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Taxwise Business News – Jun 2016

IN THIS ISSUE

The end of the financial year is coming and it’s time to start thinking about your 2016 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2016 rolling around.

  • Is there any income you are due to derive that you may not have to recognise until next financial year?
  • Are there any repairs and maintenance you should carry out prior to 30 June 2016 so you can claim the deduction in your 2016 return?
  • Are there any bad debts to write off out of your receivables?
  • Are there any recently announced measures in the May 2016-17 Federal Budget you should talkto your tax adviser about?
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2016 (you will need to speak to your lender).
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Review your depreciable assets (capital allowances) register and write off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances.

It is also a good time to review things that you think about at the time you put them in place but don’t otherwise turn your mind to – eg, do you have the right mix of debt and equity funding for your business to carry you through to the next financial year.

To do!Your tax adviser is the best person to help you with these decisions. As your tax adviser knows your business and has experience with other businesses similar to yours, they are able to offer you sound advice about how to best prepare your business for the start of the 2016-17 financial year.

Increase to the small business entity turnover threshold

Building on the small business package of measures introduced in the 2015-16 Federal Budget, from 1 July 2016, the small business entity turnover will be increased from $2 million to $10 million. Qualifying taxpayers will be able to access the following income tax concessions for small businesses:

  • Simplified depreciation rules, including immediate deductibility for assets costing less than $20,000 (until 30 June 2017);
  • Simplified trading stock rules (there will be no requirement for an end of year stocktake if the value of trading stock has changed by less than $5,000);
  • A simplified method of paying PAYG instalments calculated by the ATO (removing the risk of overestimating or underestimating PAYG instalments and incurring penalties);
  • Accounting for GST on a cash basis and paying GST instalments as calculated by the ATO;
  • Other concessions available to small businesses, including certain fringe benefits tax (FBT) exemptions such as the extension of the exemption for work-related portable electronic devices (starting from 1 April 2017 to align with the FBT year); and
  • Immediate deductibility of professional expenses.

However, only small businesses with a turnover of less than $2 million or that satisfy the maximum net asset value test will be able to access the existing small business capital gains tax (CGT) concessions.

In addition, from 1 July 2017, all small businesses with a turnover of less than $10 million will be able to access a simpler approach to preparing a Business Activity Statement (BAS)by being able to more easily classify transactions and prepare and lodge a BAS. A trial of the new simplified BAS reporting requirements will start on 1 July 2016.

Unincorporated small businesses

The unincorporated small business tax discount will be increased over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.

The rate will increase as follows:

Income YearRate
2015-165%
2016-178%
2017-188%
2018-198%
2019-208%
2020-218%
2021-228%
2022-238%
2023-248%
2024-2510%
2025-2613%
2026-2716%

Changes to the rules applying to private companies

As announced in the Federal Budget, targeted amendments will be made to improve the operation and administration of the integrity rules for closely-held private groups (in Division 7A of the Income Tax Assessment Act 1936). The amendments will apply from 1 July 2018 and will include:

  • A self-correction mechanism for inadvertent breaches of Division 7A;
  • Safe-harbour rules to provide certainty;
  • Simplified loan arrangements for the purpose of the rules; and
  • A number of technical adjustments to the law to improve its operation and provide increased certainty for taxpayers.

To do!There are a number of changes to the taxation of small and private businesses that were announced in the 2016-17 Federal Budget. You should talk to your tax agent to see how these changes might affect your small business.

As announced in the 2016-17 Federal Budget, the company tax rate will be progressively reduced to 25% over the next 10 years. Correspondingly, the annual aggregated turnover threshold that will allow companies to qualify for the lower rate will rise over the next 10 years.

The changes to the company tax rate and turnover threshold are contained in the table below:

Income YearRateAnnual aggregated turnover threshold
2015-1628.5%$2 million
2016-1727.5%$10 million
2017-1827.5%$25 million
2018-1927.5%$50 million
2019-2027.5%$100 million
2020-2127.5%$250 million
2021-2227.5%$500 million
2022-2327.5%$1 billion
2023-2427.5%No limit
2024-2527%No limit
2025-2626%No limit
2026-2725%No limit

The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.

Changes in the Federal Budget

The previous edition of TaxWise Businessnoted the Government’s National Innovation and Science Agenda (NISA) that was announced in December 2015. A number of tax-related measures were introduced as part of the NISA. In the 2016-17 Federal Budget, a couple of these measures have been expanded on.

i) Expanding tax incentives for early stage investors

As part of the Federal Budget announcement:

  • The holding period will be reduced from three years to 12 months for investors to access the 10 year CGT tax exemption;
  • The definition of eligible start-ups will include a time limit on incorporation and criteria for determining if the start-up is an “innovation company”;
  • There will be a requirement that the investor and innovation company are non-affiliates; and
  • The investment amount for non-sophisticated investors will be limited to $50,000 or less per income year in orderto receive a tax offset.

ii) Expanding the new arrangements for venture capital limited partnerships

As part of the Federal Budget announcement, the funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.

New legislation

As part of NISA, the Government has developed draft legislation on the following two tax measures:

i) Intangible asset depreciation

The draft legislation contains a measure that will allow taxpayers the choice to either self-assess the effective life of certain intangible depreciating assets or use the statutory effective life. The current law only provides an effective life set by statute.

ii) Increasing access to company losses

The draft legislation contains a measure that will allow businesses that have changed their ownership to access past year tax losses if they satisfy a “similar business” test. Under the current law, businesses that have changed ownership must satisfy the ‘same business’ test to access past year tax losses.

Note!The draft law for these measures was released in April. Though the intangible asset depreciation measure is intended to apply from 1 July 2016 and the losses measure is intended to start from 1 July 2015, as neither has been submitted before parliament and the Government is in caretaker mode due to the impending Federal election on 2 July, there is unlikely to be much progress on these measures at this stage.

GST on low value imports

From 1 July 2017, GST will apply to all low value goods imported by consumers from overseas. Imported low value goods should be subject to the same GST treatment as low value goods purchased by consumers domestically.

Overseas suppliers with an Australian turnover of $75,000 or more will be required to register for GST and collect and remit GST for low value goods supplied to Australian consumers. A “vendor registration” model will be used for overseas suppliers to register for GST.

These arrangements will be reviewed after two years to ensure they are operating as intended and to take account of any international developments.

GST treatment of digital currencies

Treasury has released a discussion paper on the “double taxation” of digital currencies under the GST law. This forms part of the Government’s Backing Australian FinTech statement. Currently where digital currency is used to purchase goods that are subject to GST, consumers are ‘double taxed’ because GSTalso applies to digital currency. This may be preventing the use of digital currencies.

Treasury is looking for ways to remove the “double taxation” of digital currency; that is so that someone who acquires digital currency to use to purchase other goods and services doesn’t pay GST bothat the time they acquire the digital currency andagainat the time they purchase goods and services that also have GST on them.

Measures impacting other indirect taxes

  1. Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017 to 2020.
  2. The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018. This is to address integrity concerns with the rebate and to tighten eligibility criteria.
  3. From 1 July 2017, the excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider.

Note!Some of these changes are specific to particular industries and others, like the GST changes, are much broader. Your tax adviser will be able to help you work out how these changes might impact on your particular business.

The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 contains an amendment to the GST law to ensure non-residents are not unnecessarily drawn into Australia’s GST net.

Starting from 1 October 2016, non-resident suppliers will be relieved of the obligation to account for GST on certain supplies, therefore reducing their compliance costs.

The ATO has released draft LCG 2016/D1 GST and carrying on an enterprise in the indirect tax zone (Australia) to help those affected understand the operation of the new law and to help you decide if they need to register for GST. The guideline discusses a new test in the GST Act for when an entity is carrying on an enterprise in the Australian indirecttax zone.

This has implications for business-to-business transactions and the obligation to account for GST may instead fall on the recipient. If you have overseas suppliers, it would be worth discussing with your tax adviser what may be the implications on your business from this change.

The ATO has reminded tax practitioners that for tax periods starting on or after 1 July 2012, there is a four year time limit (period of review) to amend or revise their clients activity statement assessments.

The period of review begins the day a taxpayer’s activity statement is lodged. During this time, there is no limit to the number of amendments that can be made. However in most cases, once the period of review expires, further amendments can’t be made.

If you use a tax agent to lodge your BAS, it is good to keep in mind the limitations on being able to amend your BAS, particularly if you discover something (egan acquisition) you may have accidentally omitted from telling your agent about. The sooner you let your agent know, the sooner they can correct your BAS.

The small business restructure rollover (SBR rollover), announced as part of the 2015-16 Federal Budget, allows small businesses to transfer active assets from one entity (the transferor) to one or more other entities (transferees), on or after 1 July 2016, without incurring an income tax liability.

This rollover applies to the transfer of active assets that are CGT assets, trading stock, revenue assets or depreciating assets.

Entities eligible for the rollover are:

  • A small business entity;
  • An entity that has an affiliate that is a small business entity;
  • An entity that is connected with a small business entity;
  • A partner in a partnership that is a small business entity.

The rollover can be accessed when:

  • It is part of a “genuine restructure”; and
  • There is no change to the ultimate economic ownership of the asset.

Assets eligible for the rollover include active assets that are CGT assets, depreciating assets, trading stock or revenue assets transferred between entities as part of a genuine restructure of an ongoing business.

The ATO has also issued Law Companion Guideline 2016/D2 which explains the consequences of applying the rollover for both the transferor and transferee and Law Companion Guideline 2016/D3 which explains the meaning of a “genuine restructure of an ongoing business”.

To do!If you are planning on restructuring your business, it is vital that you speak to your tax agent or adviser on the best way to do this, especially to make sure you correctly apply rollovers or other tax concessions that you may be eligible for.

You may be allowed to rollover (defer or disregard) a capital gain that results from a CGT event until another CGT event happens in the case of assets involved in the following events:

  • Small business restructure rollover;
  • Marriage or relationship breakdown;
  • Loss, destruction or compulsory acquisition;
  • Mining lease;
  • Scrip for scrip;
  • Demergers;
  • Other replacement-asset rollovers;
  • Other same-asset rollovers.

For more information on each of the above, visit the ATO website.

Car expenses – cents per kilometre

The Government has made changes to the cents per kilometre method. From1 July 2015, separate rates based on the size of the engine are no longer available. Taxpayers should now use a single rate of 66 cents per kilometre for all motor vehicles for the 2015-16 income year. The Commissioner of Taxation will determine the rate for future income years.

i) Rate for fringe benefits calculations

This single rate of 66 cents per kilometre will also apply to certain expense payment fringe benefit calculations for the 2016 FBT year where an employer reimburses an employee’s car expenseson a cents per kilometre basis.

These fringe benefits relate to:

  • Relocation transport;
  • Employment interviews or selection tests;
  • Work-related medical services; and
  • Transport to enable an employee employed in a remote area or employed overseas to have a holiday.

ii) Special arrangement for 2016

The ATO ac knowledges there has been uncertainty about the correct rate to apply for the 2016 FBT year. Therefore, the ATO will also accept 2016 FBT returns based on the 2014-15 rates (which are 64, 76 or 77 cents per kilometre depending on the engine capacity of the employee’s car).

iii) After 2016

For future FBT years, which end on 31 March, employers should use the rate determined by the Commissioner for the income year that ends on the following 30 June. For example, for the FBT year ending 31 March 2017, employers should use the basic car rate determined by the Commissioner for the 2016-17 income year.For more information on how to work out how much you can claim, visit the ATO website.

Tip!FBT returns are due on 25 June (if being lodged electronically through a tax agent), otherwise FBT returns were due on 21 May. If you have yet to do your FBT return and have car expenses to take into account, make sure you apply the right rate. However, it is good to know that the ATO will accept returns based on the 2014-15 rates for the 2015-16 FBT year.

Rates and thresholds for 2016-17 FBT year

Consistent with what happens each year, the Commissioner has issued a series of Taxation Determinations setting out various FBT rates and thresholds for the FBT year commencing 1 April 2016. They are:

  • TD 2016/1 FBT: for the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non remote housing for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/2 FBT: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/3 FBT: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/4 FBT: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2016.
  • TD 2016/5 FBT: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2016?

Note!These changes apply to the 2016-17 FBTyear so should not affect what goes into your 2015-16 FBT return.

FBT exemption for work-related electronic devices

As noted in previous editions of TaxWise Business, small businesses can now provide their employees with multiple work-related devices without incurring FBT on providing those devices. This applies even if the devices have similar functions. Devices can include laptops, tablets, mobile phones, calculators and GPS navigators.

As 1 April has now ticked over, it is worth reiterating the following:

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

SuperStream standardises how employers make super contributions on behalf of their employees. It involves employers sending all super payments and employee information electronically in a standard format.

With the 30 June 2016 deadline rapidly approaching, the ATO is encouraging small businesses to make becoming SuperStream ready a priority.

Employers should visit the ATO’s online employer checklist–a step-by-step guide on what you need to do. Employers can also contact an accountant, bookkeeper, payroll provider, super fund or clearing house for help.

The ATO has released a free recorded webinar to help employers understand SuperStream and the steps they need to take to prepare.

For more information on how to become SuperStream ready, visit the ATO website.

The ATO has also answered a number of “frequently asked questions” employers may have about SuperStream. TheFAQs can be foundon the ATO’s website.

You may be relying on “myths” when deciding whether your workers are employees or contractors.

The ATO released a new webinar series in April that helps small business owners work out:

  • The difference between employees and contractors;
  • Common myths about contracting;
  • How to make the right decision about the status of workers;
  • What the tax and super consequences are for each.

To book a place at one of the sessions that is on later this year, visit the ATO’s website.

Here is a link to the ATO employer/contractor interactive decision tool on the ATO website.

The ATO is running an education campaign for employers in the bakery, supermarket, car retailing, and computer system design industries to help them meet their tax and super obligations in relation to employees and contractors.

