Tax news, views and clues November 2019

When you’re starting a new business venture, it may take some time before the business becomes profitable. And there may be other situations where an established business operates at a loss in a particular year. So, what does this mean tax-wise? When your deductions in an income year are greater than your assessable income, you have a “tax loss”. You generally can’t receive a refund for a tax loss, but you can use it in other ways.

If you’re a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary and wages from employment and income from personal investments.

But watch out: if the loss is “non-commercial”, you can’t use it immediately to offset your other income. Instead, you must defer it.

“Downsizer” contributions let you contribute some of the proceeds from the sale of your home into superannuation – but there are several important eligibility requirements.

Are you thinking about selling the family home in order to raise funds for retirement? Under the “downsizer” contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a “downsizer” superannuation contribution (which means up to $600,000 for a couple).

These contributions don’t count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds
$1.6 million. You’re also exempt from the “work test” that usually applies to voluntary contributions by members aged 65 and over.

If you don’t hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future.

Levies, surcharges and loadings – the terminology around health insurance and tax can be bewildering! But if you don’t hold private hospital cover, you need to understand how this may affect your tax.

The Medicare levy surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don’t take out a sufficient level of private hospital cover for you and all of your dependants. It’s designed to give you a financial incentive to insure privately. The MLS is applied by the ATO at tax time and included in your assessment.

CGT concessions allow you to reduce – or in some cases, completely eliminate – the capital gain from the sale of a business asset, whether it’s held directly by your business entity or in another related structure.

What’s more, the concessions also allow you to make extra super contributions – sometimes up to $1,515,000 – in connection with the sale of business assets. This is an attractive opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. There are two basic conditions you must meet before you can access any of the concessions. The first requirement tests whether your business is “small” enough to qualify. There are two alternative tests: a turnover test and a net assets test. The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an “active” asset.

The launch of Single Touch Payroll (STP) will dramatically improve the ATO’s ability to monitor employers’ compliance with compulsory super laws moving forward. This electronic reporting standard is now mandatory for all Australian businesses and gives the ATO fast access to income and superannuation information for all employees.

The government is getting tough on unpaid compulsory super guarantee (SG) contributions, but fortunately for businesses, it has recently announced a revised “grace period” to rectify past non-compliance. All businesses should review their super compliance to consider what action they may need to take.

The timing of your disclosure is important. The proposed new amnesty will cover both previous disclosures made since 24 May 2018 (under the old amnesty scheme that the government failed to officially implement) and, importantly, disclosures made up until six months after the proposed legislation passes parliament.

Whether you own just a few listed shares or have an extensive portfolio, understanding how capital gains tax (CGT) applies when you sell your shares can help you plan your trades effectively. If you trade shares on a scale that amounts to a business of share trading, talk to your tax adviser about the different tax regime that applies.

Each time you sell a parcel of shares, you trigger a “CGT event” and you must work out whether you’ve made a capital gain on that parcel (where the proceeds you receive exceed the cost base) or capital loss (where the cost base exceeds the proceeds). You also trigger a CGT event if you give the shares away as a gift – perhaps to a family member. For tax purposes, you’re deemed to have disposed of the shares at their full market value.

All of your capital gains for the income year are tallied and reduced by any capital losses. This includes your gains and losses from all of your assets that year, not just shares. If you have an overall “net capital gain”, this is included in your assessable income and taxed at your marginal tax rate. If you have a “net capital loss”, you can’t offset this against ordinary income like salary or rental income. Instead, a net capital loss can be carried forward to future years to apply against future capital gains.

The ATO has announced that it will scrutinise every tax return lodged during Tax Time 2019 as part of its ongoing focus on "closing tax gaps".

Assistant Commissioner, Karen Foat, said taxpayers who have done the wrong thing may be subject to an audit, even if the over-claim of deductions is minor. Third party data indicating under reported income, and deductions that appear high compared to people with a similar job and income level, tend to raise concerns, Ms Foat said.

If you’re subject to an audit, it’s not always doom and gloom. In some cases, you may get a higher deduction if the ATO discovers that you haven’t claimed something you’re entitled to. For example, you may be entitled to a deduction for depreciation on a laptop or other technology used for work but had incorrectly calculated the claim or omitted it altogether.

In the event of an audit and you’re found to have over-claimed, the ATO may apply penalties depending on your behaviour. If you’re found to have over-claimed based on a genuine mistake, for example, if you’ve claimed the costs which are private and domestic in nature that are sometimes used for work or study (eg sports backpack or headphones), the ATO may choose not to apply penalties.

Since July this year, super funds have been required to cancel insurance on accounts that have not received any contributions for at least 16 months unless the member elects to continue the cover. In addition, inactive super accounts with balances of under $6,000 will either be automatically consolidated by the ATO with other accounts you may hold or transferred to the ATO. If your super is transferred to the ATO, any insurance will also be cancelled.

This applies to life insurance, total and permanent disability (TPD) insurance and income protection (IP) insurance that you may have with your super fund.

Another change coming to super funds in the not too distant future of 1 April 2020 is opt-in insurance for members under 25 years old and those with account balances of less than $6,000. From that date, members under 25 who start to hold a new choice or MySuper product will need to explicitly opt-in to insurance. Currently, the onus is on the member to opt out of insurance if they do not want it.

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.

 

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by McPhail & Partners

Tax news views and clues October, 2019

Small business income tax gap: ATO update

New figures released by the ATO estimate that almost 90% of income tax from small businesses is paid voluntarily or with little intervention from the ATO.

