Tax news, views and clues, February 2017

ATO priority on settling cases – but not at any cost

The ATO has advised that it places a high priority on resolving tax disputes early, including through reaching settlements where appropriate, but that it will not settle disputes at any cost. It says “the sensible use of settlements” is part of its commitment to earlier and more effective dispute resolution. In this regard, the ATO has advised that in 2015–2016, it settled 1,362 cases (31% more than in the previous year) and that the increased number of settlements can be attributed entirely to settlements finalised as part of Project DO IT (Disclose Offshore Income Today).

TIP: The ATO’s stated policy of “placing a high priority on resolving disputes early, including through settlements where appropriate” is something that should be kept in mind in any dispute with the Commissioner, whether large or small. A settlement may provide a great opportunity to finalise a difficult or long-running dispute.

ATO develops work-related expenses risk profiles

The ATO has developed work-related expenses risk profiles to help it identify how work-related expense deduction amounts compare for similar taxpayers. The ATO said improvements in data analytics and modelling have allowed it to create a risk profile for tax agents’ practices based on comparing their clients’ work-related expenses claims with those made by similar taxpayers.

The ATO has said it will share these risk profiles with some tax professionals where their clients’ claims appear higher than expected.

TIP: The ATO’s increasing capacity to monitor the often difficult issue of work-related expenses claims means taxpayers and tax professionals need to take care when preparing returns. Contact us if you would like to discuss which of your work-related expenses may be tax deductible.

Onus on taxpayers to show no fraud or evasion: Full Federal Court

Several taxpayers have been unsuccessful in their appeals to the Full Federal Court in which they challenged tax assessments that dramatically increased their assessable income for certain income years. In each case, the Court confirmed that where the Commissioner of Taxation has issued an amended or default assessment out of time on the grounds of taxpayer “fraud or evasion”, the taxpayer bears the responsibility of proving that such fraud or evasion does not exist.

No disclaimer of trust interest: unsuccessful appeal

A beneficiary of two trusts whose assessable income was increased from some $70,000 to some $13 million in light of her entitlement to distributions from the trusts has been unsuccessful in claiming on appeal that she had “disclaimed her interests” in the trusts. Instead, the AAT found that she could not argue she had disclaimed her interests in the distributions. This finding was on the basis that she did not bring up having made “disclaimers” when she originally objected to amended assessments that the Commissioner of Taxation issued in 2013. Additionally, in any event, the AAT found that the disclaimers were legally ineffective because of the significant period of time between the distributions being made (in 2006 and 2007) and the disclaimers being made (in 2015).

TIP: Any attempt to disclaim an interest in a trust for tax purposes must be legally valid first – and the key consideration is that there must not have been behaviour that indicates implied acceptance of the interest. In this case, the taxpayer’s behaviour was problematic because she did not act until well after she received the distributions and they were assessed as part of her income.

Admin penalties of 75% for failing to lodge FBT returns

The AAT has confirmed that 75% administrative penalties were rightfully imposed on several companies for their failure to lodge FBT returns over a four-year period. The AAT found that the Commissioner of Taxation was obliged to impose a 75% administrative penalty because the FBT returns were not lodged, and that the “safe harbour” provisions did not apply to such an administrative penalty.

The AAT also found that it was not appropriate to exercise its discretion to remit the penalties in part or whole under the circumstances. The AAT relied on the criteria in Practice Statement Law Administration PS LA 2014/4 in arriving at its decision.

New ATO data-matching program: ride-sourcing

The ATO has announced a new data-matching program involving ride-sourcing providers. Under the program, the ATO will acquire data to identify individuals who may be engaged in providing ride-sourcing services during the 2016–2017 and 2017–2018 financial years. Details of all payments made to ride-sourcing providers from accounts held by a ride-sourcing facilitator will be requested from the facilitator’s financial institution for the 2016–2017 and 2017–2018 financial years. The ATO estimates that up to 74,000 individuals (ride-sourcing drivers) offer, or have offered, the services.

TIP: If you work as a driver for Uber or a similar ride-sourcing facilitator, the money you make is assessable income that needs to be included in your tax return. Contact us for more information about how the ATO’s data-matching program may apply to your circumstances.