Businesses in these industries have been identified as having a higher risk of not meeting their business obligations in relation to employees and contractors.Information on superannuation (how much to pay and who to pay it to), PAYG and FBT for small businesses can be found on the ATO website. However, you should talk to your tax agent or adviser to work out exactly what your obligations are in relation to employees and contractors you have on staff and what implications there may be for your business if you don’t meet your obligations.

As a small business owner, you would be familiar with how occasional cash flow issues can impact on your business and, in particular, your ability to meet the variety of tax obligations you have on time.

The ATO has developed a payment arrangement calculator to help small businesses work out what payments will be affordable for their circumstances at these times. Your tax agent can then assist you to submit a payment plan request to the ATO. Your tax agent may also be able to help advise you on ways to better manage your tax obligations so you don’t run into these sorts of issues again.

The ATOhas released the following checklists and tools to improve the tax and super experience for small businesses:

  • The Taking on an employee checklist, which will take you through the different requirements you need to consider when taking on an employee, such as pay rates, workers compensation and health and safety.
  • Calculators and tools to help you get it right when it comes to your tax and super obligations.
  • A free ATO app for quick access to tools and calculators, answers to frequently asked questions, key dates and reminders.
  • Watch videos that cover tax and super information relevant to you. Topics include whether your worker is an employee or contractor, super, record keeping, franchising, managing ABNs, GST basics etc.

Avoid GST refund delays –pharmacists and chemists

If you run a pharmacy or chemist, you may be affected by changes to drug treatments included on the pharmaceutical benefits scheme (PBS). These changes, in particular the hepatitis C drug treatment, may cause these businesses to have unusually high GST credits.

To minimise delays in payment of GST refunds, before you lodge activity statements, check:

  • Your contact details are correct;
  • Your activity statement lodgments are up to date;
  • Your bank account details are correct; and
  • You have included the correct business industry code to describe your business.

NoteIf you do have an unusually high GST refund, the ATO may contact you to confirm it.

'Annual tax obligations for employers' webinars

As the end of the financial year is fast approaching, the ATO is running some webinars in June and July to remind employers about their annual tax obligations, such as their “PAYG withholding annual report”.

Don’t forget your tax agent is also there to help remind you of your annual tax obligations and to prepare and lodge your returns on time to make sure you satisfy all your compliance 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 – May 2016

IN THIS ISSUE

The 2016-17 Federal Budget was handed down on 3 May 2016.

The intention of this Budget is to set out an economic plan to ensure Australia successfully transitions from the mining boom to a stronger, more diversified economy. The economic plan, which involves changes to superannuation, a Ten Year Enterprise Tax Plan and further tax integrity measures affecting multinational corporations, is to provide a foundation to build a “brighter, more secure future, in a stronger, new economy with more jobs1”.

The main measures likely to affect you are outlined below, together with information about other measures that may be of interest to you. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax adviser.

Changes to individual marginal tax rates

From 1 July 2016, the 37% marginal threshold will apply to the taxable income of individuals from $87,000. To compare, currently, taxable income above $80,000 is subject to the rate of 37%.

Medicare levy and Medicare levy surcharge

With effect from the2015-16 year, the low-income thresholds for both the Medicare levy and the Medicare levy surcharge will increase per the table below:

Medicare levy income thresholds

2015-162014-15
Singles$21,335$20,896
Couples (no children)$36,001$35,261
Single seniors and pensioners$33,738$33,044
Senior and pensioner couples with no children$46,966$46,000

The additional amount of threshold for each dependent child or student will be increased to $3,306 (up from $3,238).

The increase in these thresholds takes into account movements in the Consumer Price Index (CPI) to ensure that generally low income taxpayers will continue to be exempted from paying the Medicare levy.

Medicare levy surcharge

The low-income threshold for the Medicare levy surcharge has been increased from $20,896 to $21,335 for:

  • A person who is married (or both married and a beneficiary of a trust); and
  • Reportable fringe benefits.

Pause in indexation for Medicare levy surcharge and private health insurance rebate

The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years from 1 July 2018.

Income tax relief for Australian Defence Force personnel deployed overseas

Income tax exemptions will be provided for Australian Defence Forcepersonnel deployed on Operation PALATE II in Afghanistan (from 1 January 2016 to 31 December 2016). The co-ordinates for Operation OKRA in the Middle East (from 9 September 2015) and Operation MANITOU in international waters (from 14 May 2015) will be updated.

Increase to the small business entity turnover threshold

Building on the small business package of measures introduced in the 2015-16 Federal Budget, from 1 July 2016, the small business entity turnover will be increased from $2 million to $10 million. Qualifying taxpayers will be able to access the following income tax concessions for small businesses:

  • Simplified depreciation rules, including immediatedeductibility for assets costing less than $20,000 (until 30 June 2017);
  • Simplified trading stock rules (there will be no requirement for an end of year stocktake if the value of trading stock has changed by less than $5,000;
  • A simplified method of payingPAYG instalments calculated by the ATO (removing the risk of overestimating or underestimating PAYG instalments and incurring penalties);
  • Accounting for GST on a cash basis and paying GST instalments as calculated by the ATO;
  • Other concessions available to small businesses, such as certain fringe benefits tax (FBT) exemptions such as the extension of the exemption for work-related portable electronic devices (starting from 1 April 2017 to align with the FBT year) and
  • Immediate deductibility of professionalexpenses.

However, only small businesses with a turnover of less than $2 million or that satisfy the maximum net asset value test will be able to access the existing small business capital gains tax (CGT) concessions.

In addition, from 1 July 2017, all small businesses with a turnover of less than $10 million will be able to access a simpler approach to preparing a Business Activity Statement (BAS)by being able to more easily classify transactions and prepare and lodge a BAS. A trial of the new simplified BAS reporting requirements will start on 1 July 2016.

Unincorporated small businesses

The unincorporated small business tax discount will be increased over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.

The rate will increase as follows:

Income YearRate
2015-165%
2016-178%
2017-188%
2018-198%
2019-208%
2020-218%
2020-228%
2022-238%
2023-248%
2024-2510%
2025-2613%
2026-2716%

Reduction in the company tax rate

The company tax rate will be progressively reduced to 25% over the next 10 years. Correspondingly, the annual aggregated turnover threshold that will allow companies to qualify for the lower rate will rise over the next 10 years.

The changes to the company tax rate and turnover threshold are contained in the table below:

Income YearRateAnnual aggregated turnover threshold
2015-1628.5%$2 million
2016-1727.5%$10 million
2017-1827.5%$25 million
2018-1927.5%$50 million
2019-2027.5%$100 million
2020-2127.5%$250 million
2020-2227.5%$500 million
2022-2327.5%$1 billion
2023-2427.5%No limit
2024-2527%No limit
2025-2626%No limit
2026-2725%No limit

The company tax rate remainsat 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.

Changes to the rules applying to private companies

Targeted amendments will be made to improve the operation and administration of the integrity rules for closely-held, private groups (in Division 7A of the Income Tax Assessment Act 1936). The amendments will apply from 1 July 2018 and will include:

  • A self-correction mechanism for inadvertent breaches of Division 7A;
  • Safe-harbour rules to provide certainty;
  • Simplified loan arrangements for the purpose of the rules; and
  • A number of technical adjustments to the law to improve its operation and provide increased certainty for taxpayers.

National Innovation and Science Agenda measures

As part of the Government’s National Innovation and Science Agenda announced in December 2015, a number of tax-related measures were also introduced. In the 2016-17 Federal Budget, a couple of these measures have been expanded on.

i) Expanding tax incentives for early stage investors

As part of the Budget announcement:

  • The holding period will be reduced from three years to 12 months for investors to access the 10 year CGT tax exemption;
  • The definition of eligible start-ups will include a time limit on incorporation and criteria for determining if the start-up is an “innovation company”;
  • There will be a requirement that the investor and innovation company are non-affiliates; and
  • The investment amount for non-sophisticated investors will be limited to $50,000 or less per income year in order to receive a tax offset.

ii) Expanding the new arrangements for venture capital limited partnerships

As part of the Budget announcement, the funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.

Division 293 tax income threshold reduced

If a taxpayer’s income exceeds a certain threshold, they are required to pay an additional 15% tax on the concessional contributions they make to superannuation on top of the 15% tax payable on contributions made to superannuation (ie the tax rate applicable is 30%). The current income threshold is $300,000.

As part of the Budget announcement, this income threshold will be reduced to $250,000 from 1 July 2017.

Concessional contributions cap

Currently, the annual concessional contributions cap is $30,000 for those aged under 50 and $35,000 for those aged 50 and over.

As part of the Budget announcement, from 1 July 2017, the annual concessional contributions cap will be reduced to $25,000 for everyone regardless of age.

Transition to retirement

To improve integrity inthe superannuation system, from 1 July 2017, the tax exemption on earnings from assets supporting “Transition to Retirement Income Streams” will be removed. This measure will also remove a rule that allows individuals to treat certain superannuation income streams as lump sums for income tax purposes.

The change will prevent the “Transition to Retirement Income Streams” from being used as an incentive to minimise tax.

Lifetime non-concessional contributions cap

From Budget night, the Government will introduce a lifetime non-concessional contributions cap of $500,000. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.

This cap will replace the existing annual non-concessional contributions cap of $180,000 (or $540,000 every three years for individuals aged under 65).

The change is intended to improve sustainability in the superannuation system as well as supporting the majority of taxpayers who make non-concessional contributions to superannuation of well below $500,000. It is also intended to provide flexibility to taxpayers to allow them to choose when they may contribute to their superannuation and will be available to taxpayers up to the age of 74.

Removal of restrictions from making contributionsto superannuation for people aged between 65 and 74

The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017.

Currently, there are minimum work requirements for people aged between 65 to 74 who want to make voluntary contributions to their superannuation. Restrictions apply to the bringing forward of non-concessional contributions and spouses over the age of 70 cannot receive contributions.

Removing these restrictions will allow people aged between 65 and 74 to increase their retirement savings, particularly from sources that may not have been available to them before retirement, including from downsizing their home.

Flexibility in super –individuals able to make personal superannuation contributions

From 1 July 2017, all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions. Individuals who are partially self-employed and partially salary and wage earners and individuals whose employers do not offer salary sacrifice arrangements will be able to benefit from this measure.

Currently, an individual is only able to claim an income tax deduction from making personal contributions to their superannuation where less than 10% of their income earned comes from being an employee (this is known as the “10% rule”). Individuals who are wholly self-employed or only has investment income are not affected by the “10% rule”.

Allowing 'catch-up' concessional contributions

From 1 July 2017, individuals will be able to make additional concessional contributions to their superannuation where they have not reached their annual concessional contributions cap in previous years. Taxpayers will be able to roll-over their unused cap amount for up to five years and make a contribution up to the rolled over cap amount if their total superannuation balance is less than $500,000.

The purpose of this measure is to assist taxpayers who have interrupted work patterns (eg have certain periods of time out of the workforce for reasons such as maternity leave, other extended periods of leave) to catch up on their superannuation contributions in later years when they return to work.

Changes to superannuation for low income earners

From 1 July 2017, the Low Income Superannuation Contribution (LISC) will be replaced with a new Low Income Superannuation Tax Offset (LISTO). The LISTO will provide a non-refundable tax offset to superannuation funds based on the tax paid on concessional contributions made on behalf of low income earners up to a cap of $500. A taxpayer will be able to access the LISTO where their adjusted taxable income is less than $37,000 and a concessional contribution hasbeen made on their behalf to a superannuation fund.

To compare, currently the LISC operates such that if you earn less than $37,000 and concessional contributions are made to a super fund for you, the Government will make a contribution to your superannuation fund on your behalf between $10 and $500. This amount is determined based on 15% of the amount of concessional contributions that have been made into a super fund for you.

Spouses and superannuation

The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased from $10,800 to $37,000 from 1 July 2017.

The measure will help to improve the superannuation balances of low income spouses by extending the current spouse tax offset to assist more families to support each other in accumulating superannuation.

The low income spouse tax offset provides up to $540 per annum for the contributing spouse and builds on the Government’s co-contribution and superannuation splitting policies to boost retirement savings.

Transfer balance cap

From 1 July 2017, the Government will introduce a transfer balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase. Subsequent earnings on these balances will not be restricted. This measure will limit the extent to which tax-free benefits of retirement phase accounts can be used by high-wealth individuals.

Anti-detriment rule

From 1 July 2017, the outdated anti-detriment provision in respect of death benefits from superannuation will be removed. The effect of the anti-detriment rule can result in a refund of a member’s lifetime superannuation tax payments into an estate where the beneficiary is a dependant of the member (eg spouse, former spouse or child).

The provision is applied inconsistently to funds. Removing the rule helps to better align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation.

There is no change to the treatment of lump sum death benefits made to dependants which remain tax-free.

GST on low value imports

From 1 July 2017, GST will apply to all low value goods imported by consumers from overseas. Imported low value goods should be subject to the same GST treatment as low value goods purchased by consumers domestically.

Overseas suppliers with an Australian turnover of $75,000 or more will be required to register for GSTand collect and remit GST for low value goods supplied to Australian consumers. A “vendor registration” model will be used for overseas suppliers to register for GST.These arrangements will be reviewed after two years to ensure they are operating as intended and to take account of any international developments.

GST treatment of digital currencies

Treasury has released a discussion paper on the ‘double taxation’ of digital currencies under the GST law. This forms part of the Government’s Backing Australian FinTech statement. Currently where digital currency is used to purchase goods that are subject to GST, consumers are “double taxed” because GST also applies to digital currency. This may be preventing the use of digital currencies.

Measures impacting other indirect taxes

  1. Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017 to 2020.
  2. The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017and to $290,000 on 1 July 2018. This is to address integrity concerns with the rebate and to tighten eligibility criteria.
  3. From 1 July 2017, the excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider.