“This shows that the vast majority of small businesses in the tax system are trying to do the right thing”, Deputy Commissioner Deborah Jenkins said. “Considering how much small businesses have on their plate, we’re grateful for the level of work they put in to get their tax right.”

The ATO estimates the 2015–2016 income tax gap for the small business sector to be approximately 12.5%, or $11.1 billion, with over $7 billion attributable to “black economy” behaviour.

TIP:Around 90% of small businesses use a registered tax professional to help them meet their obligations. Get in touch today to see how we can support you.

ATO sets its sights on undisclosed foreign income

Do you have any amounts of offshore income you haven’t declared to the ATO – perhaps interest from a foreign bank account? Even if it seems like a small amount, you must declare it. International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don’t get caught out.

The ATO is keen to emphasise that its techniques for detecting offshore amounts are becoming increasingly effective. Cross-border cooperation between different tax jurisdictions means your financial information is being shared more than ever before.

If you’re an Australian resident for tax purposes, you’re taxed on your worldwide income. This means you must declare all foreign income sources in your return.

If you’re a non-resident, you generally only pay tax on your Australian-sourced income.

TIP:The main test for tax residency is whether you “reside” in Australia. There’s no single factor that determines whether you meet this test.

What if you’ve already paid tax on the income overseas? You still need to declare it to the ATO. However, you may be able to claim an offset for the tax already paid in order to prevent double taxation.

Got any amounts you’ve overlooked? Now is a great time to get help from your tax adviser with making a voluntary disclosure. You’ll often receive a reduction in ATO penalties and interest that would otherwise apply – and the outcome is generally much more favourable if you make a disclosure before the ATO commences an audit of your tax affairs.

ATO announces “Better as Usual” program to improve your experience

ATO Commissioner Chris Jordan has announced the launch of “Better as Usual”, a new ATO program aimed at improving people’s experience with the tax system. The program will include four parts:

• Whole-of-system experience:looking at the end-to-end experience to address people’s frustration at sometimes feeling like they have to start all over again when dealing with a new ATO area or staff member.
• Quality of feedback loops:better understanding and documenting people’s past experiences and actions (eg mistakes versus evasion) to make better ATO decisions in the future.
• Complex cases team:a dedicated team to work on the most complex cases, devoting the time and resources necessary to deal with complicated affairs that fall outside the ATO's normal processes.
• Procedural and cultural safeguards:established to reduce (and ultimately eliminate) any cases where ATO mistakes could have a severe impact on taxpayers.

Salary sacrificing loopholes: are you receiving your full benefits?

Most workers understand that their employer must make compulsory super guarantee (SG) contributions of 9.5% of their salary and wages. However, things can get a little tricky when you choose to salary sacrifice.

Under current laws, employees who sacrifice some of their salary in return for additional super contributions may end up receiving less than they expected because of two legal loopholes. Employers may:

• count the salary sacrifice contributions towards satisfying their obligation to make minimum SG contributions of 9.5%; or
• calculate their 9.5% contributions liability based on the employee’s salary after deducting sacrificed amounts, rather than the pre-sacrifice salary.

Proposed new laws will close the loopholes by requiring employers to pay compulsory SG contributions at 9.5% of the pre-sacrifice amount of salary (that is, the salary actually paid to the employee plus any sacrificed salary). Further, any salary sacrifice contributions will not count towards the compulsory SG contributions. If passed, the new laws will apply to quarters beginning on or after 1 July 2020.

Claiming work trips for business owners

As a business owner, do you sometimes take work trips? When a trip is clearly for business purposes only, the rules for deducting your expenses are fairly straightforward. But what happens when you’ve planned a holiday or to catch up with family or friends while you’re travelling?

Airfares

Assume you travel to London for a two-week trade show and stay a few extra days for sightseeing. If business is the primary purpose of the trip, you can claim the whole cost of the return airfares as a business deduction, because the sightseeing is just incidental. If you have a significantly longer holiday, so the primary purpose of the trip is not just business, you may need to apportion your airfares. And if the primary purpose is clearly private with some incidental work activities, you generally can’t deduct airfares.

Accommodation

Accommodation deductions are limited to the nights that you’re required for the business purpose. In our London example, you couldn’t deduct your accommodation costs for the nights you stayed for sightseeing. This applies even though you could deduct the full airfares.

Record-keeping

Sole traders and partners must keep a diary if they travel for six or more consecutive nights, detailing each business activity, the location, the date and time it began and how long it lasted.

If your business runs through a company or trust structure, it’s not compulsory to keep a diary, but it’s strongly recommended.

TIP:For companies, be careful about your business paying for any private part of your travel, as this could have consequences under the “deemed dividend” rules about benefits for shareholders and their associates.

Thinking about setting up an SMSF?

SMSFs can be a great option for building retirement savings, but they may not be suitable for everyone. Before you jump in, make sure you understand the differences between SMSFs and other types of funds to help you make an informed decision. Here are a few issues to consider.

Management

While public offer funds are managed by professional licensed trustees, for SMSFs the management responsibility lies with the members. Every SMSF member must be a trustee of the fund (or, if the trustee is a company, a director of that company). This is an advantage if you want full control over how your super is invested and managed, but it means the members are responsible for complying with all superannuation laws and regulations – and administrative penalties can apply for non-compliance.

Costs

Fees charged by public offer funds vary, but they are generally charged as a percentage of the member’s account balance. Therefore, the higher your balance, the more fees you’ll pay.