Taxation ruling on commercial website deductibility

A new taxation ruling from the ATO sets out the tax deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a commercial website for use in carrying on a business.

Broadly, the ruling explains that acquiring or developing a commercial website for a new or existing business is considered to be a capital expense, and is therefore not deductible. On the other hand, maintaining a website, including remedying software faults, is generally a revenue expense, so may be deductible.

Taxation determination on deductions for bad debts: trust beneficiaries and UPEs

In a new tax determination, the ATO states that a beneficiary is not entitled to a bad debt deduction for an amount of unpaid present entitlement (UPE) that the beneficiary purports to write off as a bad debt.

It says this is because the amount of UPE is not included in the beneficiary’s assessable income. Instead, the entitlement is used to determine how much net income of the trust is included in the beneficiary’s assessable income. This means that the the debt amount cannot be included in the taxpayer’s income in that year or in an earlier income year, which is a requirement for writing off a bad debt.

Taxpayer failed to prove that payments were “loans”

In a recent case, the Full Federal Court has found that several taxpayer companies had not discharged the onus of proving that assessments the Commissioner of Taxation issued to them were excessive. The amended assessments took into account income of some $4 million that the Australian companies received from overseas sources. The taxpayers had claimed that the payments were loans.

In allowing the Commissioner’s appeal, the Court majority held that it would not be appropriate to find that the taxpayers had provided the required proof that the payments were genuine loans; in fact, they had made inconsistent or “alternative” arguments about the nature of the payments.

Clients should not act solely on the basis of the material contained in this blog post. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This blog is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

by McPhail & Partners

Tax news, views and clues January 2017

Contrived trust arrangements in ATO sights

The ATO has cautioned taxpayers against arrangements that seek to minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts. Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to allow taxpayers to improperly gain favourable tax breaks, or sometimes to pay no tax at all.

Although he noted that many people use trust structures appropriately and within the law, Mr Cranston said the ATO has seen some trustees exploit the differences between trust net income and distributable income to have the net income assessed to individuals and businesses that pay little or no tax, and allow others to enjoy the economic benefits of the net income tax-free.

TIP: The ATO has identified problematic arrangements through the Trusts Taskforce’s ongoing monitoring and reviews, and will continue to look for similar arrangements using sophisticated analytics. Please contact our office for further information.

GST and countertrade transactions

The ATO has issued a Practical Compliance Guideline which sets out the Tax Commissioner’s compliance approach, in the context of GST, to entities that enter into countertrade transactions as part of carrying on their enterprise. “Countertrade” refers to the direct exchange of things by one entity for things provided by another entity, and does not include transactions where any of the consideration is monetary.

Each entity to a countertrade makes a supply and an acquisition. The Commissioner is aware of various practical problems in the context of these transactions and notes that the compliance and administrative costs may be unnecessarily burdensome where such transactions have no net revenue effect. Accordingly, the Guideline seeks to apply a practical compliance approach for certain countertrade transactions that are GST-neutral.

TIP: The Practical Compliance Guideline is only applicable in relation to GST – not for any other purpose or in relation to any other tax obligations and entitlements. It also only applies in specified circumstances, including where the countertrade transactions account for no more than approximately 10% of the entity’s total number of supplies.

Companies held to be resident and liable to tax in Australia

In a long-running saga, the High Court has unanimously dismissed the appeals of four corporate taxpayers. The Court confirmed the taxpayers were Australian residents for income tax purposes, and therefore liable to tax in Australia on the profits they made from share trading activities on the Australian Stock Exchange. In making this decision, the Court rejected the taxpayers’ contention that because Justice Perram had in the first case found that the directors of each taxpayer were resident abroad, and because meetings of those directors were held abroad, then Justice Perram and the Full Federal Court should have held that the central management and control of each company was exercised abroad, and therefore that the companies were not residents of Australia for income tax purposes.

The High Court held that, as a matter of long-established principle, the residence of a company is a question of fact and degree to be answered according to where the company’s central management and control actually occurs. Moreover, the Court emphasised the answer was to be determined by reference to the course of the company’s business and trading, rather than by reference to the documents establishing its formal structure and other procedural matters.

