to loan duration and the minimum interest rate; and
  • a number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers.

The proposed changes draw on a number of recommendations from the Board of Taxation’s post-implementation review into Division 7A.

To do!This change may impact you if you have private loans from your business. In that case, you should seek advice from your tax professional.

The ATO recently released Taxpayer Alert TA 2016/12 cautioning against arrangements that minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts.

Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to improperly gain favourable tax breaks, or sometimes pay no tax at all.

The ATO identified these arrangements through ongoing monitoring and reviews by the Trusts Taskforce, and continues to look for these arrangements using sophisticated analytics.

The Trusts Taskforce was established in 2013 to undertake targeted compliance action against people involved in tax avoidance or evasion using trusts. Since this time, the ATO has raised $772 million in liabilities and collected $164.5 million. In addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation.

addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation. Goods taken from stock for private useIf you take items from your business’ trading stock for your own use, make sure you include the value of these items as part of your business’ assessable income.

To do this, you should record the actual value of the goods (excluding GST) or use estimates provided by the ATO if you are a sole trader or in a partnership.The ATO estimates are updated yearly and are available for the following industries:

  • akery
  • butchery
  • restaurant/café
  • caterer
  • delicatessen
  • fruiterer/greengrocer
  • takeaway food shop
  • mixed business (including milk bar, general store and convenience store).

For more information on amounts the ATO accepts as estimates and small business benchmarks, visit the ATO’s website.

Note!Seek advice from your tax agent or adviser if you are unsure how to treat stock used for private purposes in your accounts for tax purposes.

It is important that businesses keep all their business and client information secure. If data is lost or compromised, it can be very difficult or very costly to recover. The ATO has released a list of tips on how to keep your business and client data safe from hackers and identity thieves:

  • Ensure your passwords are strong and secure
  • Remove system access from people who no longer need it
  • Ensure all devices have the latest available security updates
  • Do not use USBs or external hard drives from an unfamiliar source
  • Use a spam filter on your email account
  • Secure your wireless network and be careful when using public wireless networks
  • Be vigilant about what you share on social media
  • Monitor your accounts for unusual activity or transactions
  • Use a PO Box, or ensure your mail is secure
  • Do not download programs or open attachments unless you know the program is legitimate
  • Do not leave your information unattended –secure your electronic devices

1) GST – applying to digital products and other services imported by consumers

In the 2015-16 Budget, the government announced that the application of the GST will be extended to cross-border supplies of digital products and other services imported by Australian consumers.

This includes digital products such as streaming or downloading of movies, music, apps, games, e-books as well as services such as architectural or legal services. Under the new law, overseas businesses will be required to pay GST on these sales from 1 July 2017.

If you have interactions with overseas businesses that supply digital products and services to Australian consumers, let them know they may be subject to the transitional rule for GST.

The transitional rule applies to businesses that:

  • meet the registration turnover threshold of A$75,000; and
  • supply digital products and services before 1 July 2017 and continue after this date. The portion after 1 July 2017 is subject to GST.

A simplified system will be available on the ATO website from 1 April 2017 for these businesses to electronically register, lodge and pay GST.

To do!Talk to your tax agent about the GST implications for you if goods and supplies you have been acquiring from an overseas business that you may have been using in your business become subject to GST.

2) ST on low value imported (physical) goods

In the 2016-17 Federal Budget, the government confirmed that from 1 July 2017, the GST will be extended to low value imports of physical goods imported by consumers.

A vendor registration model will be used where non-residents with an Australian turnover of $75,000 ormore will be required to register and charge the GST.

An exposure draft outlining the proposed law changes and application was released for public comment. More information will be provided as this measure progresses.

3) Changes to GST for overseas business transactions

Certain transactions between overseas and Australian businesses are no longer subject to Australian goods and services tax (GST). These changes came into effect on 1 October 2016. See the previous edition of TaxWise Business for further information.

Overseas businesses with whom you transact may no longer need to be registered for GST if they supply to (or are supplied from) Australian businesses.

They may therefore no longer need an Australian ABN and may no longer be required to identify the exact amount paid for international transport, insurance and other ancillary costs. This applies when calculating the value of taxable importations for GST purposes. They can choose to use an uplift factor of 10% of customs value as a proxy for these costs.

For more information on GST cross-border transactions between businesses, including specific changes for non-residents and Australian businesses, visit the ATO’s website.

To do!Talk to your tax agent about how the change in GST status of overseas businesses you transact with may impact on your own GST obligations.

4) When to charge GST (and when not to)

i) When to charge GST

If your business is registered for GST, most of the sales in Australia will include GST.

Sales which include GST (taxable sales) are:

  • made for payment (monetary or other);
  • made in the course of operating your business (including any capital assets sold); and
  • connected with Australia.

For these taxable sales, you:

  • clude GST in the price;
  • issue a tax invoice to the buyer;
  • pay the GST you’ve collected when you lodge your activity statement.

ii) When not to charge GST
You do not include GST in the price of goods andnservices that are:

  • GST free – such as most basic foods, some education courses and health care products and services.
  • Input taxed – such as lending money and renting out residential premises.