SMSF costs tend to be more fixed. As well as paying establishment costs and an annual supervisory levy, SMSFs must hire an independent auditor annually. Most SMSFs also need professional assistance, such as accounting services, financial advice, administration services and asset valuations. An SMSF can sometimes be more expensive than a public offer fund.

Investment flexibility

A major benefit of SMSFs is that the member-trustees have full control over investment choices. This means you can invest in specific assets, including direct property, that wouldn’t be possible in a public offer fund. SMSFs can also take advantage of gearing strategies by borrowing to buy property or even shares through a special “limited recourse” borrowing arrangement. However, with control comes responsibility. SMSF trustees must create and regularly update an “investment strategy” that specifically addresses things like risk, liquidity and diversification.

TIP:There are other important considerations for SMSFs, including decisions about insurance and arrangements for dealing with any disagreements between trustees. It’s important to ensure you have the whole picture and good advice before getting an SMSF started.

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.

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by McPhail & Partners

Tax news, views and clues, September 2019

The government’s Stay Smart Online website warns there has been a surge in scammers impersonating myGov and the ATO to trick people into giving them money or personal details. These scams can take the form of emails, text messages and fake myGov login pages.

In June 2019, the ATO received 6,444 reports of tax-time scams impersonating the ATO. Emails with links to fake myGov login pages were the most widespread email scam.

The myGov system will never send texts, emails or attachments with links or web addresses that ask for your login or personal details. Never click on links in emails or text messages claiming to be from myGov.

Always log into your official myGov account to lodge your return and check if you owe a debt or are due a refund. You can do this by typing https://my.gov.au/ into your internet browser’s address bar.

Unfortunately, ATO and other scams continue well beyond the 30 October deadline for tax returns, as scammers know many people are waiting for a refund or information about debts. It’s important to watch out for scams throughout the year.

ATO has refunded $10 billion so far

The ATO says that $10 billion has been refunded to Australian taxpayers so far this tax time, an increase of over $2 billion from the same time last year, with most returns processed in under two weeks. The ATO aims
to process returns as soon as possible, and has announced that over four million refunds have already been sent out, compared to over three million refunds issued this time last year.

ATO watching for undisclosed foreign income

The ATO has reminded Australians who receive any foreign income from investments, family members or working overseas to make sure they have reported it this tax time.

New international data-sharing agreements allow the ATO to track money across borders and identify people who aren’t meeting their obligations. Under the new Common Reporting Standard (CRS), the ATO has shared data on financial account information with over 65 tax jurisdictions across the globe. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income.

Unusual claims disallowed

The ATO has published information about some of the most unusual claims it has disallowed. Around 700,000 Australians have claimed almost $2 billion of “other” expenses, including non-allowable items such as child care and even Lego sets.

Assistant Commissioner Karen Foat says a systematic review of claims found and disallowed some very unusual expenses. “A couple of taxpayers claimed dental expenses, believing a nice smile was essential to finding a job, and was therefore deductible. It isn’t!”

From 1 July 2018, employers with more than 20 employees have been required to provide real-time reports to the ATO of salary and wage payments, super guarantee contributions, ordinary time earnings of employees and PAYG withholding amounts.

From 1 July 2019, this Single Touch Payroll (STP) reporting system has extended to all employers.

The ATO is now writing to small employers who haven’t yet started reporting or applied for a deferral, to remind them of their STP obligations.

There will be no penalties for mistakes, or missed or late reports, for the first year, and employers experiencing hardship or who are in areas with intermittent or no internet connection will be able to access exemptions.

In its Mid-Year Economic and Fiscal Outlook in 2016–2017, the government announced it would change the law to let the ATO report business tax debt information to credit reporting bureaus (CRBs) where a business consistently avoids engaging with the ATO to manage a tax debt.

The ATO has said it “recognises the important role businesses play in the Australian economy [but] when an entity avoids paying its tax debts it can have a significant impact on other businesses, employees, contractors and the wider community.” It has released a consultation paper to facilitate consultation between the ATO, businesses and CRBs.

If passed in its current form, the amended law would allow taxation officers to disclose information about business tax debts when certain conditions are met. A business would need to have debts of at least $100,000 overdue by more than 90 days, and have not effectively engaged with the ATO to manage that debt.

Cross-border recovery of tax debts

The ATO has also reissued Practice Statement Law Administration PS LA 2011/13 Cross border recovery of taxation debts. This statement outlines options available for the ATO to recover a tax debt where the debtor is outside Australia, and sets out how the ATO deals with requests from other countries for assistance in recovering tax debts owing to the other country.

Lost super

As at July 2019, the ATO held 5.39 million super accounts worth $3.98 billion. It will aim to reunite $473 million with 485,000 fund members using the new Protecting Your Super measures.

Pension cap indexation

The pension transfer balance cap (TBC) of $1.6 million could increase on 1 July 2020 or 1 July 2021, depending on movement in the consumer price index (CPI). The general TBC is indexed in increments of $100,000 when the indexation rate reaches prescribed figures (calculated using a formula set out in Australian tax law). Once indexation happens, there will no longer be a single TBC that applies to all super members with a retirement phase income stream. Instead, there could be a personal TBC for each member, depending on their individual situation and arrangements.

The ATO has recently seen a significant increase in queries about compassionate release of super(CRS). In most cases, the people concerned were ineligible because they were looking to use their super to pay for general expenses.