The High Court further held that the fact the boards of directors of the companies were located in overseas countries was insufficient to locate the companies as “foreign residents” in circumstances where (as found in the first case) the boards of directors had abrogated their decision-making in favour of a Sydney-based accountant, and only met to mechanically implement or rubber-stamp decisions that he made in Australia.

Payment was assessable as “deferred compensation”

The High Court has unanimously dismissed a taxpayer’s appeal and held that payments of US$160 million made to him pursuant to an incentive “profit participation plan” after termination of his employment was income according to ordinary concepts. In particular, the Court found that the payments were “deferred compensation” for the services the taxpayer performed in his employment. At the same time, the Court dismissed the taxpayer’s claim that the amount was assessable as a capital gain on the basis that it did not represent the proceeds for the future right to receive a proportion of company profits he was entitled to.

ATO data-matching programs continue

The ATO has advised that it will continue with the following data-matching programs.

Share transactions

Data about share transactions will be acquired for the period 20 September 1985 to 30 June 2018 from various sources, including stock transfer companies. The ATO will collect full names and addresses, purchase and sale details, and other information. The program aims to ensure that taxpayers are correctly meeting their tax obligations in relation to share transactions. It is estimated that records relating to 3.3 million individuals will be matched.

Credit and debit cards

Data about credit and debit card transactions will be acquired for the 2015–2016 and 2016–2017 financial years from various financial institutions. The ATO will collect details (such as name, address and contact information) of merchants with a credit and debit card merchant facility and the amount and quantity of the transactions processed. The program seeks to identify businesses that may not be meeting their tax obligations. It is estimated that around 950,000 records will be obtained, including 90,000 matched to individuals.

Online selling

Data will be acquired relating to registrants who sold goods and services to an annual value of $12,000 or more during the 2015–2016, 2016–2017 and 2017–2018 financial years. The ATO said data will be sought from eBay Australia and New Zealand Pty Ltd. The data will be used to identify those apparently operating a business but failing to meet their registration and/or lodgment obligations. It is estimated that between 20,000 and 30,000 records will be obtained.

Tax debt release applications refused

The Administrative Appeals Tribunal (AAT) has recently refused the applications of two individuals who sought to be released from their tax debts under the tax law.

Case 1

An individual suffering from Parkinson’s disease had received income protection policy payments and sought to be relieved from the related tax debts, which totalled $130,416. He said he was unable to dispose of his home or an investment property to pay the debts, as there were mortgages over the properties in favour of his wife. The individual also argued that selling the properties would compound his illness and make it more difficult to meet his living needs. Although the AAT accepted that serious illness was a consideration, after reviewing the circumstances it held that the taxpayer would not suffer serious hardship if he was required to pay his tax liability. The AAT said the taxpayer did not make proper provisions to meet his tax liabilities and preferred to pay his other debts. Accordingly, relief was not granted.

Case 2

A Sunshine Coast real estate agent sought to be relieved from his tax debts, which totalled $437,681 as at 11 August 2016. He argued he had an outstanding compliance history and that his circumstances were the result of a catastrophic financial event in 2005, among other things. The Commissioner pointed to the taxpayer’s “unusually high level of discretionary spending, including on holidays, dining out and entertainment, which could be reduced”. The AAT said the taxpayer had a “poor compliance history” and agreed with the Commissioner’s description of his discretionary spending. The AAT was of the view that the taxpayer “simply gave priority to other matters and ignored his tax obligations”. The AAT accordingly refused the application for relief.

Clients should not act solely on the basis of the material contained in this blog post. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This blog is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

by McPhail & Partners

Tax news, views and clues November 2016

Budget superannuation changes on the way
The Federal Government has been consulting on draft legislation to give effect to most of its 2016–2017 budget superannuation proposals. Here are some of the key changes.

Deducting personal contributions
All individuals up to age 75 will be able to deduct personal superannuation contributions, regardless of their employment circumstances. Of course, such deductible contributions would still effectively be limited by the concessional contributions cap of $25,000, proposed from 1 July 2017.