5) Claiming GST credits – refresher

You can claim a credit for any GST included in the price of goods and services that you purchase for your business and use to make either taxable or GST-free sales. This is called a GST credit.

You can’t claim a GST credit for the GST included in the price of purchases you use to make your input taxed sales.

Note!Your tax agent knows when you can and can’t claim GST credits. They will be able to ensure you put the right information into your activity statement and make the right claims for GST purposes.

6) Simpler BAS test findings

The ATO has been working to make business activity statement (BAS) reporting simpler for small business.

From 1 July 2017, small businesses will only be required to report:

  • GST collected (1A);
  • GST entitled to be claimed (1B);
  • Total sales (G1).

Talk to your tax agent to find out how this may impact on your activity statement reporting to the ATO.

The ATO has collaborated with industry representatives to develop a safe harbour for car fringe benefits. A safe harbour is a guideline that allows businesses to make use of an efficient way to calculate their tax where certain conditions are met.

This safe harbour will simplify the approach for working out the business use percentage of car fringe benefits for fleets of 20 cars or more. The new approach reduces the record-keeping burden for your business clients. It allows them to use an ‘average business use percentage’ when using the operating cost method.

To find out how it works, talk to your tax agent.

1) Overdue taxable payments annual reports: building and construction industry

The ATO is contacting businesses in the building and construction industry about their overdue taxable payments annual reports.

If you are in the building and construction industry and have not lodged your 2016 or any prior year taxable payments annual reports, now is the time to get them back on track to avoid penalties.

Regardless of where you claim contractor expenses in your tax returns, if you have paid contractors for building and construction services, you need to lodge a taxable payments annual report.

2) Lodging your report

You must lodge your Taxable payments annual report online using the Business, Tax Agent and BAS Agent Portals. The ATO only accepts reports that meet these specifications.

To lodge online you’ll need:

  • an Australian business number (ABN);
  • anAUSkey– to protect your security and privacy when dealing with the ATO online; and
  • business software that meets the ATO’s requirements.

Tip!It is best to get the assistance of your tax agent when completing your Taxable payments annual report.

New rules apply to vendors disposing of certain taxable Australian property under contracts entered into from 1 July 2016. A 10% non-final withholding will be applied to these transactions at settlement.

Australian resident vendors selling real property will need to obtain a clearance certificate from the ATO prior to settlement, to ensure they don’t incur the 10% non-final withholding.

This new withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 10% of the purchase price and pay it to the ATO, where a vendor enters into a contract on or after 1 July 2016 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).

The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

  • Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement:
    • for Australian real property, a clearance certificate obtained from the ATO
    • for other asset types, a vendor declaration they are not a foreign resident.
  • Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.

Note!If you are buying or selling property and a foreign resident party is involved in the transaction, talk to your tax agent to ensure you meet your tax obligations in relation to this transaction.

1) Superannuation reform package bills

The previous edition of TaxWise Business covered the superannuation reform package extensively in detail. The reforms passed into law in December 2016.

In summary, the reforms include:

  • Legislating the objective of superannuation;
  • Introducing a $1.6 million superannuation transfer balance cap;
  • Reforming the taxation of concessional superannuation contributions;
  • Lowering the annual non–concessional contributions cap;
  • Introducing the Low Income Superannuation Tax Offset (LISTO);
  • Improving access to concessional contributions;
  • Allowing catch–up concessional contributions;
  • Extending the spouse tax offset;
  • Removing barriers to innovation in retirement income stream products;
  • Improving the integrity of transition to retirement income streams (TRIS);
  • Abolishing the anti–detriment rule;
  • Streamlining administrative processes.

The ATO has also begun issuing guidance to assist taxpayers to understand the new superannuation reforms. However, your tax agent will be able to assist you to understand the new reforms and what they might mean for you.

2) Being super compliant is easy

If you are an employer, you must ensure you meet your super guarantee obligations. Some reminders of things you need to do are below:

  • contribute at a rate of 9.5% of their employees’ ordinary time earnings;
  • make contributions by the quarterly due dates (28 January, 28 April, 28 July, 28 October) or more frequently;
  • pay super for contractors if they are eligible, even if the contractor quotes an Australian Business Number;
  • be SuperStream compliant; and
  • keep accurate records to show they have met their obligations.

The ATO has a range of information, tools and calculators to help employers:

  • Super obligation employer’s checklist– Six easy steps
  • Super guarantee eligibility decision tool
  • Super guarantee contributions calculator
  • Super for employers home page

Note!Although the ATO has developed lots of tools to help employers meet their superannuation obligations in relation to employees, employers should still consult their tax adviser for help and support to meet their superannuation obligations.

3) Support your clients to make the switch to SuperStream

Previous editions of TaxWise Business have included information on SuperStream.

The deadline for all employers to be SuperStream compliant has now passed. All employers should be paying super and sending the corresponding data in an appropriate electronic format.

If you haven’t made the switch to SuperStream, you should work with your tax adviser to help you become SuperStream compliant.

4) Superannuation for employees working overseas – certificate of coverage

Do you send employees to work temporarily overseas? If so, you still need to make super contributions in Australia for those employees.

Your employees may also have to pay super or social security in the foreign country. A certificate of coverage exempts them from those obligations in countries we have bilateral agreements with.