CRS is an option only for very specific unpaid expenses such as medical treatment and transport costs, palliative care costs, loan payments to prevent the loss of your home, the costs of home or vehicle modifications related to a severe disability and expenses associated a dependant’s death.

The Federal Court has set aside an Administrative Appeal Tribunal decision that income a business analyst derived through a company was subject to the personal services income (PSI) rules.

According to the Court, simply because an individual or personal services entity is able to provide services through an intermediary, such as a recruitment or similar agency, this does not constitute the making of an offer or invitation for the purposes of the relevant legislation. More than that is required for the purposes of the unrelated clients test.

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.

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by McPhail & Partners

Tax news, views and clues, August 2019

If tax agent clients' employers report through Single Touch Payroll (STP) and the clients are linked to ATO online services through myGov, the ATO will send them a myGov Inbox message to let them know that their end of year payment summary (income statement) has been marked by their employer as "Tax ready" and can be used in their tax return and they can access their income statement in ATO online services through myGov, or the tax agent can give them the information.

If tax agent clients do not already have myGov accounts, agents should let them know they do not need one for the agent to lodge their tax return. Tax agents can access their employment data and lodge for them once their information is "Tax ready".

The ATO has revealed some of the most common mistakes people make at tax time. Top mistakes include lodging before all prefill data is available or failing to report all income and claiming the wrong thing – work-related expenses is one area where people commonly make mistakes. To help taxpayers work out what they can claim, the ATO has developed 30 occupation guides for specific occupations; forgetting to keep receipts; and claiming for something never paid for.

The Government has announced that it will lower the social security deeming rate from 1.75% to 1.0% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate of 3.25% will be cut to 3.0% for balances over these amounts.

The Minister for Families and Social Services, Senator Anne Ruston, said the changes would benefit about 630,000 age pensioners and almost 350,000 people receiving other payments. Under the new rates, age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra a year, and $31 a fortnight for singles, $804 a year.

The reduced deeming rates have been backdated to 1 July 2019. Any additional pension payment will flow through into pensioners' bank accounts from the end of September 2019 in line with the regular indexation of the pension.

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 fully implements the personal tax cuts measures announced in this year's 2019-20 Federal Budget. Starting immediately, low and middle income earners with an income up to $126,000 will receive up to $1,080 in low and middle income tax offset (LMITO), or $2,160 for dual income couples, with the increased tax relief to apply from the 2018-19 income year.

As a result of the amendments, the Treasurer said around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less in 2024-25.

The ATO announced on 5 July 2019 that it is implementing the necessary system changes so taxpayers that have already lodged their 2018-19 tax returns will receive any increase to the low and middle income tax offset (LMITO) they are entitled to. Any tax refund will be deposited in the taxpayers nominated bank account.

The amount of the offset taxpayers may be entitled to, and the amount of any refund, will differ for everyone depending on individual circumstances such as income level and how much tax was paid throughout the year.

The ATO has advised tax agents that it is currently emailing Single Touch Payroll (STP) enabled employers who have either ceased reporting for over 45 days; or have submitted employees under multiple payroll or BMS IDs. Some of these businesses may be tax agent clients. These reporting irregularities may cause their employees to see incorrect, incomplete or multiple entries in their income statements.

The ATO has released an employees guide for work expenses to help employees decide whether their expenses are deductible, and what records they need to keep to substantiate them. The Guide says that not all expenses associated with employment are deductible and also debunks some myths about work expense deductions.

For businesses, taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee's place of work. The ATO says taxi travel can also be an exempt benefit if it is a result of sickness or injury.

For Not-For-Profits, depending on the type of NFP organisation, certain benefits they provide to employees may receive concessional treatment from FBT. However, some benefits may be exempt from FBT altogether.

The ATO said it will acquire overseas movement data from the Department of Home Affairs (DHA) for
 individuals with an existing HELP, VSL or TSL debt. The data matching program will be conducted for the 2019-20, 2020-21 and 2021-22 financial years.

Those living and working overseas with a Higher Education Loan Program (HELP), Vocational Education and Training Student Loan (VSL) and/or Trade Support Loans (TSL) are required to update their contact details and submit an overseas travel notification if they have an intention to, or already reside overseas, for 183 days or more in any 12 months; and lodge their worldwide income or a non-lodgment advice.

The ATO says it has now collected over $250 million in additional GST since the GST on low value goods measure began on 1 July 2018, outstripping forecasts by $180 million.

As businesses do not need to register unless they meet the A$75,000 GST turnover requirements, most small independent operators do not need to register and have not been affected by this measure.

The Assistant Treasurer, Michael Sukkar, has announced that older Australians downsizing from their family homes have contributed $1 billion to their superannuation funds. The downsizer measure, which commenced on 1 July 2018, allows older Australians choosing to sell their home and downsize or move from homes that no longer meet their needs, to contribute the proceeds from the sale of their home into superannuation up to $300,000.

Taxation Determination TD 2019/11, issued on 3 July 2019, sets out the amounts the Commissioner treats as reasonable for the 2019-20 income year in relation to employee claims for overtime meal expenses; domestic travel expenses; and overseas travel expenses.

For employee truck drivers who receive a travel allowance and are required to sleep (take their major rest break) away from home, TD 2019/11 provides separate meal expense amounts for breakfast, lunch and dinner.

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

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by McPhail & Partners

Tax news, views and clues July 2019

Tax planning

With the end of the 2019 income tax year upon us, this issue draws attention to year-end tax planning strategies and compliance matters that you need to consider to ensure good tax health. It focuses on the most important issues for small to medium businesses and individuals to consider.