Pension $1.6 million transfer balance cap
The total amount of accumulated superannuation an individual can transfer into retirement phase (where earnings on assets are tax-exempt) will be capped at $1.6 million from 1 July 2017. Those with pension balances over $1.6 million at 1 July 2017 will be required to “roll back” the excess amount to accumulation phase by 1 July 2017 (where it will be subject to 15% tax on future earnings).

Concessional contributions cap
This cap is to be reduced to $25,000 for all individuals (regardless of age) from 1 July 2017. The concessional cap will be indexed in increments of $2,500 (down from $5,000 increments). Contributions to constitutionally protected funds and untaxed or unfunded defined benefit superannuation funds will be counted towards an individual’s concessional contributions cap. However, any excess concessional contributions in respect of such funds will not be subject to tax, but instead limit the individual’s ability to make further concessional contributions.

Note that the Government has decided to:
• dump the proposed $500,000 lifetime cap on non-concessional contributions (which would have been backdated to 1 July 2007) – instead, the lifetime cap will be replaced by a reduced non-concessional cap of $100,000 per year for individuals with superannuation balances below $1.6 million;
• not proceed with the proposal to remove the work test for making contributions between ages 65 and 74; and
• defer to 1 July 2018 the start date for catch-up concessional contributions for superannuation balances of less than $500,000.

TIP: The government says it intends to introduce the proposed changes in Parliament “before the end of the year”. It remains to be seen if the changes will pass smoothly through Parliament. In any case, it would be prudent to check in with your professional adviser to see if and how the proposed changes would affect your retirement savings strategy.

Primary producer income tax averaging
Legislation has been introduced in Parliament that proposes to allow primary producers to access income tax averaging 10 income years after choosing to opt out, instead of the opt-out choice being permanent. The Federal Government says this will assist primary producers, as averaging only recommences when it is to their benefit (ie they receive a tax offset) and they can still opt out if averaging no longer suits their circumstances. The changes are proposed to apply for the 2016–2017 income year and later income years.

TIP: Primary producers have to meet basic conditions to be eligible for income averaging. Please contact our office for further information.

Research and development tax incentive rates change
The Federal Government has reduced the rates of the tax offset available under the research and development (R&D) tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset has been reduced from 45% to 43.5% and the lower (non-refundable) rate of the offset has been reduced from 40% to 38.5%. Here are some relevant points to note:
• Eligible entities with annual turnover of less than $20 million, and which are not controlled by an exempt entity or entities, may obtain a refundable tax offset equal to 43.5% of their first $100 million of eligible R&D expenditure in an income year, and a further refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate.
• All other eligible entities may obtain a non-refundable tax offset equal to 38.5% of their eligible R&D expenditure and a further non-refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate.

The changes apply from 1 July 2016.

TIP: AusIndustry and the ATO manage the R&D tax incentive jointly. The R&D tax incentive aims to offset some of the costs of undertaking eligible R&D activities. A company must lodge an application to register within 10 months after the end of its income year. Please contact our office for further information.

SMSF related-party borrowing arrangements
The ATO has issued a taxation determination (TD 2016/16) concerning whether the ordinary or statutory income of a self managed super fund (SMSF) would be non-arm’s length income (NALI) under the tax law, and therefore attract 47% tax, when the parties to a scheme have entered into a limited recourse borrowing arrangement (LRBA) on terms which are not at arm’s length.

The ATO has also updated a practical compliance guideline (PCG 2016/5) which sets out the Commissioner’s “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with the guideline, the ATO will accept that the LRBA is consistent with an arm’s length dealing and the NALI provisions (47% tax) will not apply. Trustees who do not meet the safe harbour terms will need to otherwise demonstrate that their LRBA was entered into and maintained consistent with arm’s length terms.

TIP: The ATO has allowed a grace period to 31 January 2017 for SMSFs to restructure LRBAs on terms consistent with the compliance guideline’s safe habour terms (or bring LRBAs to an end before that date). Please contact our office for further information.