Your tax agent can use the automated form on the Tax Agent Portal to request a certificate of coverage on your client’s behalf. However, you need to grant your tax agent access to your certificate of coverage account first. This can be done via Access Manager in the Business Portal.

From 1 January 2017, the first $37,000 of aworking holiday maker’s income is taxed at 15%, with the balance taxed at ordinary rates.

The tax on any departing Australia super payment made to working holiday makers after 1 July 2017 has also increased to 65%.

A person is a working holiday maker if they have a visa subclass 417 (Working Holiday) or 462 (Work and Holiday).

When they lodge an income tax return, the ATO will work out how much tax they should have paid. If they have paid too much, the ATO will give a refund. If they have not paid enough, the ATO will send the working holiday maker a bill.

a) Employer registration

If you employ (or plan to employ), working holiday makers, you must register with the ATO.

Once you register, a withholding rate of 15% applies to the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply.

If you do not register, you must withhold tax at 32.5% for the first $37,000 of a working holiday maker’s income. From $37,001, normal foreign resident withholding rates apply. Penalties may apply for failing to register.

b) Change in tax rate for super payments to working holiday makers

From 1 July 2017, departing Australia superannuation payments (DASPs) made to working holiday makers (WHMs) will be taxed at 65%.

If an individual holds or has held a 417 (Working Holiday) or 462 (Work and Holiday) visa, they are classified as a WHM.

This change is related to a new income tax rate for WHMs which was introduced by the Australian government in December 2016. Payments made before 1 July 2017 will be taxed at the current rate,which is 38% for a taxed-element. Employers of working holiday makers will need to be aware of their relevant obligations.

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 2016

IN THIS ISSUE

Depending on the structure of your business, the lower tax rate of 28.5% may apply to your business if you run your business through a companyfor the 2016 year. Your aggregated turnover must be less than $2 million. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts.

If you run your business through a non-corporate structure, such as a sole trader, partnership or trust, you are also entitled to receive a tax offset of up to 5% of your tax payable capped at $1,000.

In the previous edition of TaxWise Business, we noted that these small business concessions will change for the 2017 income year:

  • The tax rate for small businesses operating through corporate structures will be further reduced to 27.5% where the aggregated turnover is less than $10 million;
  • The tax offset for unincorporated entities will be progressively increased from 5% to 16% over the next 10 years (starting with 8% remaining constant for the next eight years then moving to 10% in the 2025 income year, 13% in the 2026 income year and 16% in the 2027 income year). However, the cap remains at $1,000.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 which contains these measures is, at the time of writing, sitting before the House of Representatives.

On 31 August 2016, the Budget Savings (Omnibus) Bill 2016 was introduced into the House of Representatives, which contains a number of measures relating to budget savings. This includes the “Single Touch Payroll” reporting framework.

“Substantial employers” (with 20 or more employees) will be required to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under this framework will not have to comply with a number of existing reporting obligations under the taxation laws.

A pilot will be run by the ATO to test whether the Single Touch Payroll reporting framework should also be adopted by employers with less than 20 employees in the near future.

On 2 September 2016, the ATO made a legislative determination entitled the Taxation Administration Act Withholding Schedules October 2016 (legislative instrument F2016L01380; registered 2 September 2016).

These withholding schedules are being updated to incorporate the rates and thresholds contained in the Treasury Laws Amendment (Income Tax Relief) Bill 2016. The change is to the third personal income tax threshold from $80,000 to $87,000. These updates are needed in order for businesses to work out the amount they must withhold from payments made to individual taxpayers.

From 1 October 2016, employers are required to lower the amount of tax withheld for affected taxpayers to factor in the new lower tax rate. Any tax overpaid beforehand will be refunded by the ATO on assessment after the end of the 2016-2017 financial year.

To do!All employers must make sure that they have made appropriate changes to their payroll systems to ensure they are withholding and reporting the correct amounts from employees.

This is just another reminder that overseas business clients may no longer besubject to GST from 1 October 2016.

Overseas businesses supplying Australian businesses do not need to register for GST if they:

  • Only make GST-free supplies through an enterprise carried on outside Australia;
  • Have a business presence in Australia of less than 184 days in a 12-month period; and
  • Have a GST turnover below the GST registration threshold of AUD$75,000 (because certain supplies will no longer be included in the GST turnover).

GST-registered importers no longer need to identify the exact amount paid for international transport, insurance and other costs to calculate the value of the taxable importation for GST purposes.

The measure aims to ensure Australia does not draw non-residents into the GST system unnecessarily. It relieves non-residentsuppliers of the obligation to account for GST on certain supplies, therefore reducing their compliance costs.

It also reduces the compliance costs for GST-registered importers in calculating the value of taxable importations.

To help businesses understand the operation of the new law and to help decide if your business needs to register for GST, the ATO has released Law Companion Guideline LCG 2016/D1 GST and carrying on an enterprise in the indirect tax zone (Australia)

Since the last edition of TaxWise Business, Parliament has recently passed several tranchesof legislation in relation to the 2016-17 Budget measures that relate to the taxation of superannuation. These measures will take effect from 1st July, 2017:

Tranche 1

Tranche 1 contained the following measures:

  • The objective of superannuation;
  • Tax deductions for personal superannuation contributions;
  • Improve superannuation balances of low income spouses;
  • Introduce a Low Income Superannuation Tax Offset (LISTO); and
  • Harmonising contribution rules for those aged 65 to 74.