TIP:This is general information, but we’ll take your particular circumstances into account to help you achieve good tax health. Contact us to find out more.

Deferring derivation of income

If your business recognises income on an accruals basis (when an invoice is raised) and your cash flow allows, you may consider delaying raising some invoices until after 30 June, meaning the assessable income will be derived after the 2019 income tax year.

For business income derived on a cash basis (interest, royalties, rent and dividends), you may consider deferring the receipt of certain payments until after 30 June 2019. For example, setting term deposits to mature after 30 June 2019 rather than before.

Bringing forward tax-deductible expenses

To qualify for deductions in the 2019 income tax year, you may be able to bring forward upcoming expenses so that you incur them before 30 June 2019. Small businesses and individual non-business taxpayers may prepay some expenses (such as insurances and professional subscriptions) up to 12 months ahead. This should only be done subject to available cash flow and where the prepayment makes commercial sense.

Tax relief for individuals and small businesses

Instant asset write-off

The instant asset write-off threshold for small businesses has been increased to $30,000 and extended to 30 June 2020. And from 2 April 2019, the instant asset write-off has also been expanded to include businesses with a turnover from $10 million to less than $50 million.

If you purchase an asset (new or secondhand) costing less than $30,000 and it is used or installed ready for use from 7:30pm on 2 April 2019, you can claim a deduction for the portion your eligible small business uses. Different thresholds and deduction amounts apply for assets purchased before that date.

You can purchase and claim a deduction for multiple business assets as long as each asset is under the relevant threshold. Assets costing $30,000 or more can't be immediately deducted. You can continue to deduct them over time using the small business pool.

Low and middle income tax offset

A new low and middle income tax offset (LMITO) will be available for individuals, providing a benefit of up to $255 if you earn under $37,000 and up to $1,080 for if you earn between $48,000 and $90,000. The offset reduces by 3 cents for every dollar in excess of $90,000. There is no offset for individuals who earn more than $126,000.

Individuals

Deduct work-related expenses

People overclaiming deductions for work-related expenses like vehicles, travel, internet and mobile phones and self-education are on the ATO’s hitlist again this year. There are three main rules when it comes to work-related claims:

• You can only claim a deduction for money you have actually spent (and that your employer hasn’t reimbursed).
• The expense must be directly related to earning your work income.
• You must have a record to prove the expense.

Deductions are not allowed for private expenses (eg travel from home to work that’s not required to transport bulky equipment) or reimbursed expenses (eg for the cost of meals, accommodation and travel). And although you don’t need to include records like receipts with your tax return, the ATO can deny your claim – and penalties may apply – if you can’t produce the evidence when asked.

TIP:The ATO now uses real-time data to compare deductions across similar occupations and income brackets, so it can quickly identify higher-than-expected or unusual claims.

Don’t forget sharing economy income

Money that you earn from “gig” jobs through platforms like Uber, Airtasker and Airbnb, such as transporting passengers or renting out a room or house, counts as your assessable income. This means you must declare it on your tax return.

Depending on your gig activities and expenses, you may also be able to claim deductions related to this type of income, but it’s important to keep evidence to support your claims.

Superannuation contributions and changes

Both employees and self-employed individuals can claim a tax deduction annually (maximum $25,000) for personal superannuation contributions, provided the super fund has physically received the contribution by 30 June 2019 and the individual provides their fund with a “notice of intention to claim” document.

Important to note!

New rules mean that insurance coverage will be cancelled on “inactive” superannuation accounts from 1 July 2019, unless the fund member informs the fund in writing that they want to keep the insurance. Also, where an inactive account has a low balance (under $6,000) the fund will have to send that super to the ATO for consolidation and safekeeping.

If you haven’t made contributions or rolled over your super in the past 16 months, no matter what your balance, it’s important to check in with your fund now to keep your account active and maintain the insurance you want.

TIP:The new law also bans super funds from charging exit fees when you want to leave the fund, which should make it easier to change and consolidate your super accounts when you need to.

Businesses

Lower company tax rate

From 1 July 2016, the income tax rate applicable to qualifying companies has reduced to 27.5%. For the year ending 30 June 2019, this lower tax rate now applies for companies with aggregated turnover of up to $50 million, as long as they satisfy the “passive income test”.

Small business restructure rollover relief

Small businesses (<$10 million turnover threshold) have access to the small business restructure relief, which allows eligible taxpayers to transfer assets between related entities, including companies, trusts and individuals, without any income tax or CGT consequences. While this rollover can be very beneficial to a small business, and can lead to substantial tax savings, the eligibility rules can be complex, so care is needed.

Super guarantee contributions

The rate for super contributions paid by employers on behalf of their employees under the super guarantee for the year ended 30 June 2019 is 9.5%.

If you’re an employer, you must make super guarantee contributions for your employees quarterly, within 28 days after the end of each quarter (September, December, March and June).

TIP:Although the June 2019 quarter super guarantee contribution doesn’t have to be paid until 28 July 2018, it’s worth considering an early payment – you can only claim deductions on this year’s return for contributions that employees’ super funds receive by 30 June 2019.

Single touch payroll

From 1 July 2018, employers with 20 or more employees will have to run their payroll and pay their employees through accounting and payroll software that is Single touch payroll (STP) ready. This is a major reporting change, as employers will report payments such as salaries and wages and allowances, PAYG withholding and super information to the ATO directly from their payroll solution at the same time employees are paid.