New ATO Tax Avoidance TaskForce

A Tax Avoidance TaskForce will be established within the ATO to undertake enhanced compliance activities targeting multinationals, large public and private groups, and high-wealth individuals. $679 million of funding will be provided to the ATO to establish this taskforce over the next four years. The task force will work with other government agencies including the Australian Crime Commission, the Australian Federal Police and AUSTRAC.

Tax whistleblowers

Employees, former employees and advisers to taxpayers who disclose information on tax avoidance about those taxpayers to the ATO will receive improved protection under the law from 1 July 2018. This includes having their identities protected and being protected from victimisation, criminal prosecution and civil action for disclosing the information.

Tax Transparency Code

The Government is encouraging all companies to adopt the Tax Transparency Code (TTC) from the 2016 financial year. The TTC is a voluntary code that medium and large businesses are encouraged to adopt to encourage greater transparency in the corporate sector, particularly in the current climate with the focus on corporate tax avoidance.

Public sector efficiency review

The operation of the Australian Public Service, including the ATO, will be reviewed to achieve efficiencies and manage their transformation to a more modern public sector.

Specifically in relation to the ATO, over the next four years ATO shopfronts will be reduced in favour of “myGov” shopfronts, digital service delivery will be actively promoted, external compliance assurance processes will be expanded and more efficient processes to externally scrutinise the ATO will be put in place.

Measures included in the Ten Year Enterprise Tax Plan

Collective investment vehicles

A new tax and regulatory framework will be introduced for two new types of collective investment vehicles (CIV). A “corporate CIV” will be introduced from 1 July 2017 and a ‘limited partnership CIV’ will be introduced from 1 July 2018.

Tax consolidation measures

  1. The proposed measure to address the tax benefit that arises from double counting of deductible liabilities under the tax consolidation regime announced in the 2013-14 Federal Budget will be modified.
  2. The treatment of deferred tax liabilities under the tax consolidation regime will be amended. The adjustments relating to deferred tax liabilities will be removed from the entry and exit tax cost-setting rules.

Taxing financial arrangements

  1. An integrity measure concerning liabilities arising from securitisation arrangements announced in the 2014-15 Federal Budget will be extended to also apply to non-financial institutions with securitisation arrangements. The liabilities will be disregarded if the relevant securitised asset is not recognised fortax purposes.
  2. The taxation of financial arrangements (TOFA) rules will be reformed and new simplified rules will apply from 1 January 2018.
  3. From 1 July 2018, the tax treatment of asset backed financing arrangements, such as deferred payment arrangements and hire purchase arrangements will be amended.

Diverted profits tax for multinationals

From 1 July 2017, a 40% tax will apply to the profits of multinational corporations that are artificially diverted from Australia. This measure is a significant partof the Government’s Tax Integrity Package of measures to target companies that shift profits out of Australia to avoid Australian tax through arrangements with related parties.

Where the tax paid on the profit that was diverted overseas is less than 80% of the tax that would have been paid in Australia, it is reasonable to conclude the arrangement involving related parties is designed to reduce tax in Australia and the arrangement does not have enough economic substance, the diverted profits tax will apply.Multinational corporations that will be subject to the tax are “significant global entities” with global annual revenue (including related parties) of $1 billion or more.

Multinational corporations whose Australian annual turnover is less than $25 million will be exempt from the tax unless they have artificially booked income offshore.

Other measures affecting multinationals in the Tax Integrity Package

  1. With effect from 1 July 2016, Australia’s transfer pricing rules will be amended to give effectto some of the OECD recommendations made through the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan).
  2. From 1 January 2018, and following consultation with the Board of Taxation, rules developed by the OECD in relation to their BEPS Action plan to eliminate hybrid mismatches will be implemented.

The administrative penalties that apply to “significant global entities” will be increased 100 fold (the maximum penalty will rise from $4,500 to $450,000) from 1 July 2017 where tax disclosure obligations are not met. Where careless or reckless statements have been made, the penalties that apply will be doubled.

DISCLAIMERTaxWise® News is distributed by professional tax practitioners to provide information of general interest totheir 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 2015

IN THIS ISSUE

On 26 August 2015 the Tax Laws Amendment (Small Business Measures No 3) Act 2015 received Royal Assent. The Act makes amendments in the following areas:

  • Tax discount for unincorporated small businesses;
  • Immediate deductibility for small business start-up expenses;
  • Fringe benefits tax exemption for portable electronic devices for small businesses.

A previous edition of TaxWise Business detailed thesemeasures. In summary:

  • Tax rate cut for unincorporated business entities–this involves a 5% tax discount for individual taxpayers capped at $1,000 with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will be introduced from the 2015-16 income year.
  • Professional expenses–new businesses will be able to claim an immediate deduction for professional expenses (eg for the cost of advice from lawyers, accountants and other professionals) associated with starting a business from the 2015-16 income year.
  • Electronic devices and FBT–this involves a fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.

To do!Now that these measures have become law, you should speak to your tax agent about whether and how they might apply to your business.

The Commonwealth Treasury has made estimates of the likely regulatory costs of several of the small business tax measures announced in the 2015-16 Budget which have subsequently been enacted.

  • Tax discount for small unincorporated businesses-Treasury estimates that the measure will increaseregulatory costs on small businesses by $15.6 million a year due to system changes for taxpayers and their tax agents.
  • Small business company tax cut–Treasury estimates that the measure will increase regulatory costs on small businesses by $3.2 million a year due to system changes for taxpayers and their tax agents.
  • Expanding accelerated depreciation for small businesses–Treasury estimates that the measure willreduceregulatory costs on small businesses by $6.1 million a year for the two years the measure is in place by reducing record keeping costs.
  • Accelerated depreciation for primary producers–Treasury estimates that the measure will reduce regulatory costs for primary producers by $1.4 million per year byreducing record keeping requirements.

On 15 October 2015 the Assistant Treasurer introduced into the House of Representatives the Tax and Superannuation Laws Amendment (2015 Measures No 5) Bill 2015. The Bill will make amendments in the following areas:

  • Work-related car expenses;
  • Zone Tax Offset;
  • FBT concessions on salary packaged entertainment benefits;
  • Third party reporting.

Detailed below are the new measures in this Bill that might be relevant to your business.

a) Work-related car expenses

The Bill will change the methods for calculating work-related car expense deductions. Currently, there are four methods taxpayers can use to calculate work-related car expenses (12% of original value method, one-third of actual expenses method, cents per kilometre and logbook method).

The “12% of original value” method and the “one-third of actual expenses” method will be removed from the law leaving the “cents per kilometre” and “logbook” methods as the only two methods available.

The Bill will also provide a streamlined process for calculating the centsper kilometre method by providing a single rate of deduction which more accurately reflects the actual running expenses of a vehicle. In the 2015-16 income year, the cents per kilometre rate will be set at 66 cents per kilometre. The Bill gives the Commissioner the power to set the cents per kilometre rate for later years via legislative instrument.

Changes to the income tax law for this measure will generally apply in relation to the 2015-16 income year and later income years. Changes to the FBT law for this measure will operate from 1 April 2016 and later fringe benefits tax years.

b) FBT concessions on salary packaged entertainment benefits

The Bill will amend the FBT law to limit the concessional treatment of salary packaged entertainment benefits by:

  • Removing the reporting exclusion in respect of salary packaged entertainment benefits;
  • Removing access to elective valuation rules when valuing salary packaged entertainment benefits to prevent unintended and excessively concessional values being applied to those benefits; and
  • Introducing a $5,000 cap on the total amount of salary packaged entertainment benefits that certain employees can be provided with that are exempt from or subject to fringe benefits tax at concessional rates.

This measure will apply to the 2016-17 FBT year and later FBT years.

c) Third party reporting

The Bill will make amendments to improve taxpayer compliance by increasing the information reported to the Commissioner by a range of third parties by creating a new third party reporting regime. This regime will require certain entities (third parties) to report information to the ATO on transactions that could reasonably be expected to have tax consequences for other entities.

The following third parties will be required to report under the regime:

  • Government related entities, other than local governing bodies, must report on government grants;
  • Government related entities must report on consideration they provide for services;
  • States and territories must report on transfers of real property in their jurisdiction;
  • The Australian Securities and Investments Commission (ASIC), market participants and trustees of trusts with an absolutely entitled beneficiary must report on transactions relating to shares and units of unit trusts;
  • Listed companies must report on transactions relating to their shares;
  • Trustees of unit trusts must report on transactions relating to their units; and
  • Administrators of payment systems must report on electronic business transactions.

The Bill contains measures dealing with:

  • Reporting obligations;
  • Timing of reports;
  • Reporting exemptions; and
  • Transactions that entities must report.

Third party reporting obligations in relation to transfers of real property (reported by States and Territories) and ASIC market integrity data (reported by ASIC) will apply to transactions happening on or after 1 July 2016. All other third party reporting obligations will apply to transactions happening on or after 1 July 2017.

Note!A number of these measures could have implications for your business, for example if you use a car in your business, offer fringe benefits to employees or have transactions running through your business which could be required to be reported to the ATO by a third party (which is quite likely). It would be worth sitting down with your tax adviser to consider if there are any potential implications for your business from any of the above measures.

Commonwealth Treasury recently consulted with the public on some proposed changes to the Wine Equalisation Tax Rebate (WET rebate). The WET rebate provides wine producers with a rebate of up to $500,000 per year. The rebate was intended to provide support to the wine industry by reducing, and in some cases eliminating, Wine Equalisation Tax liabilities. The consultation provides an opportunity to consider the current operation of the WET rebate, and seeks input on a range of possible ways to sustainably support the wine industry into the future.

Any proposed changes stemming from this consultation will form part of the broader tax reform process, though it is something that participants in the industry may want to keep an eye on.

The ATO has made a number of legislative determinations affecting various aspects of GST law, as follows:

  • Recipient created tax invoice (RCTI) determinations;
  • Acquisition of second-hand goods -global accounting method;
  • Telecommunication supplies through enterprise not carried on in indirect tax zone;
  • Direct Entry Services -waiver of tax invoice requirements;
  • Representatives of incapacitated entities -cash basis of accounting for GST;
  • Gas and electricity retailers -extension of time to issue adjustment note;
  • Supplies by electricity distributors to electricity retailers -extension of time to issue adjustment note;
  • Supermarkets or convenience stores -simplified GST accounting method
  • Margin scheme valuation requirements;and
  • Distribution of multi-media products -application of intermediary arrangements.

To do!A number of these determinations may have an impact on your business’ GST registration. Talk to your tax adviser about any possible implications for your business.

There is currently exposure draft legislation out in relation to two measures affecting supplies made from overseas into Australia to:

  • extend GST to digital products and other services imported by consumers; and
  • Amend the “connected with Australia” rules to minimise compliance costs for non-resident suppliers who deal with Australian-based businesses while maintaining the integrity of the GST base.

This exposure draft is likely to be tabled in Parliament and entered into law in the near future.

Note!These changes may have implications for potential GST obligations for yourbusiness if you have cross-border transactions and deal with suppliers from overseas.

In October, the ATO finalised Taxation Determination TD 2015/19 “Income tax: if a retiring partner is entitled to an amount representing their individual interest in the net income of the partnership for an income year, will section 92 of the Income Tax Assessment Act 1936 apply?”

The determination sets out the Commissioner’s position on a retiring partner’s individual interest in net income for the partnership for an income year.

Subject to paragraph 3 of the Determination, the partner’s individual interest in the net income of the partnership is included in the partner’s assessable income under section 92 for the income year regardless of:

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

However, the partner’s individual interest in the net income of the partnership is not assessable under section 92 to the extent that it is attributable to both aperiod when the partner was not a resident of Australia, and sources outside of Australia.

We previously alerted readers to this Determination in an earlier edition of TaxWise Business.

To do!If you are part of a partnership, now that the Taxation Determination has been finalised particularly if you or one of your partners is close to retiring from the partnership, you should seek advice from your tax adviser about how this Determination might affect you.

The ATO and AusIndustry are cautioningprimary producers in the broadacre farming sector against claiming the R&D tax incentive for the cost of fertilisers and soil improvers which do not relate to R&D activities, but rather relate to business-as-usual farming activities.

On 15 October 2015, the ATO released a Taxpayer Alert TA 2015/3 “Accessing the R&D Tax Incentive for ineligible broadacre farming activities”,which was developed jointly with AusIndustry.

The ATO and AusIndustry are reviewing arrangements where primary producers involved in broadacre farming are claiming the R&D tax incentive for the cost of fertilisers and other treatments (soil improvers) where a significant part (or all) of the expenditure that is incurred relates to “business as usual” farming activities and not to R&D activities.

The ATO and AusIndustry are also concerned that other entities in the farming industry may be inappropriately claiming the R&D tax incentive under similar circumstances.

Innovation Australia has reviewed certain registered activities and found that they do not meet eligibility requirements under the law. These matters are being tested in the Administrative Appeals Tribunal.

The ATO and AusIndustry will monitor registrations for activities that are similar to those described in this Alert and will conduct compliance activities where appropriate. AusIndustry is developing a Specific Issue Guidance product to assist taxpayers engaged in the farming industry, and their accountants and advisers, to correctly identify and document eligible R&D activities in that industry.

Note!Your tax agent or adviser will be able to assist you if you have any concerns about this cautionfrom the ATO or would like to know more about it.

There is draft legislation out that will amend the superannuation guarantee charge laws to simplify the laws and reduce the associated harshness of penalties under these laws.

Under the current law, employers must make quarterly superannuation guarantee (SG) contributions for their eligible employees to avoid having to pay the SG charge to the ATO. The SG charge regime imposes punitive costs to deter employers from paying their SG contributions late or in part. This can have a significant impact on small businesses.