The Treasurer and the Minister for Revenue and Financial Services have said that the draft legislation will:

  • Enshrine the objective of superannuation in legislation, being to provide income in retirement that substitutes or supplements the age pension, which has guided the development of the Government’s reforms;
  • Improve access to concessional contributions by allowing people (under age 75) to claim a tax deduction for personal superannuation contributions, irrespective of their employment arrangements. This will assist around 800,000 people, particularly benefiting those who are partially self-employed, partially wage and salary earners (for example contractors) and those people whose employers do not offer salary sacrifice arrangements;
  • Provide more flexibility and choice for older Australians, including by removing the restrictions that currently prevent some people aged between 65 and 74 from making voluntary contributions to their superannuation. Around 40,000 older Australians will benefitfrom this change by having increased flexibility to make additional contributions and to increase their retirement savings from sources not necessarily available to them before retirement, such as proceeds from downsizing their home;
  • Encourage more people to make contributions to the superannuation fund of a low income spouse; and
  • Introduce the Low Income Superannuation Tax Offset (LISTO). Around 3.1 million low income earners will have their superannuation savings boosted by the LISTO, including 1.9 million women. This change will ensure individuals do not pay more tax on their superannuation contributions than on their take-home pay.

Tranche 2

Tranche2 contained the following measures:

  • Introduce a $1.6 million transfer balance cap and transitional arrangements for individuals who already have retirement phase balances above $1.6 million;reform the taxation of concessional contributions (i.e. lower the Division 293 tax income threshold to $250,000 and reduce the concessional contributions cap to $25,000);
  • Allow catch-up concessional contributions for those with super balances less than $500,000;
  • Remove regulatory barriers to innovation in the creation of retirement income stream products;
  • Improve integrity of transition to retirement income streams;and
  • Remove the anti-detriment provision.

The Treasurer and the Minister for Revenue and Financial Services have said that this tranche of measures will do the following:

  • The existing annual non-concessional contributions cap will be reduced from $180,000 per year to $100,000 per year;
  • Individualsaged under 65 will continue to be able to “bring forward” three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums. The overwhelming bulk of such larger contributions are typicallyless than $200,000;
  • Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions from 1 July 2017. This limit will be tied and indexed to the transfer balance cap. This ensures that the entitlement for after tax contributions is focused on those Australians who have an aspiration to maximise their superannuation balances and reach the transfer balance cap in the retirement phase, where a zero tax on earnings applies;
  • With their annualconcessional contributions, Australians will be able to contribute $100,000 each yearin totaland, if taking advantage of the non-concessional “bring-forward” contributions, up to $300,000 in any one year until such time as they reach $1.6 million;
  • Broadly commensurate treatment will apply to members of defined benefit schemes;
  • Individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation. This will encourage individuals to remain engaged with the workforce; and
  • The commencement date of the proposed catch-up concessional superannuation contributions will be deferred by 12 months to 1 July 2018 to ensure the full cost of changes to non-concessional contribution arrangements are met over both the forward estimates and the medium term.

Tranche 3

Tranche 3 contained the following measures:

  • Lower the annual non-concessional contributions cap t$100,000(from $150K p.a–*9865230)and restrict eligibility to make non-concessional contributions only to individuals with superannuation balances below $1.6 million; and
  • Further amendments to improve the superannuation administration arrangements.The Treasurer and the Minister for Revenue and Financial $1.6 million

Further guidance on non-arm’s length limited recourse borrowing arrangements (LRBAs) is now available in the form of Taxation DeterminationTD 2016/16 which was released on 28September2016. TD 2016/16 replaces the views contained in ATOID 2015/27 and ATOID 2015/28. TD 2016/16 follows the release of the ATO’s Practical Compliance Guideline PCG 2016/5 which sets out when the Commissioner will accept that an LRBA is structured on arm’s length terms.

The development of TD 2016/16 follows feedback the ATO received after the issue of PCG 2016/5in April this year that questioned how the non-arm’s length income (NALI) provisions apply, in circumstances where an arrangement is not on arm’s length terms.

SMSFs contemplating an LRBA on non-arm’s length terms are strongly encouraged to seek independent professional advice, or to seek a private binding ruling from the ATO.

The release of this new taxation determination is in line with the ATO’s promise to have released further LRBA guidance by 30 September 2016, ahead of the new deadline of 31 January 2017 by which borrowing arrangements must be compliant.

Note!There are only a couple of months left to ensure LRBAs meet the relevant compliance requirements.

The ATO has asked its clients how theyuse the tax and superannuation systems, and what they want. The feedback the ATO received was that the ATO should fix the basics, provide certainty, tailor services to clients’ needs and help them navigate the system.

From this consultation the ATO has created ablueprint for change, which provides a clear line of sight over want they want to achieve. The measure of success will be client satisfaction and community participation in the tax and superannuation systems.