From 1 July 2019, this system will extend to all employers.

TIP:STP reporting also means changes for employees, who will see year-to-date tax and super information in myGov. Employers no longer have to give employees payment summaries (group certificates) for information reported through STP, because this information will appear on an employee’s employment income statementin myGov at the end of the financial year.

Beware of ATO impersonation scams at tax time

The ATO warns taxpayers to be alert to malicious scammers who are using increasingly sophisticated methods and technology to impersonate the ATO. A new tactic on the rise is “spoofing”, where scammers mimic a legitimate ATO phone number caller ID to call or send SMS messages, or mimic a legitimate email domain to send emails.

SMSs and emails may ask you to click on a link and provide your personal details to get a “refund” from the ATO. Scammers may also say you need to pay a (fake) tax debt. The ATO warns that these scammers may intend to steal not only your money, but also your identity by using your personal information.

TIP:If you’re not sure whether a communication is really from the ATO, don’t respond, don’t click any links and don’t open any attachments. Call the ATO’s scam hotline on 1800 008 540 to check its legitimacy.

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.

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by McPhail & Partners

Single touch payroll - are you ready?

From 1 July 2018 businesses with 20 or more employees were required to report payments such as salaries and wages, pay as you go (PAYG) withholding and super information to the ATO directly from their payroll solution when they pay their employees. From 1 July 2019, all employers -regardless of your number of employees- will be required to report through Single Touch Payroll (STP).

Through STP, your business is required to submit your employee’s payroll and super information to the ATO directly from your chosen payroll software upon completion of each pay run.

Some key information to note:

• Pay cycles can remain as they are. You can still choose to pay your employees weekly, fortnightly or monthly.
• Employees weekly, fortnightly or monthly.
• The due date for payment of PAYG withholding and super contributions will remain unchanged; however, your business will now have the option to make payments earlier.
• Payments which are reported through STP will be pre-filled into your monthly or QuarterlyBusinesses Activity Statements
• There will be no need to provide your employees with a payment summary at the end of the financial year as current salary, and wage information will be made available to them via their myGov account, or their accountant can access this information via the Tax Agent Portal.

If you’d like to know more about Single Touch Payroll, please contact us, as we can help you prepare and ensure your accounting software is STP compliant.

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by McPhail & Partners

Tax news, views and clues, May 2019

As part of the ATO’s work to ensure the integrity of the Australian Business Register, it investigates the business activities of Australian Business Number (ABN) holders when it seems their ABN is no longer being used – for example, if business income isn’t being reported, or where the Australian Securities and Investments Commission (ASIC) deregisters a company. The ATO may then cancel the ABN where there’s sufficient evidence the business is inactive. An ABN will also be cancelled when the taxpayer themselves advises they’ve stopped their business activities, or when they lodge their final tax return.

The ATO is ramping up its focus on cancelling inactive ABNs over the coming months, saying it’s refined its models to help identify businesses that are no longer active or whose owners have forgotten to cancel their ABN when they ceased business.

If an ABN is cancelled and the holder is still running a business, or an ABN application is refused, the taxpayer can object to the decision within 60 days.

The ATO has issued its annual rulings about rates and thresholds that apply for the new FBT year (1 April 2019 to 31 March 2020), including the benchmark interest rate, the cents-per-kilometre amounts for calculating the value of a fringe benefit from private use of a motor vehicle other than a car, the threshold for the FBT record-keeping exemption, state-by-state amounts for valuing housing benefits, and the the weekly amounts the ATO considers reasonable for food and drink expenses incurred by employees who receiving a living-away-from-home allowance.

The ATO will focus on monitoring a range of FBT issues this year, including looking for employers who fail to report motor vehicle fringe benefits or incorrectly apply exemptions for vehicles; identifying mismatches between amounts on FBT returns and the income amounts on the employer’s tax return; looking for incorrect classifications of entertainment expenses; monitoring issues around car parking fringe benefits; and following up with taxpayers who don’t lodge FBT returns on time.

With reduced company tax rates available for some businesses in recent years, and changes in eligibility for capital gains tax (CGT) small business concessions, it’s become increasingly important for us to understand how the law and the ATO deal with concepts like “small business entity” and “carrying on a business”.

New guidance is now available on the types of factors the ATO considers when deciding whether a company “carries on a business in a general sense”, and how the scope and nature of the business come into play when the ATO determines the tax consequences of a company’s activities and transactions.

The guidance emphasises that it’s not possible to definitively state whether a company is carrying on a business, but it’s a question of fact that the ATO must decide on a case-by-case basis by looking at a range of indicators across the company’s features and activities. One key indicator is whether the company’s activities have the purpose of making a profit. The ATO accepts that where a profit-making purpose exists, it’s likely the other indicators will support a conclusion that the company carries on a business.

The ATO has recovered around $100 million in unpaid superannuation from employers since the 12-month super guarantee amnesty was proposed on 24 May 2018, even though the law hasn’t yet changed to put the amnesty in place.

At a Senate Economics Legislation Committee hearing in April, ATO Deputy Commissioner, Superannuation Mr James O’Halloran estimated that there has been a 10–15% increase in the number of employers coming forward to self-report unpaid super guarantee amounts in response to the announcement of the amnesty, despite it not yet being law. Mr O’Halloran said 19,000 employers have come forward within the normal super guarantee charge process for reporting unpaid contributions.