As a part of theannounced changes, the SG charge will be simplified by aligning the earnings base for calculating the SG charge (currently total salary and wages) with the earnings base for calculating SG contributions (ordinary time earnings).

Thechanges will also reduce the harshness of the SG charge by aligning the interest component on any SG shortfall with the period contributions that are outstanding. These changes will also remove the additional penalties under the current superannuation guarantee administration laws and align them with the administrative penalties under the Taxation Administration Act 1953.

These changes complement two other measures to reduce small business superannuation compliance costs; expansion of the small business superannuation clearing house and simplifying when a standard choice form must be provided by an employer. Both of these changes have applied since 1 July 2015.

The ATO has issued a reminder that large and medium employers must be SuperStream compliant by no later than 31 October.

The ATO previously announced it would allow these employers (those with 20 ormore employees) an additional four months to adopt SuperStream, following the 30 June deadline. At the time of issuing this reminder, the ATO said from 1 November 2015, it would turn its attention to identifying those employers not compliant with SuperStream.

The ATO will continue to help employers adopt SuperStream, but there could be penalties for those who deliberately choose not to adopt it.

The ATO has published a checklist for employers to assist them to prepare to make super contributions for their employees using SuperStream. Employers should note that:

  • Employers with 20 or more employees need to be using SuperStreamno later than 31 October 2015.
  • Employers with 19 or fewer employees need to be using SuperStream no later than 30 June 2016.

SuperStream - industry segment information

During the next few months, the ATO will be contacting small business employers that may not yet be using SuperStream to make super contributions. The ATO plans to contact employers in 22 industry groups.

Employers willreceive a SMS message advising SuperStream has started and an email inviting them to register to attend an industry specific SuperStream webinar. The relevant industry groups are:

  • Pharmacy and cosmetics
  • General Practitioners, Dentists and Specialists
  • Cafes and Restaurants, Catering & Take-away
  • Fruit, Veg & Floristry
  • Farming (livestock and crops)
  • Hairdressing and Beauty Services
  • Trades
  • Automotive & Repair
  • Engineering & Technical Services
  • Bus & Taxi
  • Road Freight
  • Consulting (Management & IT)
  • Banking & Finance/ Insurance & Super
  • Accommodation, Pubs & Clubs
  • Food & Grocery
  • Manufacturing –general
  • Building & Employment Services
  • Metals & Engineering
  • Other specialist & boutique
  • Accounting & Legal
  • Hospitals, Clinics, Aged Care, Accommodation & Allied
  • Education & Training

To do!See your tax agent to ensure your business is meeting its SuperStream obligations.

a) Lodgment of SMSF annual returns

The ATO has issued a reminder that once the audit of a self-managed superannuation fund (SMSF) has been finalised, an annual return should be lodged. The SMSF annual return is used to report income tax, regulatory information and member contributions, and to pay the supervisory levy.

If a fund was registered on or after 1 January 2015, it must lodge an SMSF annual return for the year it was registered, regardless of the amount of assets it holds, and even if a nil tax assessment is expected.

If a fund was registered before 1 January 2015 and does not have assets, it may not need to lodge a return.

b) Changes to "return not necessary" for SMSFs

The ATO has issued a reminder that every self-managed super fund (SMSF) registered on or after 1 January 2015 must now lodge an annual return for its first year, regardless of the assets it holds or if a nil tax assessment is expected.

If the SMSF was registered before 1 January 2015 and does not have assets, the ATO can be requested to either:

  • Cancel the registration, or
  • Flag the record as “return not necessary” (RNN).

A RNN is generally only available for a SMSF’s first year of registration.

c) SMSFs must have active electronic service addresses

All self-managed superannuation funds now need to be able to receive SuperStream-compliant contributions.

To do this, an SMSF needs a bank account to receive the contributions, an active electronic service address to receive data associated with contributions, and an ABN.

An SMSF trustee can get an active electronic service address from an SMSF messaging provider, or through the SMSF’s administrator, tax agent, accountant or bank.

To do!Do you have an SMSF? If so, check with your tax agent to make sure it has met all the relevant compliance requirements, including having an active electronic service address.

The ATO has updated its personal services income (PSI) page in consultation with tax professionals and small businesses to make it easier to understand and navigate.

The ATO is also developing a PSI decision tool to make it easier to work out if the PSI rules apply. It is expected to be finalised by the end of the year. The ATO will advise when this tool becomes available.

Note!If you derive personal services income through an entity you own, your tax agent or adviser is the bestperson who can inform you of your obligations under the tax law and ensure you are meeting your compliance obligations.

The ATO is going to be collecting data relating to credit and debit card payments to merchants for the periods from 1 July 2014 to 30 June 2015.

The data will be collected from the following financial institutions:

  • American Express Australia Limited
  • Australia and New Zealand Banking Group Limited
  • Bank of Queensland Limited
  • Bendigo and Adelaide Bank Limited
  • BWA Merchant Services Pty Ltd
  • Commonwealth Bank of Australia
  • Diners Club Australia
  • National Australia Bank Limited
  • St George Bank
  • Tyro Payments Limited
  • Westpac Banking Corporation.

The data requested will include information that enables the ATO to match merchant accounts to a taxpayer, including name, address and contact information as well as information on the number and value of transactions processed for each merchant account. This acquired data will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with taxation law.

The purpose of this data matching program is to ensure that merchants are correctly meeting their taxation obligations in relation to their business income. These obligations include registration, lodgement, reporting and payment responsibilities.

The ATO is undertaking a data matching program through which data will be obtained to determine which individuals might be engaged in providing ride sourcing services.

Details of all payments to ride sourcing providers from identified accounts held by ride sourcing facilitators with various financial institutions will be requested for those financial years. Ride sourcing facilitators provide an electronic platform enabling members of the public to engage the services of a ride sourcing provider (eg, a driver).

The data acquired will be electronically matched with certain sections of ATO data holdings to identify taxpayers that can be provided with tailored information to help them meet their tax obligations, or to ensure compliance with taxation law.

The ATO will obtain the following data items from the source entities:

  • Payee account name;
  • Payee BSB;
  • Payee account number;
  • Date of payment to the payee; and
  • Amount of payment to the payee.

The ATO is undertaking a data matching program through which information about registrants who sold goods and services to a value of $10,000 or more during the period 1 July 2014 to 30 June 2015 online will be obtained.

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

The data requested will include information that enables the ATO match online selling accounts to a taxpayer, including name, address and contact information as well as information on the number and value of transactions processed for each online selling account. This information will be matched electronically with certain sections of ATO data holdings to identify possible non-compliance with taxation law.

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

The ATO has advisedthat advisors and their clients who are having difficulty accessing the small business superannuation clearing house (SBSCH) should ensure they are using the correct link to access SBSCH by visiting Superannuation Clearing House -Logon.

The ATO has advisedthat an enhanced EmployerTICK version 2 will be available from November.

EmployerTICK is an optional service used by employers (and their intermediaries) to validate employee identity details.

EmployerTICK version 2 will be deployed in Standard Business Reporting version 2(SBR2). Some of the potential benefits of using EmployerTICK version 2 include:

  • The functionality to return a corrected tax file number;
  • Simplified interactions;
  • Maximised automation; and
  • Reduced costs.

SBR enables employers and tax professionals to report without having to log on to each individual government agency website and transcribe the information from their account systems into each agency’s form. SBR2 is the current version.

In previous editions of TaxWise Business, it was noted that the ATO was consulting on the Single Touch Payroll proposal. The ATO has now advised that consultation on Single Touch Payroll with representatives from large businesses, industry and software developers has been completed and included in a summary to government. More information may be foundon the ATOwebsite.

Under Single Touch Payroll, employers accounting software will automatically report payroll information to the ATO when employees are paid.

This will eliminate the need for employers to report employee-related Pay As You Go Withholding (PAYGW) in their activity statements throughout the year and employee payment summaries at the end of the year.

In addition, the Government will streamline Tax File Number declarations and Super Choice forms by providing digital services to simplify the process of bringing on new employees.

There are a number of pages on the ATO website that you may find useful:

  1. Small business and the ATO – For information about recent and forthcoming developments in the ways the ATO interacts with small business goto the ATOwebsite.
  2. Understanding business structures – The ATO has worked with the Department of Industry and Science and ASIC to develop a checklist outlining key differences between two common business structures: sole traders and companies. For more information goto the ATOwebsite.
  3. Taxable payments reporting – building and construction industry – For the latest updates to ATO information on taxable payments reporting goto the ATOwebsite.
  4. Streamlined reporting for quarterly lodgers – For information about the option of calculating GST quarterly and reporting annually goto the ATOwebsite.

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 2015

IN THIS ISSUE

The following small business tax measures announced in the 2015-16 Federal Budget have passed into law:

  • Company tax rate cut – The tax rate for companies with an aggregated annual turnover of less than $2 million will be reduced by 1.5% (ie from 30% to 28.5%) from the 2015-16 income year.
  • Increase to the instant asset write-off threshold to $20,000 – The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000. This applies to assets purchased from Budget night (12 May 2015) until 30 June 2017.
  • Small business simplified depreciation pool – Assets costing more than $20,000 will be able to be put in the small business simplified depreciation pool. If the pool balance falls below $20,000, it will be able to be written off immediately. The rules preventing small businesses from re-entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended. This applies from Budget night onwards.
  • Preparing for drought – Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from Budget night.

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

  • Tax rate cut for other business entities – A 5% tax discount for individual taxpayers capped at $1,000 with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will be introduced from the 2015-16 income year.

    The amount of the tax offset is 5%of the income tax payable on the portion of an individual’s income that is small business income, that is 5% of the person’s “total net small business income”. An individual’s “total net small business income” is comprised of the “net small business income” they make as a small business entity, together with any share of the “net small business income” of a small business entity that is included in the individual’s assessable income.In general terms, the net small business income of a small business entity (including an individual) is the assessable income of the entity that relates to the entity carrying on a business, less any deductions to which the entity is entitled to the extent the deductions are attributable to the income. Where an individual has ashare of the net small business income of another entity included in his or her assessable income, the individual also reduces the share by any deductions to which the individual is entitled, to the extent the deductions are attributable to the share of the entity’s net small business income.

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

    For the income year in which the deduction is claimed.

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

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

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

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

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

In previous editions of TaxWise Business, we noted the proposed changes to the taxation of employee share schemes which include:

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

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

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

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

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

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

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

In particular, the ATO is paying close attention to:

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

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

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

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

Tip!Your tax adviser is well-equipped to assist you to make appropriate claims for deductions against rental income you may have earned. Seek their advice andassistance to ensure you claim the right amounts (and don’t miss out on anything you might not realise you are entitled to claim).

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

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

This is the case regardless of:

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

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

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

In the previous edition of TaxWise Business, it was noted that the ATO had published a discussion paper on Single Touch Payroll. Since the last edition of TaxWise Business, the Government has announced that it will undertake further consultation with the business community on simplifying tax and superannuation reporting obligations through Single Touch Payroll. The Government acknowledges that a start date of July 2016 will not be achievable for many businesses.

The Governmenthas therefore asked the Treasury and the ATO to continue to consult with the business community and the software industry on the scope and timing for the Single Touch Payroll initiative and the feasibility of conducting targeted pilots from July 2016.

The Government also recognises the cash-flow implications for business of real time payments, and will therefore only be consulting further on real time reporting and voluntary real time payments as an option.

Under Single Touch Payroll, employers accountingsoftware will automatically report payroll information to the ATO when employees are paid.

This will eliminate the need for employers to report employee-related Pay As You Go Withholding (PAYGW) in their activity statements throughout the year and employee payment summaries at the end of the year.

In addition, the Government will streamline Tax File Number declarations and Super Choice forms by providing digital services to simplify the process of bringing on new employees.

Tip!Get in touch with your tax adviser to find out how these changes are progressing and when they are likely to impact on your business.

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

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

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

Note!If you salary package entertainment benefits for your employees, you should consult your tax adviser to see if this proposed law change affects your business in any way, including your obligations to your employees.

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

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

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

Previous editions of TaxWise Business have noted that SuperStream was coming for small businesses. The ATO has issued a reminderthatSuperStream has now started for small businesses. If business clients have 19 or fewer employees, it’s time for them to get ready.

Small employers have up to 12 months to implement SuperStream. There are a number of steps that employer clients need to take to be SuperStream compliant.

Tip!The ATO has prepared a step-by-step checklistto enable tax agents to help their small business clients get started now. Talk to your tax agent about getting SuperStream ready.

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

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

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

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

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

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

In July, exposure draft legislation was released to implement the 2013-2014 Budget measure Tax compliance – improving compliance through third party reporting and data matching.

Reporting by relevant third parties to the ATO of certain transactions will start from 1 July 2017. The reportable transaction types are:

  • Payments of grants and other financial benefits for services to government entities;
  • Transfers of securities; and
  • Business transactions made through electronic payment systems such as credit and debit cards and online payment methods.

In addition, the States and Territories will continue to report on a quarterly basis to the ATO regarding transfers of real property as they do now.

The ATO has also issued draft guidance related to these changes. The following may be of interest to businesses:

  • Real property transfers – Draft record structure and Discussion guide; and
  • Business transactions made through payment systems – Draft record structure and Discussion guide

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To do!Do you have employees that claim business-related car expense deductions? If so, they should be made aware of this change.

For employers, you need to be aware of the changes to the PAYGwithholding requirements.

Seek advice from your tax adviser about how best to manage these changes that apply for the 2015-16 financial year onwards.

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

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

At the time of writing, no further details on proposed changes to the $1,000 were available and the Treasurers meeting hadnot yet occurred.

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

The Government launched a new service in July 2015 to help people in drought-affected communities to manage their tax affairs. The ATO and Department of Agriculture will work together to identify drought-affected taxpayers. Personalised assistance and customised support plans for business owners and communities in these areas will be provided.