Some improvements from the blueprint have already been delivered, including for:

  • Small business;
  • Privately owned and wealthy groups;and
  • Self-managed super funds

The Commissioner has said that the ATO has made significant progress in dealing with those taxpayers exposed in the Panama Papers who have tried to avoid their tax obligations. The Commissioner said, “This week of action further demonstrates our strong stance against tax crime, and the active collaboration between our domestic agencies in delivering a whole-of-Government response.”

Following the success of Project Wickenby, the Government supported the establishment of the Serious Financial Crime Taskforce. The Taskforce has broadened the focus of Project Wickenby and reinforcedthe domestic agencies working together to detect and deal with serious financial crime. This week of action is, in the Commissioner’s view, a good example of how the Taskforce has been able to take swift, timely and decisive action in relation to the Panama Papers.

Led by the ATO, the Taskforce made 15 unannounced access visits in Victoria and Queensland, and executed three search warrants following analysis of the leaked information. In addition, more than 100 taxpayers will be contacted and advised they are the subject of compliance action, if they have not been contacted already, and further criminal investigations have not been ruled out.

To read more on the Serious Financial Crime Taskforce and the “week of action” visit theATO’s website.

The ATO is proposing to make changes to their approach to penalties as they apply to businesses and individuals. As part of the proposal, the ATO will take a “one chance” approach before applying a penalty in the following circumstances:

  • For certain small business and individual clients, the ATO will not apply penalties for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements; and
  • The ATO will not apply failure to lodge on time penalties for late lodgment of income tax returns and activity statements.

This will apply to the first error and late lodgmentsubject to penalty. The ‘one chance’ timeframe will be refreshed after a set period of time. The ATO will confirm in writing to these small business and individual clients that, while they were liable to a penalty, the ATO has chosen not to apply one on this occasion.

The ATO is of the view that it is open to the Commissioner to exercise his general powers of administration and therefore does not require a law change to adopt such an approach.

While detailed design would determine the extent of its application, if community consultation supports this proposal, it is expected the following parameters may apply:

  • It would be available to small businesses (with turnovers under $2 million) and individuals subject to some criteria, with eligible clients being informed at the time the ATO provides the ‘one chance’ opportunity;
  • It would not be available to clients who demonstrated reckless or dishonest behaviour and those who disengage and cease communicating with the ATO during an audit or review;
  • The ATO would explain that although a taxpayer could have received a penalty, it has not on this occasion;
  • All clients will receive a clear explanation of how the error occurred and understand what they need to do to get things right in the future;
  • After a defined period of time (e.g. a three or four-year financial cycle) the opportunity would be reset. Given the frequency of reporting for activity statements, when considering late lodgment penalties, this set period may be different for income tax returns and activity statements;
  • After the ‘one chance’ opportunity has been provided, failure to lodge on time would automatically apply if lodgment was not received by the due date; and
  • Consistent with current administration, interest charges would remain payable on any amounts outstanding after the date they are due for payment.

Note!Your tax agent is the best person to assist you and your business with any penalty notices received regardless of whether the ATO adopts the proposal outlined above.

On 20 September 2016, the Government launched the Incubator Support Initiativeat Sydney-based fintech hub Stone & Chalk to help new Australian businesses and start-ups accelerate and scale-uptheir operations for launch into global markets.

The Incubator Support Initiative is a new element of the Entrepreneurs’ Programme and is one of the measures under the National Innovation and Science Agenda (NISA). The initiative includes $23 million to assist with the creation of new business incubators which will help start-up companies access advice, capital and valuable connections.

Applications are now open for matching grants between $10,000 and $500,000 for the creation of new incubators in regionsor business sectors with strong links to international trade, and for existing, high-performing incubators to expand their services.

For more information, visit the website of the Minister for Industry, Innovation and Science.

Tip!Consider also the ‘tax incentives for early stage investors’ outlined in previous editions of TaxWise Business.

The ATO has been working with the building and construction industry to provide support and assistance to those with outstanding debts. In the last month, the ATO started contacting tax agents regarding their clients in the building and construction industry who continue to have outstanding tax debts.

The ATO can offer a range of payment options to help get back on track sooner and reduce any interest liability.

If your business has an outstanding obligation, you can manage your business’ debt by asking your tax agent to assist you to request a payment arrangement.

To do!If you are in the building and construction industry and are concerned about any outstanding debts you may have, talk to your tax agent.

The ATO is having one-to-one discussions with small businesses about the full range of their digital services.

If you are new to business or the circumstances of your business have recently changed, the ATO may contact you to offer to arrange a visit. The visit will demonstrate to you the products and services the ATO has to support your business and to answer questions you may have.

These visits will be covered by the ‘Commissioner’s Guarantee’, which promises that no information gathered in these visits will be used for any other purpose.

Tip!If you are contacted for one of these visits, ensure you let you tax agent or tax adviser know and make sure they can attend the discussion with you.

The Inspector-General of Taxation, Mr Ali Noroozi, called for submissions to help develop his new work program for 2017.

The Inspector-General of Taxation seeks to improve the tax system for the benefit of all Australians by reviewing the administration of tax and superannuation laws by the ATO and the Tax Practitioners Board (TPB).