The Bill to implement the amnesty lapsed on 11 April when the Federal Election was called, so the ATO must keep applying the existing law. This means employers who make a voluntary disclosure of historical non-compliance won’t be entitled to the proposed concessional treatment, unless and until the amnesty is legislated by a future Parliament. The ATO has said if this eventually happens, it will apply the new law retrospectively to voluntary disclosures made up until 23 May 2019.

Changes to the instant asset write-off rules have now become law, including measures recently announced in the government’s Federal Budget.

The write-off has been extended to medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million), where it previously only applied to small business entities (with aggregated annual turnover of less than $10 million).

The second important change is that the instant asset write-off threshold increases to $30,000, where it was previously $25,000.

The changes apply from 2 April 2019 to 30 June 2020, and the write-off works on a per-asset basis, so eligible businesses can instantly write off multiple assets.

The ATO has warned that it will increase its scrutiny of rental-related deductions this year. It says some people are still claiming travel to residential rental properties, but from 1 July 2017 taxpayers (aside from excluded entities) have no longer been permitted to claim tax deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

The ATO expects to more than double the number of its in-depth audits this year to 4,500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing.

The ATO has heard from community and tax professionals that people should have a chance to correct their mistakes when they get their tax wrong, provided there isn’t dishonest intent behind their errors, and is taking a new approach that seems to be having positive effects.

Under this new approach, if the ATO finds an error on a tax return or an activity statement during an audit or review, the taxpayer may be eligible for automatic penalty relief. This means the ATO will show the taxpayer where they made the error, won’t apply a penalty and will educate the taxpayer on getting it right in future.

In the first six months of the initiative, the ATO has assisted thousands of people and small businesses and individuals with errors on their tax returns or activity statements, and shortfall penalties for “failure to take reasonable care” and “not having a reasonably arguable position” have been reduced by 89.2% for individuals and 83.8% for small businesses.

The ATO uses sophisticated data matching and analytic models, drawing on tax returns and referrals from other government agencies or the community, to identify wealthy and high wealth individuals and link them to associated businesses.Given the importance of this group to community confidence in the tax and super systems, the ATO says it has an ongoing focus on engaging with such taxpayers, letting them know what information the ATO holds about them, and offering assistance and services to help “get things right up front”. This early engagement is part of the ATO’s commitment to improving the client experience, increasing transparency and reducing red tape.

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.

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by McPhail & Partners

Federal budget April 2019

PERSONAL TAXATION

Personal tax cuts: low–mid tax offset increase now; more rate changes from 2022

In the 2019–2020 Federal Budget, the Coalition Government announced its intention to provide further reductions in tax through the non-refundable low and middle income tax offset (LMITO).

Under the changes, the maximum reduction in an eligible individual’s tax from the LMITO will increase from $530 to $1,080 per year. The base amount will increase from $200 to $255 per year for 2018–2019, 2019–2020, 2020–2021 and 2021–2022 income years. In summary:

• The LMITO will now provide a tax reduction of up to $255 for taxpayers with a taxable income of $37,000 or less.
• Between taxable incomes of $37,000 and $48,000, the value of the offset will increase by 7.5 cents per dollar to the maximum offset of $1,080.
• Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.
• From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

Individuals will receive the LMITO on assessment after lodging their tax returns for 2018–2019, 2019–2020, 2020–2021 and 2021–2022. This is designed to ensure that taxpayers receive a benefit when lodging returns from 1 July 2019.

Rate and threshold changes from 2022 and beyond

From 1 July 2022, the Government proposes to increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000.

Also from 1 July 2022, the Government proposes to increase the low income tax offset (LITO) from $645 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated). LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Together, the increased top threshold of the 19% personal income tax bracket and the changes to LITO would lock in the tax reduction provided by LMITO, when LMITO is removed.

From 2024–2025, the Government intends to reduce the 32.5% marginal tax rate to 30%. This will more closely align the middle personal income tax bracket with corporate tax rates. In 2024–2025 an entire tax bracket – the 37% tax bracket – will be abolished under the Government’s already-legislated plan. With these changes, by 2024–2025 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Therefore, under the changes announced in the Budget, from 2024–2025 there would only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

The Government says these changes will maintain a progressive tax system. It is projected that in 2024–2025 around 60% of all personal income tax will be paid by the highest earning 20% of taxpayers – which is broadly similar to that cohort’s share if 2017–2018 rates and thresholds were left unchanged. The share of personal income tax paid also remains similar for the top 1%, 5% and 10% of taxpayers.

Under its Budget announcements, the Government says an individual with taxable income of $200,000 may be earning 4.4 times more income than an individual with taxable income of $45,000, but in 2024–2025 the higher-income person will pay around 10 times more tax.

Medicare levy low-income thresholds for 2018–2019

For the 2018–2019 income year, the Medicare levy low-income threshold for singles will be increased to $22,398 (up from $21,980 for 2017–2018). For couples with no children, the family income threshold will be increased to $37,794 (up from $37,089 for 2017–2018). The additional amount of threshold for each dependent child or student will be increased to $3,471 (up from $3,406).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $35,418 (up from $34,758 for 2017–2018). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385), plus $3,471 for each dependent child or student.

The increased thresholds will apply to the 2018–2019 and later income years. Note that legislation is required to amend the thresholds, so a Bill will be introduced shortly.

Social security income automatic reporting via Single Touch Payroll

The Government intends to automate the reporting of individuals’ employment income for social security purposes through Single Touch Payroll (STP).