Help options can include payment plans tailored to individual circumstances, including interest-free periods and extensions of time to pay tax bills or make lodgements.

There is a dedicated hotline for drought affected taxpayers on 13 11 42 (Select Option 3) so that taxpayers who need support can discuss their situation and available options to help them manage their tax obligations.

The ATO has also undertaken to get in contact with businesses in drought-affected communities to make sure they are aware of the options available to help them meet their obligations.

Note!Of course, your tax agent is alwaysthere to help assist you to manage your tax obligations, particularly if you have been affected by drought or a natural disaster.

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 – Feb 2015

IN THIS ISSUE

On 12 December 2014, the Tax and Superannuation Laws Amendment (2014 Measures No 6) Bill 2014 received Royal Assent. The Bill makes changes to CGT rollovers for businesses by extending theexisting business restructure rollovers available where a member of a company or unitholder in a unit trust can defer the income tax consequences of transactions that occur in the course of a business restructure. This includes allowing taxpayers to apply the rollovers where the CGT assets they held, the shares or units, are held as revenue assets or trading stock. The amendments also tidy up the law so the business restructure rollovers that apply to shares and units are now found in one set of provisions.

Tip!If you are contemplating a restructure of your business, consult your tax adviser. A rollover may be available to you that may not have been available before these legislative changes were made.

On 17 December 2014, the ATO issued its position on how it will treat Bitcoin, a digital currency, for tax purposes. The ATO’s views are:

Income Tax

  • Bitcoin is not a “foreign currency” for the purposes of the income tax law because the ATO does not view Bitcoin as currency or foreign currency in the context in which those terms operate for the purpose of the Australian tax law (TD 2014/25).
  • Bitcoin is a “CGT asset” for the purposes of the income tax law as it is regarded as “property” for the purpose of the tax law (TD 2014/26).
  • Bitcoin is trading stock when held for the purpose of sale or exchange in the ordinary course of a business because it is regarded as property for tax purposes (TD 2014/27).

FBT

  • The provision of Bitcoin by an employer to an employee in respect of their employment is a property fringe benefit (TD 2014/28).

GST

  • A transfer of Bitcoin from one entity to another is a “supply” for GST purposes. The exclusion from the definition of supply for supplies of money does not apply to Bitcoin because Bitcoin is not “money” for the purposes of the GST Act.
  • The supply of bitcoin is not a “financial supply” nor an input taxed supply.
  • A supply of bitcoin is a taxable supply if the requirements under the GST Act are met.
  • A supply of bitcoin in exchange for goods or services will be treated as a barter transaction.
  • Bitcoin is not goods and cannot be the subject of a taxable importation. However, an offshore supply of Bitcoin can be a taxable supply under the “reverse charge” rules.
  • An acquisition of Bitcoin will not give rise to input tax credits under the provisions of the GST Act which allow input tax credits for certain acquisitions of second-hand goods.
  • A supply of Bitcoin is not a supply of a voucher.

(See GSTR 2014/3)

The reasoning behind the ATO’s positions is very technical. If you are interested to understand more about it, your tax adviser will be able to tell you more.

Note!If you are dabbling in Bitcoin, beware the possible tax implications for you.

Also, at the time of writing, there is a Senate committee conducting an inquiryinto how Australia should regulate digital currency, including how thetax system should treat digital currency, such as Bitcoin. The tax treatment for Bitcoin could potentially change pending the outcome of the inquiry.

In the previous edition of TaxWise Business, we referred to the Government’s recent announcement to make changes to the tax treatment of employee share schemes. The Government has since released exposure draft legislation for consultation. These changes are likely to come into law this year, but are still a little way off.

Look out for further information in later editions of TaxWise Businessthis year.

On 17 December 2014, the ATO issued GST Ruling GSTR 2014/2 entitled “Goods and services tax: treatment of ATM service fees, credit card surcharges and debit card surcharges”.

This Ruling explains the goods and services tax (GST) treatment of:

  • A fee payable for ATM services listed in the GST Regulations
  • A surcharge imposed by a merchant on a customer in respect of a credit card transaction concerning supplies of goods or services by the merchant to the customer – the surcharge forms part of the consideration for the supply.
    • Whether there is GST on the surcharge depends on the supply made. For example, if you are selling clothes that are subject to GST and the customer pays with a credit card, the credit card surcharge will also be subject to GST; if you are selling fruit and vegetables which are GST-free and the customer pays with a credit card, there will be no GST on the surcharge.
  • A surcharge imposed on a customer in respect of a credit card transaction concerning the payment of an Australian tax or an Australian fee or charge subject to Division 81 of the GST Act.
    • The surcharge has the same treatment for GST purposes as the Australian tax, fee or charge. eg Paying for your NSW driver licence with a credit card and a surcharge applies, as there is no GST on the licence fee, there is no GST on the surcharge.
  • A surcharge imposed by a merchant in respect of a debit card transaction concerning a supply of goods or services, a cash withdrawal or both a supply of goods or services and a cash withdrawal.
    • Whether there is GST on the surcharge depends on the supply made. For example, if you run a bakery and customers pay for their cakes with a debit card, there will be GST on the surcharge because those goods are subject to GST.

Note!Where the supply contains items that are subject to GST and others that are not, the merchant will have to apportion the surcharge between the taxable and non-taxable supplies using a fair a reasonable method. Consult your tax agent for assistance with this.

Crowdfunding involves using the internet and social media to raise funds for specific projects or particular business ventures. For ATO information about the GST treatment of crowdfunding, goto the ATO’s website.

In November last year, the ATO issued an addendum to Taxation Ruling TR 2005/7:

  • TR 2005/7A1 – Income tax: the taxation implications of “partnership salary” agreements

The addendum amends the ruling to include the taxation consequences of a partner’s salary where the partnership is a corporate limited partnership.

As a result, ATO ID 2002/564 (Income Tax Partner Salary in A Corporate Limited Partnership) has been withdrawn.

Self-managed super funds (SMSFs) are required to keep accurate tax and super records for specified time periods. It is likely that the cost of maintaining these records can be reduced through electronic storage. To enable SMSFs to take advantage of potential cost savings, the ATO advises that the record-keeping requirements have been updated to allow records to be kept electronically. Records kept electronically must be easy to access and verify. For more information, see the ATO’s website.

To do!If you are concerned about whether you are keeping the right records for your SMSF, speak to your tax adviser.

The ATO recently published on their website information about the rules that apply to collectables and personal-use assets of SMSFs. Some of the rules are:

  • Assets can’t be leased to, used by, or stored in the residence of a related party;
  • Assets must be insured in the SMSF’s name within seven days of purchase; and
  • Storage decisions for these assets must be documented and the written record kept for at least 10 years.

To do!If you have an SMSF with collectable and personal-use assets, you should see your tax adviser to make sure that your fund is complying with all the relevant rules.

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

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

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

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

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

Some changes to the Australian Business Register are coming in early 2015 including:

  • Re-introduction of the “save and return” function when completing an ABN application;
  • Allowing standard AUSkey holders to view, update and cancel the ABN records; and
  • Improving the process for applying for an ABN.

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

The ATO has advised that it is writing to businesses in the building and construction industry who have not lodged their 2013-14 Taxable payments annual report, reminding them it is now overdue. The letter will generally be sent to the business though could also be sent to tax agents.

If you are no longer in the building and construction industry or didnot pay contractors during 2013-14, you can complete the “Taxable Payments Annual Report – Not required to report” online form.

Note!If you are in the building and constructionindustry, you may have received one of these letters. If you have, you should speak to your tax agent about what to do next.

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

  • Return label and amounts in question;
  • The proposed adjustments;
  • What to do in the event of a disagreement; and
  • Where to find relevant information on ato.gov.au about what can be claimed, including QR reader codes to scan for smart phones or tablets.

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

If you have heavy machinery and equipment in your business (eg agricultural equipment), you may be interested to know the ATO has published a draft list of effective lives for assets used in the repair and maintenance of heavy machinery and equipment for public comment by 31 January 2015. When finalised, the ATO proposes to add them to the schedule that will apply to new assets purchased or installed on or after 1 July 2015.

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

For ATO information about the farm management deposits scheme, go to the ATO website.

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

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

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

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 – Jun 2014

IN THIS ISSUE

The end of the financial year is coming and it’s time to start thinking about your 2014 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2014 rolling around.

  • Are there any repairs and maintenance you should carry out prior to 30 June 2014 so you can claim the deduction in your 2014 return?
  • Are there any bad debts to write off out of your receivables?
  • Are there any recently announced measures in the May 2014-15 Budget you should talk to your tax adviser about?
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2014 (you will need to speak to your lender.)
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances.

It is also a good time to review things that you think about at the time you put them in place but don’t otherwise turn your mind to – for example, see if you have the right mix of debt and equity funding for your business to carry you through to the next financial year.

To do!Your tax adviser is the best person to help you with these decisions as your tax adviser knows your business and has experience with other businesses similar to yours, they are able to offer you sound advice about how to best prepare your business for the start of the 2014-15 financial year.

In previous editions of TaxWise, we mentioned that, as part of its pre-election promises, the Coalition would abolish the mining tax. The abolition of this tax also involves 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; and
  • The loss carry-back measure – this measure will only apply for the 2013 income year.

Note!The ATO has offered the following guidance for taxpayers who have relied on these measures:

  • The instant asset write-off amount of $6,500 for small businesses – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a tax return for the 2013-14 income year can self-assess under the existing law. Once the law is enacted, the taxpayer will need to seek an amendment to apply the new law. No tax shortfall penalties will apply and if the amendment is sought within a reasonable time, we will remit any shortfall interest attributable to the amendment to nil. Otherwise the shortfall interest will run from the date the change becomes law.
  • The accelerated deprecation for motor vehicles that is available to small businesses- as above for the instant asset write-off.
  • The loss carry-back measure – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a company tax return for the 2013-14 income year can self-assess under the existing law.Once the law is enacted, the ATO will amend the company tax return to disallow the claim for the loss carry-back tax offset for the 2013-14 income year. This will result in an increase in the taxpayer’s tax liability. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil. There is further information on the ATO website

The scheduled increase to the superannuation guarantee rate is changing and will no longer be paused at 9.25% for another two years. Per the announcement made in the 2014-15 Budget, it will increase to 9.5% from 1 July 2014, will pause at this level until 30 June 2018 and will then start to rise by 0.5% reaching 12% in the 2022-23 income year, one year later than previously proposed. See the following table:

YearSuperannuation guarantee rate
From 1 July 20139.25%
From 1 July 20149.5%
From 1 July 20159.5%
From 1 July 20169.5%
From 1 July 20179.5%
From 1 July 201810%
From 1 July 201910.5%
From 1 July 202011%
From 1 July 202111.5%
From 1 July 202212%

However, at the time of writing, this was not yet law.

Tax compliance through third party reporting and data matching: start date deferred

Last year’s Budget saw the introduction of an initiative to strengthen third party reporting and data matching to assist the ATO with its compliance work and revenue collection. Per this year’s Budget, the start date for the legislative elements of this initiative will be deferred from 1 July 2014 to 1 July 2016.

The legislative elements of the measure that are being deferred involve the creation of new third party reporting regimes relating to:

  • Taxable government grants and other specified government payment;
  • Sales of real property, shares (including options and warrants) and units in managed funds; and
  • Sales through merchant debit and credit services.

Minor amendments to tax laws

A series of minor amendments to the tax and superannuation laws will be made to correct technical defects, remove anomalies and address unintended outcomes which have recently been identified, including technical corrections to the uniform penalty rules that prevent certain penalties that are levied under the law from being collected, and a number of amendments to address issues raised by industry in relation to the consolidation regime.

Inspector-General of Taxation to manage certain tax complaints

From 1 July 2014, the Commonwealth Ombudsman’s case management of tax complaints will be transferred to the Inspector-General of Taxation (IGT). This measure will enhance the IGT’s systematic review role, and provide taxpayers with more specialised and focused complaint handling of their tax matters.

This initiative strengthens the IGT’s role as an independent reviewer of systemic tax administration and to report to the Government with recommendations to improve tax administration for the benefit of all taxpayers.

There are a variety of measures that were included in the Budget that impact some companies and trusts, including:

  • Deferral of the start date for the MIT system – the start date for the new system for managed investment trusts will be deferred to 1 July 2015. The tax law will be amended to allow MITs and other trusts treated as MITs to continue to disregard the trust streaming provisions for the 2014-15 income year, ensuring these interim arrangements for MITs continue to apply until the commencement of the new tax system for MITs.
  • R&D tax incentive – from 1 July 2014, the rates of the refundable and non-refundable offsets for the Research and Development (R&D) Tax Incentive will be reduced by 1.5%.
  • Modified consolidation integrity measures – from Budget night, certain modifications to the consolidation integrity package that was announced in the 2013-14 Budget will take effect.
  • Foreign resident CGT regime: modification of integrity measure – modification will be made to the measure announced in the 2013-14 Budget to amend the principal asset test so that the measure now applies to interests held by foreign residents in unconsolidated groups.

Lodgement of FBT Returns

The 2014 FBT year ended on 31 March 2014. The due date for lodgement of your FBT return is 25 June 2014 if you are lodging your FBT return electronically through your tax agent. If you are not using your tax agent to lodge your FBT return or you are and are lodging using the paper form, the due date for your return was 21 May 2014.

To be able to lodge your return by 25 June 2014, you must have appointed your tax agent to lodge your FBT return on your behalf by 21 May 2014. (This was previously 4 June 2014.)

Regardless of whether you are lodging your FBT return by paper or electronically, the due date for payment has not changed, and remains as 28 May 2014.

Self-assessed deferral requests for FBT returns are no longer available. However your tax agent can lodge a request for additional time to lodge where there are exceptional or unforeseen circumstances that prevent lodgement by the due date. Be sure to include sufficient information for the request to be considered.