Since 1 May 2015, the Inspector-General of Taxation has been responsible for handling taxpayer and tax practitioner complaints about the actions of the ATO and the TPB, similar to the role the Tax Ombudsman used to have. In addition to providing specialist assistance and support to complainants, this expanded role has provided the Inspector-General of Taxation with real-time insight into tax administration issues and an opportunity to address them before they escalate into major causes of community discontent.

As the complaints handling function is continuing to develop, the Inspector-General of Taxation will consult widely to develop this upcoming work program as well as draw on themes emerging from complaints.The topics that are selected for review are those with themost potential for making tax administration fairer, simpler, more transparent or more efficient.

Mr Noroozi said, “I invite everyone to have their say in how administration of the tax system may be improved. I will consider all the issues raised and review matters with the most potential for making tax administration fairer, simpler, more transparent and more efficient.”

To do!Should you wish to have your say on issues you would like the Inspector-General of Taxation to review, talk to your tax agentabout putting a submission in. Submissions are due on 9 December 2016.

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 – 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, including the tax concessions for small business and increasing access to company losses. For more information, there are links below to topics that may be relevant to your business:

  • Instant asset write-off–qualifying small businesses can still claim an immediate deduction for business assets purchased costing less than $20,000 through to 30 June 2017.
  • Accelerated depreciation for primary producers–primary producers are reminded about the new rules from the 2015-16 Budgetfor claiming deductions for fencing and water facilities.
  • Company tax cuts for small business–the company tax rate was reduced to 28.5% from 1 July 2015 for small businesses with a turnover of less than $2 million and is proposed to be reduced to 27.5% from 1 July 2016 for businesses with an aggregated turnover of less than $10 million, though legislation has not yet been passed to bring in this change.
  • Immediate deductions for start-up costs–small businesses are reminded that they can continue to deduct a range of start-up expenses (which began on 1 July 2015).
  • Small business income tax offset–unincorporated small businesses can claim a tax offset of 5% of income tax payable up to $1,000. It is proposed the percentage be increased over the next 10 years from 5% to 16% (with the $1,000 cap per individual being retained), though legislation has not yet been passed to bring in this change.
  • Increasing access to company losses–there are proposed changes to companies accessing losses under the National Innovation and Science Agenda intended to start from 1 July 2015 which have not yet passed into law.

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.

Check your business industry code

It is good to make sure that the correct business industry code has been included on your business’ tax return. Many businesses change their purpose over time so the relevant business code that you used on last year’s business tax return may not be the same for your business this year. There is a Business industry code tool you can use to check the code. If you need to change the code, you may also need to update this information on the Australian Business Register.

Note!Your tax agent will be able to tell all about the key changes that will affect your 2015-16 tax return and the changes that will affect your tax affairs for the 2016-17 income year. It is best to talk to them about how any tax law changes might affect your business.

New content to clarify how the simplified depreciation rules might apply to your business is now available on the ATO website.

There has been some confusion when using the instant asset write-off threshold, particularly when a taxpayer needs to:

  • Fully deduct assets that cost less than $20,000;
  • Place assets costing $20,000 or more into the small business pool; and
  • Deduct the full amount of the small business pool when the balance is less than $20,000 –before any depreciation deductions are applied.

The information on the ATO website will help you to avoid making common errors, such as:

  • Under-claiming –by not writing-off the small business pool when the balance falls under $20,000;
  • Over-claiming –writing-off the balance of pool because the balance falls under $20,000 after applying the yearly depreciation deduction.

Tip!Your tax agent is expert in the treatment of depreciating assets and will ensure that you make all the correct claims. It is recommended you seek their assistance in working out what assets you can depreciate and how best to make the claims.

New rules have been introduced to strengthen the foreign resident capital gains tax (CGT) 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 providea 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 the10% 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).

i) Benchmark Interest rate

For the purposes of Division 7A which is about distributions made to entities connected to private companies, the benchmark interest rate for an income year is the ‘indicator lending rates -bank variable housing loans interest rate’ last published by the Reserve Bank of Australia before the start of the income year.

The ATO has released Taxation Determination TD 2016/11 which specifies that the benchmark interest rate applicable for the 2016-17 income year is 5.40%. This rate applies to loans from private companies to connected entities. Rates for previous income years can be foundon the ATO’swebsite.

ii) Commissioner’s discretion

The ATO has released its fourth video in their Division 7A video series, which explains the Commissioner’s discretion under Division 7A.

The Commissioner’s discretion is designed to help private company share holders and their associates comply with Division 7A. It gives the Commissioner the discretion to disregard a deemed dividend, or allow it to be franked if it arose because of an honest mistake or inadvertent omission.

The video explains:

  • What the Commissioner’s discretion is;
  • Factors the Commissioner considers when deciding whether to use his discretion; and
  • Examples to demonstrate how the Commissioner considers an application.

If you have made an honest mistake or inadvertent omission related to Division 7A, you should speak to your tax agent about applying for the Commissioner’s discretion.

To do!Division 7A is a very complex part of the tax law. Your tax agent or tax adviser is the best person to help you understand your obligations under Division 7A in relation to loans and other amounts provided to shareholders in a private company.

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;
    • completingodd 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 youneed 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.