Travel expense and transport of bulky tools claim denied
An individual has been unsuccessful before the Administrative Appeals Tribunal in a matter concerning certain deduction claims for work-related travel expenses. The individual was a sheet metal worker whose home was located some 60 km from his employer’s main work site. The individual made a number of work-related deduction claims. However, after various concessions made by both the individual and the Commissioner of Taxation, the remaining issue between the parties was whether the taxpayer was entitled to a deduction for work-related travel expenses.

The man argued that his employer required him to supply his own tools and that they were too bulky to be transported to work other than by car. He also questioned whether his employer provided secure storage facilities for his tools. In refusing the taxpayer’s claim, the Tribunal noted it was the taxpayer’s own admission that it was his own personal choice to transport his various hand tools out of security concerns. The Tribunal also said the taxpayer’s security concerns were “not supported by objective evidence”. The taxpayer’s claim was therefore refused.

TIP: The ATO reminds individuals to make sure they get their deductions right. In certain circumstances, it will contact employers to verify employees’ claims. In this case, the ATO contacted the taxpayer’s employer to check his claims, including whether the employer supplied safe storage facilities.

Important: Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

by McPhail & Partners

Tax News, Views and Clues October 2016

Personal middle-income tax rate cut on the way

The Federal Government has introduced a Bill which proposes to implement its 2016 Budget proposal to increase the third personal income tax threshold that applies to personal income taxpayers. The rate of tax payable on individuals’ taxable incomes from $80,001 to $87,000 would fall from 37% to 32.5%.

The non-resident tax schedule would also be amended as a result of the Bill, increasing the upper limit of the first income tax bracket to $87,000. A tax rate of 37% would apply to taxable income between $87,001 and $180,000, and the top marginal tax rate of 45% would remain for taxable income over $180,000.

Shortly following the Bill’s introduction in Parliament, the ATO issued new PAYG withholding tax schedules that reflect the lowered personal tax rate in the Bill. Effective from 1 October 2016, employers will be required to lower the amount of tax withheld for affected taxpayers to factor in the new lower tax rate. Any tax overpaid beforehand will be refunded by the ATO on assessment after the end of the 2016–2017 financial year.

Small business tax breaks in the pipeline

A Bill has been introduced in Parliament which proposes to:

• increase the small business entity turnover to $10 million from 1 July 2016;
• increase the unincorporated small business tax discount from 5% to 16% over a 10-year period;
• increase the turnover threshold to qualify for the lower company tax rate; and
• lower the company tax rate on a schedule over 11 income years, reaching a unified company tax rate of 25% in the 2026–2027 income year.

Small business entities with aggregated turnover of less than $10 million would be able to access a number of small business tax concessions, including, among others, immediate deductibility of small business start-up expenses, simpler depreciation rules, and simplified trading stock rules.

TIP: The $2 million threshold for the purposes of the small business capital gains tax concessions will be retained.

The tax discount for unincorporated small businesses – introduced in the 2015–2016 income year – entitles individuals who are small business entities, or who are liable to pay income tax on a share of the income of a small business entity, to a tax offset equal to 5% of their basic income tax liability that relates to their total net small business income. This offset is capped at $1,000. Although the proposed increases in the offset would increase the amount of offset an eligible individual may claim, the offset would remain capped at $1,000.

TIP: With a difficult Senate, the Coalition Government may make further changes in order to pass its Bill.

Please contact our office for further information.

Single touch payroll reporting legislative changes

A Bill to establish a new reporting framework, Single Touch Payroll (STP), has been introduced in Parliament. Under the proposed changes in the Bill, “substantial employers” would be required to automatically provide payroll and superannuation information to the Commissioner of Taxation at the time the information is created. A number of related amendments aim to streamline employers’ payroll and superannuation choice processes by allowing the ATO to pre-fill and validate employee information.

Entities with 20 or more employees (substantial employers) would be required to report the following information to the Commissioner of Taxation:

• withholding amounts and associated withholding payments on or before the day by which the amounts were required to be withheld;
• salary or wages and ordinary time earnings information on or before the day on which the amount was paid; and
• superannuation contribution information on or before the day on which the contribution was paid.