To do!If you have missed out on being able to access the later lodgement date available if you lodge your FBT return electronically through a tax agent, be sure to appoint your tax agent to look after your FBT matters for 2015.

Car parking threshold for FBT year commencing 1 April 2014 - TD 2014/11

On 14 May 2014 the ATO released the car parking threshold for the fringe benefits tax year commencing on 1 April 2014. The threshold is $8.26. This replaces the amount of $8.03 that applied in the previous year commencing 1 April 2013: TD 2014/11 “Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2014?”

FBT: reasonable amounts for LAFHA food and drink expenses - TD 2014/9

On 16 April 2014, the ATO issued Taxation Determination TD 2014/9 entitled “Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2014.”

Note!If you provide either of these types of benefits to your employees, make sure you are aware of the new amounts that apply to the 2015 FBT year.

Some changes are being made to the farm management deposits (FMD) scheme that taxpayers who rely on the scheme should be aware of. These include:

  • Allowing taxpayers to consolidate multiple FMDs that they might hold with different providers;
  • Raising the non-primary production income threshold; and
  • Limiting the rules in the Banking Act for unclaimed moneys to prevent them applying to FMDs.

The increase in the non-primary income threshold and the changes to allow taxpayers to consolidate FMDs apply to income years commencing on or after 1 July 2014.

ATO reviews approach to SMSFs as industry takes

In media release No 2014/06, issued 19 February 2014, it is noted that nearly one million Australia have chosen to take control of their superannuation future as the popularity of self-managed super funds (SMSFs) continues to grow.

ATO Deputy Commissioner Superannuation, Alison Lendon, said in light of the sector’s growth, the ATO is committed to improving the services it provides to SMSF fund managers and trustees.

“With the popularity of SMSFs continuing to grow, we want to work with trustees and their advisors to improve compliance and make sure they are prepared for several regulatory changes that will be rolled out over the next year.”

If the legislation is adopted, administrative penalties will apply to breaches of super law from 1 July 2014. This means SMSF trustees will be personally liable for penalties between $850 and $10,200 depending on theprovision contravened.

“SMSF trustees should rectify any contraventions as soon as possible or they may face a penalty. In some cases these changes will impact the way SMSFs operate so for the ATO our focus will continue to be on education and support to ensure trustees understand the rules,” Deputy Commissioner Lendon said. If you have an SMSF, be mindful of the ATO’s focus on these entities. If you have any concerns with your SMSF, speak to your tax adviser.

If you have an SMSF, be mindful of the ATO’s focus on these entities. If you have any concerns with your SMSF, speak to your tax adviser.

SuperStream changes for SMSFs

If you are an employer and deposit superannuation contributions for your employees into their SMSFs, you should note the following.

In media article No 2014/03, issued 19 February 2014, the ATO said it is calling on self-managed superannuation fund (SMSF) trustees to be aware of changes to the way they receive super contributions.

Starting from 1 July 2014, SMSFs will be required to receive contributions electronically from employers. Employers with less than 20 employees have another year to make this change so SMSFs should check with their employers about their start date.

To assist employers, SMSF trustees will need to obtain an electronic service address for the delivery of contribution messages. SMSFs will then need to provide their ABN, bank account details and electronic service addresses to their employer by 31 May 2014.

Tax Determination TD 2007/14 contains guidance around what liabilities are included when calculating the “net value of CGT assets” for the purpose of the small business concessions. In April this year, some amendments were made to the TD picking up some changes made to the law in 2007 that:

  • Allow a negative net value of the CGT assets of an entity to be calculated; and
  • Allow the following provisions to be taken into account in determining the net value of the CGT assets of an entity:
    1. Provisions for long service leave;
    2. Provisions for annual leave;
    3. Provisions for unearned income; and
    4. Provisions for tax liabilities.

These changes apply to CGT events happening in the 2006-07 income year or later income years.

A separate amendment to TD 2007/14 picks up some other changes made in 2007 that affect Division 152 that:

  • Increased the maximum net asset value test threshold in s 152-15 of ITAA 1997 from $5 million to $6 million;
  • Replaced the term “small business CGT affiliate” with “affiliate”, moved its definition from s 152-25 of ITAA 1997 to s 328-130 of ITAA 1997 and changed its meaning in some respects; and
  • Enacted the small business entity ($2 million turnover) test as an alternative to the maximum net asset value test as a means of qualifying for the small business capital gains tax concessions.

These changes apply to CGT events happening in the 2007-08 income year or later income years.

A further amendment has also been made to TD 2007/14 to include the Commissioner’s view of the implications of the Full Federal Court decision of FCT v Byrne Hotels Qld Pty Ltd [2011] FCAFC 127 in relation to “contingent liabilities” for the purpose of calculating “net value of CGT assets” and in particular, that contingent liabilities are generally within the meaning of “liabilities”.

There is lots of news from the ATO that small business taxpayers should be aware of – see below for what might be relevant to you and your business.

1. Standard Business Reporting

The ATO says that Standard Business Reporting (SBR) is a quicker and simpler way to prepare and lodge reports to government – including the ATO –directly from business software. The ATO sees this whole-of-government approach using common computer language as the future of electronic service delivery. So businesses will start to need to prepare themselves for this new system.

For more information and to access an ATO video on SBR, go to the ATO website.

2. Business Communicator

The April 2014 edition of the ATO’s Business Communicator contains news and updates for businesses with an annual turnover between $2 million and $250 million. These include articles on the offshore voluntary disclosure initiative; common R&D mistakes; payments of refunds of overpaid GST; new rules about communicating with the ATO; the ATO and social media; streamlining superannuation contributions; and updating your business registration details.

3. Project DO IT: ATO says "Disclose offshore income and assets now"

There is a new ATO initiative that all taxpayers with offshore income should be aware of: Project DO IT.

This initiative is about the ATO urging all taxpayers with offshore assets to declare their interests, ahead ofa global crackdown on international tax havens.

The ATO says that if clients of tax agents have offshore income or assets, now is the time for them to review their overseas financial activities and make sure their tax is in order.

The recently announced “Project DO IT: disclose offshore income today” initiative provides clients with an opportunity to make a voluntary disclosure in return for reduced penalties and other incentives, but is only available until 19 December 2014.

Under Project DO IT, people disclosing their offshore assets will generally only be assessed for the last four years, be liable for a maximum shortfall penalty of just 10% and full shortfall interest charges, and will not be investigated by the ATO or referred for criminal investigation on the basis of their disclosures.

4. ATO contacting businesses with overdue 2012-13 Taxable payments annual reports

The ATO has been contacting businesses in the building and construction industry who have not yet lodged their 2012-13 Taxable payments annual reports. Businesses may have been contacted by phone or letter. To ensure your compliance obligations are met, see your tax adviser to check whether you should have prepared one of these reports for your 2013 return.

5. Reminder to businesses in the building and construction industry for 2013-14 reports

In May 2014, the ATO sent letters to businesses in thebuilding and construction industry that may be paying contractors, to remind them to lodge their 2013–14 Taxable payments annual report by 21 July 2014. The letter was generally be sent to their business addresses.

The ATO should have also alerted tax agents if their clients were going to be sent the letter.

If you did receive one of these letters, it is best to first contact your tax agent to work out whether you need to prepare one of these reports.

6. Stopping paper activity statements

The ATO says it understands that many businesses use electronic channels to manage their day to day interactions and record keeping.

From 1 July 2014, the ATO advises that it will no longer send paper activity statements out for the majority of taxpayers whose activity statements are lodged electronically. The ATO will continue to send paper activity statements for certain form types only that cannot currently be sent electronically.

Transitioning activity statements to be fully electronic is one of the steps the ATO is taking to keep pace with community expectations as more and more business is done electronically.

7. Receiving your payment instalment by email

The ATO is running a pilot to issue emails when tax agents or their clients phone the ATO to make a payment plan. The ATO will soon offer the option to receive the first instalment amount and due date by email.

The email pilot will consist of approximately 1,000 participants including individuals, businesses and tax practitioners.

Should you become involved in this pilot, it is best to let your tax agent know so that they can keep an eye on things.

8. ATO's Facilitation Process

The ATO is looking for ways to improve the way it resolves disputes with taxpayers.

In 2013, the ATO conducted a trial of a new dispute resolution process, “facilitation”, in smaller and less complex indirect tax objections. The process used ATO officers as facilitators in meetings between taxpayers /their agents and ATO case officers responsible for the dispute. The ATO facilitators who assisted the partiesto identify and review options to resolve disputes hadnot been involved in the dispute.

After a review of the results of the pilot, the use offacilitation has now been extended to a range of disputes including less complex disputes arising from indirect tax, small business and individual audits and objections. If you find yourself being audited by the ATO, know that this facilitation process might well be available to you to help quickly resolve the matter.

9. Lodging a PAYG withholding variation

The PAYG withholding variation application (e-variation) for 2014-15 is now available to use. The ATO says that lodging an e-variation via the internet will allow faster processing, and most e-variations are processed within 14 days.

More information about varying the rate or amount of PAYG tax withheld from payments to taxpayers for the year ending 30 June 2015, and lodging PAYG withholding variation applications can be found on the ATO website. However, if you do wish to vary your PAYG withholding amount, it is best to consult your tax adviser first to help you work out the right amount for you.

10. Records that are needed to claim CGT concessions for small business

If you are planning on claiming any of the capital gains tax (CGT) concessions for small business, you must keep relevant records including:

  • The market value of relevant assets just before the CGT event (to show eligibility for the $6 million maximum net asset value test);
  • Carrying on a business, including calculation of turnover (to show eligibility for the small business entity test);
  • How any capital losses have been calculated and carried forward to later years;
  • Relevant trust deeds, trust minutes, company constitution and any other relevant documents.

To make sure you have kept the right information for this and any other concessions you claim, see your tax adviser.

11. Information for primary producers

The ATO has published the following documents relevant to primary producers:

If you have a primary production business, this information might be relevant for you.

12. The ATO App for Small Businesses

The ATO has developed an app for small businesses. This app might be useful to assist you with your interactions with the ATO. If you are interested in finding out more about the app, more information can be found on the ATO website.

DICLAIMERTaxwise® 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 – Feb 2014

IN THIS ISSUE

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 theformer 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 your business include:

  • Capital gains tax treatment of earn out arrangements (these arrangements are usually used when selling a business);
  • Capital gains tax treatment of certain compensation payments and insurance policies; 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;
  • Symmetric treatment of bad debts;
  • 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 the measures that are to proceed will pass into law during 2014.

In the previous edition of TaxWise, we mentioned that, 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 20169.5%
From 1 July 201710%
From 1 July 201810.5%
From 1 July 201911%
From 1 July 202011.5%
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.

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

As the company loss carry-back tax offset does apply in the 2013 income year, it is important for taxpayers who are able to carry back losses that they get their claims right. The ATO has advised that it has received a number of 2013 Company tax returns where the loss carry-back tax offset has been claimed incorrectly. This has caused delays in processing of these returns.

To prevent further delays, the ATO has made changes to the electronic lodgment service (ELS). This means a company return cannot be lodged if a claim for a loss carry-back tax offset is made at item 13 label Z, and:

  • Item 8 label M is less than the tax offset, or
  • Item 8 label M is not completed.

The loss carry-back tax offset, for the financial year in which carry-back tax losses are claimed, must be the lowest of:

  • The loss carry-back tax offset component for the 2011-12 financial year
  • The maximum $1,000,000 losses multiplied by the corporate tax rate for the year you make a claim (that is, $300,000 in the 2012-13 financial year as the corporate tax rate is 30%), or
  • The franking account balance at the end of the financial year in which the claim is made.

To do!If you think you are able to claim this offset, see your registered tax agent who will be able to assistyou and help you get your claim right.

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
  • Followup 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.

Note!If you have received one of these calls from the ATO and are not sure whether you have an obligation to lodge a “Taxable Payment Annual Report”, you should speak to your registered tax agent. If you have not received one of these calls but are concerned whether you have an obligation to lodge one of these reports, you should also speak with your registered tax agent.

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.

For the ATO’s advice and information about what to check for, visit their website.

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.

The ATO has published a document entitled “Employer FAQs -Getting ready for the standard”.

The standard is a part of SuperStream, a package of measures designed to enhance the superannuation system.

Under the standard, employers will make superannuation contributions on behalf of their employees by submitting data and payments electronically in a consistent and simplified process.

Starting dates are as follows:

  • If an employer has 20 or more employees (large or medium employer) – they must start using the standard from 1 July 2014.
  • If an employer has 19 or fewer employees (small employer) – they must start using the standard from 1 July 2015.
  • For a new employer (starting their business after 1 July 2014) or for an employer that grows to have 20 or more employees after 1 July 2014 – they must start using the standard from the first contribution date where they exceed the threshold of 19 employees.

In November 2013, the ATO sent information directly to medium and large employers to encourage them to investigate their options and start preparing for the data and payment standard.

All employers affected by this change should start preparing for the changes.

Note!It is important that employers affected by these changes understand their obligations and are able to meet the requirements. Your tax agent will be able to assist you to understand and meet your obligations.

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.

The ATO has posted a short video presentation containing more information about this change.

The ATO has advised that the Tax Agent Portal has two new mail subjects to assist practitioners with their self-managed super fund (SMSF) clients. They should use the Portal to request:

  • Cancellation of SMSF registration where a fund was never legally established;
  • Return not necessary (RNN) for a newly registered SMSF that satisfies the following eligibility criteria and can confirm all three:
    1. That although registered, it had no assets and did not receive contributions or rollovers in the first financial year;
    2. The date the SMSF first held assets and commenced operating; and
    3. That they will be lodging future returns.

If you have an SMSF in its first year of registration and are not sure if a return needs to be lodged or not, you should speak with your tax agent to ensure any lodgment obligations of your SMSF are met.

Note that a “return not necessary” (RNN) for an SMSF is only available for the first year of registration.