There is a new CGT treatment for certain earnoutrights created on or after 24 April 2015 which satisfies the criteria of a ‘look-through earnout right’.

Earnout arrangements are often used when parties cannot agree on the value of the business at the time of sale.

If you have sold or purchased (or propose to sell or purchase) a business (or its assets) under a look-through earnout right created on or after 24 April 2015, then the new look-through CGT treatment will apply.

The ATO has updated its CGT Guide on look-through earnout rights. However, if you are engaging in transactions of this type, you should seek expert advice from a tax professional.

i) New law applying GST to imported digital products and services

As noted in the previous edition of TaxWise, 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.

ii) Simplified GST accounting methods for small food retailers

The ATO has introduced the simplified accounting method for GST purposes (SAM) to make it easier for small food retailers to account for GST. These methods will help you work out the amount of GST you are liable to pay to the ATO at the end of each tax period.

There are five methods to choose from which are:

  • Business norms;
  • Stock purchases;
  • Snapshot;
  • Sales percentage; and
  • Purchases snapshot.

You need to decide which one is best for your business and this depends on the relevant turnover threshold (either‘$2 million SAM turnover or less’ or ‘$2 million GST turnover or less’ depending on the method). You cannot use the averaging involved in these methods to set your prices. Businesses must still set prices in line with the Australian Competition and Consumer Commission’s (ACCC’s) guidelines.

The ATO consulted on the SAM 2016/D38 Goods and Services Tax: Simplified Accounting Method Determination (No. 38) 2016 for Restaurants, Cafes and Caterers -purchases snapshot method guidance document in August and will finalise this shortly.

iiI) Changes to GST obligations for overseas businesses

Overseas business clients may no longer be subject to GST from 1October 2016. Overseas businesses supplying Australian businesses don’t need to register for GST if they:

  • Only make GST-free supplies through an enterprise carried on outside Australia;
  • Have a business presence in Australia of less than 184 days in a 12-month period; and
  • Have a GST turnover below the GST registration threshold of $75,000 Australian (because certain supplies will no longer be included in the GST turnover).

GST-registered importers no longer need to identify the exact amount paidfor international transport, insurance and other costs to calculate the value of the taxable importation for GST purposes.

Note!If you acquire supplies for your business from overseas suppliers, this change may impact on your GST obligations. You should seek advice from a tax professional who specialises in GST for further information.

Recently, the Tax Practitioners Board has started to permit registered BAS agents to provide the following services:

  • Provide services under the Superannuation Guarantee (Administration) Act 1992 to the extent that they relate to a payroll function or payments to contractors;
  • Determine and report the superannuation guarantee shortfall amount and any associated administrative fees; and
  • Deal with superannuation payments made through a clearing house.

i) ATO benchmarks for small business

The ATO recently announced the latest benchmarks for small business. Small business benchmarks are a guide to help you compare your business’ performance against similar businesses in the same industry.

You can find your business’ benchmark by:

  • Business type –Benchmarks A–Z;
  • Businessindustry categoriesbased on the ATO’s Business industry codes;or
  • Australian and New Zealand Standard Industrial Classification (ANZSIC codes)

ii) What's new for small business?

The ATO has released new information on the following tax concessions:

  • Instant asset write-off –simplified depreciation rules;
  • Accelerated depreciation for primary producers;
  • Deductions for professional expenses for start-ups;
  • Small business restructure roll-over;
  • Fringe benefit tax changes for work-related devices;
  • Small business income tax offset; and
  • Company tax cut for small business.

Your tax adviser will be able to provide you with information about these new tax concessions for small business.

iii) Small business income tax offset and calculator

The small business income tax offset for unincorporated small businesses can reduce the tax you pay by up to $1,000 each year, and is available from the 2015-16 income year.

Your offset is based on the amounts you show in your income tax return. These are:

  • The net small business income that you earned as a sole trader; and/or
  • The shareof net small business income from a partnership or trust.

To be eligible for the offset as a sole trader, you must be a small business entity. If you have a share of net small business income from a partnership or a trust, that partnership or trust must be a small business entity.

There is a ‘small business income tax offset calculator’ available on the ATO website that can help you to work out the amounts you need to include in your tax return.

iv) Simplified depreciation for small business

You can choose to use the simplified depreciation rules if you have a small business with an aggregated annual turnover (the total normal income of your business and that of any associated businesses) of less than $2 million.

v) Simplified depreciation –rules and calculations

You can choose to use the simplified depreciation rules if you have a small business with an aggregated annual turnover of less than $2million.

Under these rules you:

  • Immediately write-off –that is,claim their full cost in the year you buy them –most depreciating assets costing less than $20,000;
  • Pool most higher cost assets (those with a cost equal to or more than the current instant asset write-off threshold) and claim:
    • a 15% deduction in the year you buy them;
    • a 30% deduction each year after the first year;
  • Deduct the balance of your small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-offthreshold.

If you choose to use the simplified depreciation rules, you must:

  • Use them to work out deductions for all your depreciating assets except those specifically excluded, and
  • Applythe entire set of rules, not just individual elements (such as the instant asset write-off).