The changes are proposed to apply from the first quarter beginning on or after the day the Bill receives Royal Assent.

In general, STP reporting will commence on 1 July 2018 for substantial employers and the related amendments will apply more broadly from 1 January 2017. In some cases, the Commissioner may defer these start dates by legislative instrument.

TIP: The ATO has issued a consultation paper, published on its website, which seeks comments on the ATO’s proposed administration of STP reporting.

Take care with work-related deduction claims, says ATO

The ATO has reminded individuals to make sure they get their deductions right this tax time. Assistant Commissioner Graham Whyte said the ATO has seen “claims for car expenses where logbooks have been made up and claims for self-education expenses where invoices were supplied for conferences that the taxpayer never attended”.

Mr Whyte said that in 2014–2015 the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax. Mr Whyte said “every tax return is scrutinised”, and if a red flag is raised and the claims seem unusual, the ATO will check them with the taxpayer’s employer. In addition, Mr Whyte reminded taxpayers that this year the ATO has introduced “real-time checks of deductions for tax returns completed online”.

Please contact our office for further information.

ATO eye on SMSFs and income arrangements

The ATO is reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income (PSI) to a self managed superannuation fund (SMSF) to minimise or avoid their income tax obligations.

The ATO notes the arrangement it has described in Taxpayer Alert TA 2016/6 and is encouraging taxpayers who have entered into such and arrangement to contact the ATO so it can help resolve any issues in a timely manner.

Where individuals and trustees come forward to work with the ATO to resolve issues, it anticipates that in most cases the PSI distributed to the SMSF by the non-individual entity would be taxed to the individual at their marginal tax rate. Issues affecting SMSFs will be addressed on a case-by-case basis, but the ATO will take individuals’ cooperation with it into account when determining the final outcome.

TIP: The ATO has said that individuals and trustees who are not currently subject to ATO compliance action and who come forward before 31 January 2017 will have administrative penalties remitted in full. However, shortfall interest charges will still apply. Please contact our office for further information.

Social welfare recipients data-matching program

The Department of Human Services (DHS) has released details of a data-matching program which will enable it to match income data it collects from social welfare recipients with tax return-related data reported to the ATO. The data matching will assist DHS to identify social welfare recipients who may not have correctly disclosed their income and assets. In addition, data DHS receives from the ATO will be electronically matched with certain departmental records to identify people’s noncompliance with income or other reporting obligations.

DHS expects to match each of the approximately seven million unique records held in its Centrelink database. Based on noncompliance criteria, the DHS anticipates it will examine approximately 20,000 records in the first phase of the project. The category of people who may be affected by the data matching includes welfare recipients who have lodged a tax return with the ATO during the period 2011 to 2014.

Important: Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This information is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

by McPhail & Partners

Tax News, Views and Clues - September 2016

Share economy participants reminded of tax obligations

The ATO has reminded people who earn income in the share economy that they have tax obligations. The type of goods or services you provide, and how much you provide, will determine what you need to do for tax. Popular sharing economy services include:

• providing “ride-sourcing” services for a fare;
• renting out a room or a whole house or unit on a short-time basis;
• renting out a car parking space; and
• providing personal services, such as creative or professional services like graphic design and website creation, or doing odd jobs like deliveries and furniture assembly.

The ATO notes that you need to get an ABN if you are carrying on an enterprise providing goods and services through the sharing economy, and register for GST if:

• your turnover is $75,000 or more per year; or
• you are providing ride-sourcing services, regardless of how much you earn from doing so.

TIP: No matter how much you earn or your reasons for providing goods or services, it’s a good idea to maintain records of your income and expenses, so you can keep track of your activities and deal with tax obligations when they arise.Tax deductions may also be available in certain circumstances. Please contact our office for more information.

Itinerant worker claim denied, so travel deductions refused

An individual has been unsuccessful before the Administrative Appeals Tribunal (AAT), where he argued that he was an itinerant worker and was therefore entitled to claim tax deductions for travel expenses of some $38,000 for the 2011–2012 income year.