The ATO advises 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. There is a separate form for businesses.

The ATO has published its Business Communicator for December 2013. Business Communicator contains news and updates for businesses with an annual turnover between $2 million and $250 million.

It deals with the following topics:

  • Getting ahead with good records;
  • MySuper changes – what employers need to know;
  • Helping high-risk industries with super obligations;
  • New data and payment standard for employers;
  • Increase to excise and customs duty on tobacco;
  • AUSkey improvements;
  • Check vendors details for upcoming property transactions;
  • Interim Decision Impact Statement – MBI Properties Pty Ltd v. FCT.

For acopy of this publication, visit the ATO website.

Tip!This document has useful general information for businesses. However, for specific information about certain issues that may be referred to in the document, you should speak with your tax adviser.

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.

The ATO advises that the small business benchmarks have been updated with data from the 2010–11 financial year.

Note!If you are unsure how the small business benchmarks apply to your business, see your tax agent for further information.

The ATO has advised that the generation of December 2013 activity statements may be delayed for some taxpayers who varied their September PAYG instalment or chose a different PAYG reporting option. The ATO says that it has delayed the issue of these statements to ensure these variations and elections are accurately reflected on the December activity statement.

All activity statements will be issued before the end of January 2014, so if your statement goes to your tax agent, they should receive them well before the February 2014 lodgment and payment due date.

Note!If you have not yet received your December 2013 activity statement, contact your tax agent to see if they have received it already.

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 – Jun 2013

IN THIS ISSUE

The end of the financial year is coming and it’s time to start thinking about your 2013 Income Tax Return! Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2013 rolling around.

  • Are there any repairs and maintenance you should carry out prior to 30 June 2013 so you can claim the deduction in your 2013 return?
  • Are there any bad debts to write off out of your receivables?
  • Are there any recently announced measures in the May 2013-14 Budget you should talk to your tax adviser about?
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2013 (you will need to speak to your lender.)
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances;
  • Re-consider funding strategies for your business –end-of-year is a good time to consider whether you have the right debt funding and equity funding mix in place;

It is also a good time to review things that you think about at the time you put them in place but don’t otherwise turn your mind to – for example, see if you have the right mix of debt and equity funding for your business to carry you through to the next financial year.

To do!Your tax adviser canhelp you with these decisions as they knowyour business and haveexperience with other businesses similar to yours.They are able to offer you sound advice about how to best prepare your business for the start of the 2013-14 financial year.

Recently, the Federal Government introduced into Parliamentlegislation that will impact trusts, superannuation funds and life insurance companies. The changes will mean that certain integrity rules in the small business concessions, concessions that many small businesses would be familiar with, will now also apply to trusts, superannuation funds and life insurance companies as well other types of entities to which they already apply. The changes will also mean that certain asset-holding arrangements will be “looked through” and treat the underlying entity as the owner of the asset. For example a beneficiary of a trust may be regarded as the owner of the asset rather than the trustee who is the legal owner.

In previous editions of TaxWise, the introduction of the company loss-carry-back measure has been mentioned. It is worth noting that this measure is progressing through Parliament and may soon become law. To recap the measure for you, companies (and entities taxed like companies) will be able to take advantage of this measure. There aresome limitations including that the most amount of losses that will be able to be carried back to offset an earlier year’s income will be $1 million and only revenue losses will be able to be carried back.

The ATO has also set out on its website how it plans to administer this measure. The ATO’smain advice is that companies who are able to lodge their 2013 tax returns already are not advised to try and carry back losses until the changes become law. Once the law comes into effect, the ATO will issue advice about how to claim the loss carry back tax offset if a company has already lodged its 2013 income tax return. A company affected by this will then also be able to amend its company tax return and claim the loss carry back tax offset. Interest on overpayment of tax will be paid where applicable.

To do!If your company is not having a good year and you think it may make a loss, speak to your tax agent about whether you might be able to carry back the loss you might make.

Previous editions of TaxWise have highlighted the Government’s intentions to tighten up the rules which target tax avoidance by taxpayers. These are provisions that taxpayers should bear in mind when embarking on transactions.Since the last edition of TaxWise, the legislation bringing in these changes has been introduced into Parliament.

If you have any concerns about how these measures could affect any business or transactions you are planning to undertake, seek advice from your tax adviser.

In the meantime, the ATO has published on its website the administrative treatment that will be applied until the changes become law

The ATO has started a review of assets used in the repair and maintenance of other machinery and equipment as defined by ANZSIC code 94290, with a view to making new effective life determinations.

The review will cover all assets used to repair, certify and maintain:

  • Construction equipment and machinery
  • Heavy machinery and equipment
  • Hydraulic equipment
  • Material-handling equipment
  • Earthmoving machinery, equipment or parts
  • Forklifts
  • Mining excavation equipment
  • Tractors.

The ATO expects its review of these assets to be completed within 12 months, with new effective life determinations applying from 1 July 2014.

If you have assets of this nature, you may be impacted by the review. You should also keep an eye out for the new effective life determinations.

Note!If you think this review might impact on your business and potential capital allowance claims you may make, you should talk to your tax adviser.

If so, you may be interested to know that the Government recently announced changes to the R&D tax concession. What is proposed is noted below:

  • Very large businesses with annual Australian turnovers of $20 billion or more will no longer be eligible for the R&D Tax Incentive but will be eligible to claim their R&D expenditure under general tax law provisions, for example, as deductions at the corporate tax rate for business expenditure.
  • The change will add a third tier to the eligibility requirements for the program and targets the program to SMEs. It will apply to income years starting on or after 1 July 2013.
  • Companies with a turnover of less than $20 million doing eligible R&D can receive an uncapped fully refundable offset if they are in tax loss and, from 2014, eligible companies will be able to receive refunds as quarterly credits -improving cash flow and helping them conduct more R&D.

The Federal Government is pursuing ways to make the amount of tax that large and multinational businesses pay in Australia more transparent.

Recent events in Australia and around the world have called into question whether large and multinational businesses should maintain the same level of confidentiality about the taxes they have paid that other taxpayers have.In particular, the Government will explore:

  • How the policy could best be designed to cover large and multinational businesses, including whether a threshold test would be appropriate;
  • Which Federal taxes should be disclosed; and
  • How the tax information should be made publicly available.

Improving the transparency of Australia’s business tax system is intended to encourage enterprises to pay their fair share of tax and discourage aggressive tax minimisation practices. It is also intended that this will allow the public to better understandthe business tax system and engage in debate about tax policy.

Though this is only said by the Government to be aimed at large and multinational businesses, the business tax system also applies to smaller-sized businesses. Therefore smaller businesses could potentially get swept into broader discussions around the business tax system.

If you are an employer, in April this year, the ATO may have sent to you some information regarding superannuation guarantee obligations.

Employers across Australia will have new super obligations under a range of reforms that are being implemented from 2013 to 2019.

From 1 July 2013, employers must:

  • Increase the minimum rate for super guarantee payments on behalf of their employees from 9% to 9.25%
  • Start making super guarantee contributions for employees aged 70 years and over with the removal of the existing upper age limit.

Accordingly, you may need to update your processes and systems to incorporate the changes.

To do!Talk to your tax agent about what changes are coming and how you might modify your existing systems to accommodate the changes.

The activity in the self-managed superannuation funds (SMSF) area continues. As more and more people decide to set up an SMSF, it is wise to stay abreast of the changes. We highlight some below:

1) SMSF Supervisory Levy Bill introduced into Parliament

Recently, the Government introduced into Parliament a bill which amends the Superannuation (Self-Managed Superannuation Funds) Supervisory Levy Imposition Act 1991and the Superannuation (Self-Managed Superannuation Funds) Taxation Act 1987. The Bill will reform the SMSFsupervisory levy arrangements. The changes ensure that the levy is collected from SMSFs in a more timely way, and the ATO’s costs of regulating the sector are fully recovered.In particular, the Bill increases the maximum levy payable by a trustee of an SMSF for a year of income from $200 to $300, effective from the 2013-14 income year.The Bill also provides that the regulations may specify when the SMSF levy is due and payable so that the amount may be levied and collected in the same income year.

The proposal was announced in the 2012-13 Mid-Year Economic and Fiscal Outlook on 22 October 2012.

2) Approved SMSF auditors – registrationsfor auditors started 31 January 2013

If you have your own SMSF, you should note that, as part of the “Stronger Super” reforms, from 1 July 2013, auditors who conduct SMSFaudits must be registered with the Australian Securities and Investments Commission (ASIC) as an approved SMSF auditor.

Auditors can apply for registration as an approved SMSF auditor and pay fees online with ASIC from 31 January 2013.

Tip!If you are arranging for your SMSF to be audited, ensure the auditor you choose is registered.

3) SMSF annual return 2012 and impacts on PAYG instalments

The ATO recently advised that over the years, it has identified that many SMSFs are inaccurately claiming some deductions when they:

  • Pay an income stream;
  • Are entitled to claim exempt current pension income.

To assist trustees in completing their annual reporting obligations and to ensure that they calculate the correct tax liability, the ATO has made a significant change to how exempt current pension income (ECPI) is reported in the SMSF annual return 2012.

The ATO says it will continue to closely monitor entitlements to claim an amount of income as ECPI and intends to review a number of SMSFs as part of its ongoing compliance activity.

Note!If you have an SMSF and are at all concerned by this, pleasespeak with your tax agent who can advise you about this change.

4) ATO information on changes to super for super funds, including SMSFs

The ATO has published a document entitled “Changes to super for super funds, including self-managed super funds“, containing information to keep super funds, including SMSFs, up to date on new super announcements by the Government and on any changes to the law which may affect them.

The ATO says that this information will be updated regularly.

Your tax agent will also be able to keep you informed of changes that might affect your own super or anything that might impact your SMSF

In previous editions of TaxWise, we mentioned the Government’s plans to clarify the operation of a provision in the tax legislation that inhibits a taxpayer from getting a refund of GST already paid to the Commissioner if it turns out the GST was overpaid because a supply was incorrectly treated as a taxable supply.

Some progress has been made in relation to this measure as a second Exposure Draft was released in late February this year. The second Exposure Draft tries to address many of the concerns noted in relation to the first Exposure Draft, including the gap in the current law that does not address miscalculations that may lead to overpayments of GST.

In the meantime, the ATO has published on its website the administrative treatment it will apply until the change to the law is made. You should speak to your tax adviser if you have any queries about how the current law applies and how the changes might impact your business.

The ATO recently updated its ruling on tax invoices, in particular the information that must be included on a tax invoice and when a document is in the approved form for a tax invoice.

The ATO also recently issued a draft ruling in relation to adjustment notes.

Now might be a good time to review the tax invoices and adjustment notes your business issues and ensure they meet the requirements in the rulings.

The ATO has issued a determination (GSTD 2013/1) in relation to the GST consequences of fees associated with failed payments. A failed payment means a dishonoured cheque or a declined direct debt request. Fees associated with failed payments may arise.

The ATO has confirmed in its determination that thepayment of a failed payment fee is not consideration for a supply in the circumstances set out in the determination.

Taxation Determination TD 2013/4 recently issued by the ATO contains the reasonable amounts of food and drink expenses for the purposes of the fringe benefits tax law and when these expenses may or may not have to be substantiated.

1) PAYG Withholding - Variation of withholding for personal services income

A variation to the amount of withholding required by a payer under the pay as you go (PAYG) withholding systemmay now be madefor personal services income payments received by an entity for a certain class of cases. These cases are specified in the legislative instrument providing this.

If you derive personal services income through an entity, it may be worthwhile speaking to your tax adviser to see if you are able to vary the PAYG with holding amount as permitted by this legislative instrument

2) PAYG Withholding – Variation forAllowances

Avariation to the amount of withholding required by a payer under the PAYG system for allowance payments in a certain class of cases may also now be made. The classes of allowance payments are specified in the legislative instrument providing this.

3) PAYG payment summary - employment termination payment and codes

Following changes to the taxation of employment termination payments (ETP) on 1 July 2012, the ATO has updated the “PAYG payment summary -employment termination payment” to include new ETP codes. The codes describe the type of payment and will ensure the correct rate of tax is applied.

If you are paying an ETP this income year, make sure you use the correct form and codes. Your tax agent will be able to help you obtain the correct form to use.

The ATO has published on its website a useful suite of documents for SMEs in the SME Communicator. These documents are regularly updated and are a good tool for people to refer to.

If so, you should be aware of the recent changes made to the taxand superannuation laws to reduce the scope for companies avoiding liabilities and payments of employee entitlements. Thesechanges impact on a director’s obligations and personal risk in relation to their company’s PAYG withholding debt.

To do!Check to see if the company you are a director for has any outstanding PAYG withholding debt and whether this is being properly managed.

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 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.

The federal government is looking to remove certain income tax impediments that impact business restructures contained in the capital gains tax (CGT) provisions. The changes affect rollovers which apply to deferring when taxable capital gains are recognised for tax purposes and would involve:

  • Providing rollovers for revenue assets and trading stock where a person who owns units in a unit trust exchanges units for shares in a company (because the assets of the business are being moved from a trust into a company structure);
  • Providing rollovers for revenue assets and trading stock where shares are exchanged in one company for another company (because a new company is introduced into the business ownership structure);
  • Ensuring integrity in the tax system for a rollover to apply where replacement assets are of the same character for tax purposes (eg capital or revenue)
  • Resolving technical defects with certain rollovers offered for restructures.

The amendments are captured in some draft legislation the government put out for review late last year.

Note!If you are planning on changing the structure of your business, for example, converting from a trust to a company, speak to your tax adviser to see if any of the proposed changes to the CGT provisions might affect your restructuring plans.

With the early announcement of the 2013 federal election, this will cause the government to re-prioritise tax measures it may choose to pursue or no longer 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.