You may choose to stop using the simplified depreciation rules or become ineligible to use them, in which case you’ll then use the general depreciation rules.

vi) Tax tips for small business

The ATO has released a range of tax tips for small businesses during Tax Time. They are:

  • Include allyour income;
  • Don’t miss out on deductions;
  • Check for personal services income;
  • Simplify depreciation; and
  • Lodge on time.

Business owners are reminded that myTaxis no longer just for individuals anymore. 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. To use myTax, you will need a myGov account.

myTax tools

If you’re 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.

Thenew CGT 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.

Note!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, so please consult your tax agent for assistance.

The ATO has published a new overview for directors on what informationthey 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.

Fraudulent ‘phoenix’ activity occurs where a company deliberately liquidates to avoid paying creditors, taxes and employee entitlements. Currently, this is an area of focus for the ATO.

Six search warrants were executed on 29 July 2016 as part of a cross-agency investigation into alleged illegal ‘phoenix’ activity on the Gold Coast. The operation stems from the work of the members of the multi-agency Phoenix Task force who are collaborating to help stamp out illegal phoenix activity.

The search warrants, which were led by the ATO with Australian Federal Police assistance, were part of a criminal investigation into unpaid superannuation, employee with holding, GST and income tax.

Previous editions of TaxWise have included information about the application of SuperStream and which businesses should be using it and when. If you make super contributions for employees, you need to get ready for SuperStream if you are notusing it already.

Businesses with 20 or more employees should already be using SuperStream. Businesses with 19 or fewer employees had until the end of June 2016 to get ready for SuperStream. However, the ATO is extending the deadline for small businesses until 28 October 2016 to get ready for SuperStream. This means the ATO will not be taking compliance action against small businesses that missed the 30 June deadline.

Employers who are already in SuperStream have shared their SuperStream experiences. Links to their testimonials from employers that might be in a similar business to yours are below:

  • Accommodation, pubs and clubs
  • Automotive and repair
  • Engineering and technical
  • Farming, livestock and crops
  • Fruit, vegetables and Floriade
  • Hairdressing and beauty
  • Hospitals, clinics and aged care accommodation
  • Manufacturing
  • Pharmacy and cosmetics
  • Specialists and boutique
  • Trades using a bookkeeper

The ATO is on the lookout for schemes designed by their promoters solely to help clients avoid paying tax on their income and assets. The scheme works by inappropriately channelling money through a self-managed super fund.

If you are or are about to become a self-funded retiree, you should consult your tax agent about your arrangements, particularly if you have received advice from another adviser who is not your tax agent or a tax professional andare concerned that you have inadvertently become involved in a scheme or have been approached by someone you think might be a promoter.

i) SMSF trustees: early engagement and voluntary disclosure

  1. The ATO has provided case studies for SMSF trustees in deciding whether they are eligible to use the early engagement and voluntary disclosure service. To read about some SMSF case studies, click on the individual headings below:
    • Early engagement and voluntary disclosure
    • Establishing whether gainful employment has ceased
    • Paying a lump sum benefit
    • Starting an income stream at 60
    • Life insurance and buy-sellagreements
    • Death benefit lump sum payments
    • Disqualified trustees
    • Breaching SMSF residency rules
    • Improvements to LRBA assetsb)
  2. The ATO has introduced a new service for SMSFs to make voluntary disclosures. You can use the service to engage early with the ATO about unrectified contraventions.To use the service, complete the ‘SMSF regulatory contravention disclosure form’. For more information on the SMSF early engagement and voluntary disclosure service, see the ATO website.

ii) SMSF new tax governance guide

The ATO has been working with businesses, tax advisers and agents to design an online guide to help private groups with tax governance.SMSF trustees and professionals can use this new tax governance guide to develop an effective governance framework and to identify ways to improve existing governance practices within their SMSF.

iii) Free SMSF education courses

If you have clients with SMSFs, the ATO has released a number of free approved online coursesavailable to trustees for the purpose of complying with an education direction. If you are an SMSF trustee, you can access them to improve your understanding of your SMSF trustee obligations, even if the ATO has not directed you to undertake one.

The ATO is allowing SMSF trustees additional time until 31 January 2017 to ensure that any limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s length dealing, or alternatively are brought to an end.

Why is the deadline being extended?

Since the issue of Practical Compliance Guideline PCG 2016/5 on 6 April 2016, the ATO has received several individual requests from SMSFs to allow them further time beyond 30 June 2016 to review the terms of their LRBA arrangements to ensure that their arrangements are on terms consistent with an arm’s length dealing.

Consideration of these individual requests has highlighted that many taxpayers may require more time in order to review the terms of LRBAs. Requests from taxpayers have also highlighted that taxpayers may benefit from further ATO guidance about some aspects of the non-arm’s length income (NALI) rules. In particular, taxpayers may benefit from further practical guidance clarifying the circumstances in which an SMSF will be taken to receive a greater amount of ordinary or statutory income under a particular non-arm’s length arrangement, compared to the amount which it wouldhave received under an arm’s length arrangement.

This guidance may assist SMSF trustees and advisers to make decisions about whether the NALI rules apply to their particular arrangements.

To do!If you are the trustee of an SMSF, there is a lot of information available on the ATO website to help you meet your obligations. However, your tax adviser can offer you invaluable assistance with meeting your obligations.

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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