The taxpayer worked a number of short-term jobs in various country towns across New South Wales. He and his wife had a house, but they would travel to the work locations, taking their car and a motorhome to live in. The individual argued he was entitled to claim deductions for car expenses and travel expenses such as meals and accommodation.

The AAT found that he was not an itinerant worker and that the expenses were private in nature and therefore not tax deductible. Among other things, the AAT noted
that his duties did not in fact require him to travel between and stay near the different workplace locations in the course of his employment.

ATO flags retirement planning schemes of concern

The ATO has launched the Super Scheme Smart initiative to inform people about retirement planning schemes that are of increasing concern. According to the ATO, people approaching retirement are most at risk of becoming involved in schemes that are “too good to be true”. While retirement planning schemes can vary, you should be aware of some common features of problematic schemes. These schemes generally:

• are artificially contrived and complex, and usually connected with a self managed super fund (an SMSF);
• involve a lot of paper shuffling;
• are designed to leave you paying minimal or no tax, or even receiving a tax refund; and/or
• aim to give you a present -day benefit.

The ATO has previously issued statements about concerning schemes that involve non-arm’s length limited borrowing arrangements, dividend stripping and diverting personal services income.

TIP: The ATO encourages people to report their involvement in such schemes early. In specific circumstances, penalties may be reduced. Please contact our office for more information.

Deductibility for gifts to clients and airport lounge membership fees

The ATO has recently released the following Taxation Determinations:

• TD 2016/14 states that business taxpayers are entitled to a tax deduction for the outgoing incurred for a gift made to a former or current client, if the gift is made for the purpose of producing future assessable income. The gift is not deductible if the outgoing is capital, relates to gaining “non-assessable, non-exempt” income, or is non-deductible under another provision.
• TD 2016/15 states that employer taxpayers are entitled to a tax deduction for annual fees incurred on an airport lounge membership for use by employees, if that membership is provided because of the employment relationship.

Changes to $500,000 lifetime super cap confirmed

The Federal Treasurer has confirmed that there will be some changes to the Government’s proposal for a lifetime cap of $500,000 on non-concessional superannuation contributions. A number of exemptions will be available.

Scott Morrison said in a radio interview that he had previously spoken about the changes and that draft legislation on the measures, to be released soon, will contain a number of changes. He said if someone gets a pay-out “as a result of an accident or something like that, then that is exempted from the $500,000 cap”. He also said that if someone had entered into a contract before Budget night to settle on a property asset out of their SMSF and they use after-tax contributions to settle that contract, “that won’t be included” in the $500,000 cap. Mr Morrison said there also would be “other measures” in the exposure draft legislation.

He effectively ruled out lifting the $500,000 cap amount, saying “the only people that would benefit are people who […] already on average have $2 million in their superannuation scheme, have already put $700,000 in after tax contributions”.

TIP: The ATO can only calculate the amount of your non-concessional contributions available based on the information it has. You may wish to review your own history of contributions. Please contact our office for more information.

Home exempt from land tax for “world-traveller”

An individual has been successful before the Victorian Civil and Administrative Tribunal (VCAT) in seeking the principal place of residence land tax exemption for his home located in Shoreham, Victoria, despite being a “world-traveller” whose wife lives overseas.

In 2003, the taxpayer was left the property in Shoreham in his mother’s will. After moving into the property, he continued his interest of overseas travel, meeting and marrying his now wife, who continues to live in Canada. Broadly, for each of the five tax years in question, the taxpayer spent a couple of months in Australia at the property, with the balance spent mostly in Canada and other overseas destinations. He submitted that he considered the Shoreham property his “home”, where he kept “all his personal treasures”, among other things. He also noted “significant and communal family ties” in Victoria (including his three children and eight grandchildren in Melbourne) and “financial ties” to Australia.

In finding in favour of the taxpayer, VCAT said that in this day and age people are far more mobile than in the past, and it is not unreasonable that someone would have a base at a particular place to which they intend to return and resume occupation. In this regard, the Tribunal was of the view that the land tax exemption applied to the taxpayer’s circumstances.

TIP: Land tax regimes differ from state to state. Please contact our office for assistance or more information.

Important: Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This information is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

by McPhail & Partners