In the previous edition of TaxWise, we mentioned that Treasury had set up the Business Tax Working Group to see if some changes could be made to the business tax system to assist businesses in operating in the current tough economic environment.

The working group considered whether the company tax rate could possibly be cut, but this would likely have involved removing some other business tax concessions. The working group received much feedback from the tax profession and business community about various possibilities. However, the working group found a lack of agreement among stakeholders and has been unable to recommend a package of reforms that would lead to a cut in the company tax rate.

Following some decisions in cases going against the ATO, the government has decided to tighten up the rules which target tax avoidance by taxpayers. Legislation bringing in the changes 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 necessary 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.

The Board of Taxation has announced that it will review the special rules, colloquially known as “Division 7A”, which apply to certain transactions between shareholders and private companies. The rules as they currently stand have been in place for approximately 14 years and therefore are due for a review into how they have been implemented and whether they successfully achieve their purpose.

The rules are designed to treat certain loans, payments and debts forgiven as “dividends” unless certain conditions have been met. They prevent shareholders from taking money out of a private company in a way, where the money has not been subject to tax.

These rules also interact with other areas of the tax law. The Board will have a look at these interactions and consider if the results are appropriate.

If you run your business through a company, at some stage you may wish to borrow money from the company, or may have borrowed money from the company in the past. Your loans are required to comply with the requirements of Division 7A. You should see your tax adviser if you have any concerns about loans or other transactions between yourself and your private company or if you plan to borrow money out of your company in the future.

To Do!Check with your tax adviser if the terms of loans you, as shareholder, have from your private company comply with Division 7A. Also, see your tax adviser for issues you should look out for if you have plans to enter into transactions with your private company.

In the 2011-12 Federal Budget, the government announced that it planned to extend the current GST instalment system to allow small businesses that are in a net GST refund position to continue to use the GST instalment system. The government released some draft legislation in November 2012 which will bring this to fruition.

The proposed amendments are intended to enable small business taxpayers who are paying their GST by instalments, and who subsequently move into a net refund position, to continue to use the GST instalments option if they wish to do so. Under the proposed amendments, taxpayers who move into a net refund position and who wish to continue to pay GST by instalments would receive an instalment amount of zero each quarter.

Small business taxpayers who are currently not using the instalment option and are already in a net refund position will remain ineligible to pay their GST by instalments while they remain in a net refund position.

This is a beneficial administrative amendment for small businesses who find themselves on occasion in a net GST refund position.

Your tax agent is able to advise you what this may mean for you in preparing and lodging your BAS statements, particularly in relation to your business GST liabilities.

Recently, the High Court handed down a decision in which it held that Qantas had made a taxable supply for GST purposes in the case where a passenger does not board a booked flight and either a refund for payment of the flight is not claimed by the passenger or the payment is not refundable. This is because the High Court considered that, in simple terms, the passenger was supplied with the right to fly even though they didn’t take the flight and so Qantas had made a supply for GST purposes.

What this might mean for your business

In response to the decision, the ATO has taken the view that it does not significantly change the way the ATO approaches determining what is a supply, though the particular facts and circumstances of each case will always play a role.

If you have any concerns about transactions you may have entered into in the course of your business, for example with your customers or suppliers, and you are concerned with whether there may be any change to the GST treatment on those transactions, your tax agent is the person to speak to. They will gladly review any transactions you have concerns about and will be able to advise you of the proper GST treatment.

In the last edition of TaxWise, we mentioned that the Government recently released Exposure Draft legislation to clarify the operation of a provision in the tax legislation that inhibits a taxpayer from getting a refund of GST already paid to the Commissioner if it turns out GST was overpaid because a supply was incorrectly treated as a taxable supply.

This new measure has not yet progressed. However, the ATO has published the administrative treatment it will apply until the new measure is introduced into law. Essentially, the ATO will follow its current procedures until the new law comes into force.

Tip!If you are concerned the new law might affect your GST liabilities, it may be a good idea to speak with your tax agent now so your business is prepared for the change once it becomes law.

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 arm’s length arrangement.

Note!This change only affects in-house benefits provided through salary sacrifice arrangements. If you provide benefits to your employees in relation to goods or services you sell in your business through salary sacrifice arrangements, you should see your tax adviser to see if these new rules might affect you.

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 where you have employees in your business and associated super obligations for them. A copy of the publication can be found on the ATO’s website.

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 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 motor vehicle registries in all States and Territories.

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

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

The ATO has published on its website a useful suite of documents for SMEs in the “SME Communicator“. It contains articles on issues particular to SMEs, such as strengthening director obligations and lodging activity statements electronically.

The ATO has also put together a “business viability” assessment tool that may be used to determine if a business is viable. However, this tool is just a guide. It would be wise to always seek professional advice if you have any concerns about the viability of your business.

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 – Nov 2012

IN THIS ISSUE

As detailed in the table below, the tax rates that apply to resident individuals have changed:

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

Employers should take care to ensure that they are withholding the right amount of tax for each of theiremployees. If you are unsure, see your registered tax agent who can assist you to meet your withholding obligations in respect of your employees.

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

In the previous issue of TaxWise, we noted that the taxation of LAFH allowances would remain in the FBT space. However, due to the tightening of the availability of the concession, significant changes have been made to the provisions in the FBT law.

The ATO has published detailed information relevant for employers with employees subject to a LAFH arrangement on their website (see link). There are also transitional rules which apply to arrangements that were in place at 7.30pm on 8 May 2012. The new rules will apply to these existing arrangements on the earlier of the existing arrangement changing (after 8 May 2012) or 1 July 2014 when the transitional period ends.

The ATO has also issued a draft Taxation Determination TD 2012/D8 entitled “Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit, for the period from 1 April 2013 to 31 March 2014″which sets out the reasonable amounts of these expenses for which no substantiation (ie written documentation) by the employee will be required. These amounts also help employers to work out the exempt components of the benefits provided.

For employers wanting more information about the new reasonable amounts that will apply so they can assist their employees who are under LAFH November 2012 arrangements, a copy of the draft Taxation Determination can be accessed here.

To do!If you have employees who are subject to a LAFH arrangement, speak to your tax agent to find out how the new rules might affect your current arrangements with your employees and how this may impact your reporting obligations in relation to these employees.

We have noted in previous issues of TaxWise the introduction of the loss carry-back measure that is to start in the 2012-13 income year. The measure will apply to companies (and entities taxed like companies) who will be able to carry back up to $1 million of tax losses incurred in the 2012-13 year to offset against tax paid in the 2011-12 income year. From the 2013-14 income year, tax losses will be able to be carried back and offset against tax paid up to two years earlier.

Since the last edition of TaxWise, the Federal Government issued Exposure Draft legislation on the measure and it is anticipated that a Bill containing the measures will be introduced in the Spring Parliamentary sittings (ie by 29 November 2012). If the current income year is not looking so great and you think you may incur a loss this income year (though it may still be a little early to predict this), you should see your registered tax agent to discuss how these rules might apply to you. This will help you to start to plan for your 2013 income tax obligations.

The Government also recently released Exposure Draft legislation to clarify the operation of a provision in the tax legislation that inhibits a taxpayer from getting a refund of GST already paid to the Commissioner if it turns out GST was overpaid because a supply was treated as a taxable supply and it is later determined that the supply was incorrectly treated that way. The measure applies to all net amounts of GST worked out in GST periods commencing on or after 17 August 2012.

The Exposure Draft legislation makes it somewhat more difficult for a taxpayer (usually a supplier who supplies goods and services and is ordinarily liable for GST on those supplies) to obtain a refund of GST that has been overpaid unless it can show, for example, any GST it collected from a customer has duly been returned to that customer.

This particular provision has caused much consternation for taxpayers with GST obligations and, depending on the final version of the legislation that is passed through Parliament, may continue to do so. A Bill is also expected to be introduced into the Spring Parliamentary sittings.

Note!Businesses with GST obligations may wish to speak with their tax agents about the possible implications for them of this new measure.

Income Tax

In the previous edition of TaxWise, we outlined the ATO Compliance Program that applies to small and medium enterprises (SMEs) for the 2012-13 income year. In addition to this, the ATO has issued a specific information publication in relation to the broader compliance obligations of SMEs. The publication is called “Tax compliance for small-to -medium enterprises and wealthy individuals”. You can access a copy of the publication here.

GST

The ATO has also issued a guide specifically catering for the GST compliance obligations of SMEs. The guide is entitled the “GST governance and risk management guide for small-to-medium enterprises”. The guide contains two checklists, a simple version (for businesses with a turnover between $2 million and $10 million) and a more comprehensive version (for businesses with a turnover above $10 million). The purpose of the checklists is to assist SMEs to understand and meet their GST obligations and identify any areas that might need improvement (such as systems used to record GST obligations). You can access a copy of the guide here.

If you run a company, you may be interested to know that the Treasurer has set up the Business Tax Working Group (BTWG) which has been given the task of finding ways the business tax system can be amended to assist businesses to respond to the current tough economic environment. One change they are considering is a possible cut to the company tax rate, though this is likely to involve the removal of some business tax concessions if it is to go ahead. The BTWG is currently examining their options. The BTWG expects to issue their final report on this matter in December 2012.

In the previous edition of TaxWise, the small business benchmarks were mentioned as a tool that would be used by the ATO during their Compliance Program which applies for the 2012-13 income year.

Since the last issue of TaxWise, the Inspector-General of Taxation released his report on the “Review into the ATO’s use of benchmarking to target the cash economy” in early October. The Inspector-General made 11 recommendations to the ATO for the purpose of improving the way the ATO utilises benchmarks to determine whether certain businesses in particular industries have declared all their income that they are likely to have derived. TheATO has agreed to 9 of the recommendations in full and two in part.

Businesses in industries such as hairdressers, beauticians, newsagents, coffee shops, restaurants and take away food shops, and clothing retailers with typically high cash sales are just some examples of industries where the benchmarks are likely to be applied. These types of businesses should see some changes in the way the ATO applies the small business benchmarks to them as a result of the recommendations the Inspector-General made to the ATO and to which the ATO have mainly agreed.

If you are planning to sell, or have been thinking about selling, your business, the ATO has put together a factsheet for business owners. The factsheet alerts business owners to various issues that should be considered prior to selling a business, such as:

  • Considering restructuring your business for the purposes of sale;
  • How to deal with the purchaser;
  • Potential tax considerations.

A link to the factsheet can be found here.

If you have a non-resident business and need to apply for a tax file number and/or Australian Business Number for the business, the ATO requires new “proof of identity” standards to be met. These are outlined in a new document they have published called entitled “Proof of identity – for individuals and businesses resident outside Australia”. A link to this publication is here.

You should speak to an Australian registered tax agent for assistance with these registrations.

In September 2012, the Commissioner issued a Taxation Determination TD 2012/20 which sets out the value of estimates of goods taken out of trading stock for private use from certain types of businesses. The Taxation Determination is entitled “TD 2012/20: Incometax: value of goods taken from stock for private use for the 2011-12 income year.”

The specific industries TD 2012/20 applies to are:

  • Bakery;
  • Butcher;
  • Restaurant/café (licensed or unlicensed);
  • Caterer;
  • Delicatessen;
  • Fruiterer/greengrocer;
  • Takeaway food shop; and
  • Mixed business (eg milk bar, general store, convenience store).

If your business is one of these, it might be worth your while having a look at TD 2012/20 and familiarising yourself with the amounts specified in there relevant to your type of business. A link to the Taxation Determination can be found here.

The ATO has issued a factsheet to assist trustees to manage the tax affairs for the trust (or trusts) for which they are responsible. The factsheet provides guidance to preparing the tax return for the trust as well as some key points to preparing the statement of distribution. The factsheet is called “Reporting trust income and distributions – common mistakes to avoid and changes in 2012” and can be found on the ATO website here.

Tip!If you are a trustee, it is always advisable to speak to a registered tax agent about the tax obligations of a trust to ensure you are aware of those obligations, are able to meet them or can get the assistance you might need to meet those obligations.

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

Recently, the ATO updated the ruling it has issued on adjustments a taxpayer, who is able to claim input tax credits for GST paid on inputs for taxable supplies it makes, is required to make where there are changes to the creditable purpose for which certain acquisitions are made.

If there are changes to the creditable purpose for which you make certain acquisitions, this will affect the amount of input tax credits you can claim for the GST paid on the acquisition. For example, if you buy a computer to use in your business, the amount of input tax credit you can claim will be impacted by the extent to which you actually use the computer for your business. If you had planned to use it 100% in your business, but end up using it for private purposes 25% of the time and only 75% of the time in your business, this affects the amount of input tax credit you can actually claim.

Your registered tax or BAS agent will be able to assist you in working out the amount of input tax credits you are able to claim.

Note!If you are unsure about the amount of input tax credits you are allowed to claim for certain assets you have bought for your business where you have, for example, ended up using the asset partly for private purposes, seek advice from a professional who can advise you on how you have actually used the asset might affect your ability to claim input tax credits.

In October 2012, the ATO published a guide for employers which covers all types of tax issues that an employer may come across, including preparing to hire employees, registrations the business will need when it hires employees, reports an employer needs to complete for tax payments withheld from amounts paid to employees (including Payment Summaries for employees) and what happens when an employee stops working for you such as final withholding payments an employer may have to make.

Even if you have been in business for a long time and have experience dealing with employees, it may be useful to have a look through the guide and a refresher regarding your obligations. You can locate a copy of the guide through this link.

The ATO held in September 2012 information sessions to help super funds and employers get ready to adopt the new data and e-commerce standard, which is being introduced as part of the Government’s super reform agenda. Copies of the information presented at these sessions can be found on the ATO website through this link.

Business owners who employ staff and have superannuation guarantee obligations to meet for their staff should have a look at the information provided about the new standard to ensure they understand the new standard and when it will start to apply. If you are an employer and are unsure of thenew requirements, see your tax agent who will be able to assist you.

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.

Read more