From 1 July 2020, income support recipients who are employed will report income they receive during the fortnight, rather than calculating and reporting their earnings. Each fortnight, income data received through an expansion of STP data-sharing arrangements will also be shared with the Department of Human Services, for recipients with employers utilising STP.

This measure will assist income support recipients by greatly reducing the likelihood of them receiving an overpayment of income support payments (and subsequently being required to repay it).

The measure is expected to save $2.1 billion over five years from 2018–2019. The Government says the efficiencies from this measure will be derived through more accurate reporting of incomes. This measure will not change income support eligibility criteria or maximum payment rates. The resulting efficiencies will be redirected by the Government to repair the Budget and fund policy priorities.

STP expansion

The Government will provide $82.4 million over four years from 2019–2020 to the ATO and the Department of Veterans’ Affairs to support the expansion of the data collected through STP by the ATO and the use of this data by Commonwealth agencies.

STP data will be expanded to include more information about gross pay amounts and other details. These changes will reduce the compliance burden for employers and individuals reporting information to multiple Government agencies.

BUSINESS TAXATION

Instant asset write-off extended to more taxpayers; threshold increased

The Budget contains important changes to the instant asset write-off rules. These changes are in addition to the measures contained in a Bill currently before Parliament.

There are two key changes.

First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.

The second important change is that the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.

The threshold increase will apply from 2 April 2019 to 30 June 2020.

Small businesses

Small business entities (ie those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current “lock out” laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium sized businesses

Medium sized businesses (ie those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

The asset purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Arrangements before 2 April 2019

The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019was introduced in Parliament on 13 February 2019. It proposes to amend the tax law to increase the threshold below which amounts can be immediately deducted under these rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules (instant asset write-off). The Bill is still before the House of Representatives.

The changes in the Bill interact with the Budget changes. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 and first used or installed ready for use over the period from 29 January 2019 until 2 April 2019. The changes outlined above will take affect from then (with access extended to medium sized businesses).

Date of effect

The changes announced in the Budget will apply from 2 April 2019 to 30 June 2020.

Accordingly, the threshold is due to revert to $1,000 on 1 July 2020. Although it is not spelt out in the Budget papers, a Treasury official confirmed to Thomson Reuters on Budget night that from that time the concession will only be available to small business entities (ie the instant asset write-off will not be available to medium sized businesses).

REGULATION, COMPLIANCE AND INTEGRITY

Tax integrity focus on larger businesses’ unpaid tax and super

The Government will provide ATO funding of $42.1 million over four years to to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. However, the measure will not extend to small businesses.

Tax Avoidance Taskforce on Large Corporates: more funding

The Government will also provide the ATO with $1 billion in funding over four years from 2019–2020 to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.

The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure is intended to allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

The Government has also provided $24.2 million to Treasury in 2018–2019 to conduct a communications campaign focused on improving the integrity of the Australian tax system.

Black Economy Taskforce: strengthening the ABN rules

The Government intends to strengthen the Australian Business Number (ABN) system by imposing new compliance obligations for ABN holders to retain their ABN.

Currently, ABN holders can retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.

From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually.

These new requirements will make ABN holders more accountable for meeting their government obligations, while minimising the regulatory impact on businesses complying with the law.

This measure stems from the 2018–2019 Budget measure Black Economy Taskforce: consultation on new regulatory framework for ABNs.

Funding for Government response to Banking Royal Commission

The Government will provide $606.7 million over five years from 2018–2019 to facilitate its response to the Hayne Banking Royal Commission.

On 4 February 2019, the Government proposed measures to take action on all 76 of the Royal Commission’s final report recommendations, including:

• designing and implementing an industry-funded compensation scheme of last resort for consumers and small business ($2.6 million over two years from 2019–2020);
• providing the Australian Financial Complaints Authority (AFCA) with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018–2019);
• paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations ($30.7 million in 2019–2020);
• resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles in accordance with the recommendations of the Royal Commission ($404.8 million over four years from 2019–2020);
• resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration ($145 million over four years from 2019–2020);
• establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives ($7.7 million over three years from 2020–2021);
• undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission ($1 million in 2018–2019);
• establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and coordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee ($11.2 million in 2019–2020); and
• providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government’s response ($0.9 million in 2019–2020).

The Government said these costs will be partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies.

ATO analytics: increased funding

The Government will also provide funding designed to increase the ATO’s analytical capabilities.

First, the Government will provide $70 million over two years from 2018–2019 to undertake preparatory work required for the ATO to migrate from its existing data centre provider to an “alternative data centre facility”. The funding will also be used to prepare a second-pass business case that will identify the full cost of activities required to complete the data centre migration project.

The Government will also provide $6.9 million over four years from 2019–2020 to support additional analytical capabilities within the Treasury and other agencies.

SUPERANNUATION

Super contributions work test exemption extended; spouse contributions age limit increased

The Budget confirmed the Treasurer’s announcement on 1 April 2019 that individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test. The age limit for making spouse contributions will also be increased from 69 to 74.

Super contributions work test

Currently, individuals aged 65–74 must work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the “work test”) in order to make voluntary personal contributions.

The proposed extension of the work test exemption means that individuals aged 65 or 66 who don’t meet the work test – because they may only work one day a week or volunteer – will be able to make voluntary contributions to superannuation, giving them greater flexibility as they near retirement. Around 55,000 people aged 65 and 66 are expected to benefit from this reform in 2020–2021.

The Treasurer said the proposed change will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.

The tax law will also be amended to extend access to the bring-forward arrangements for non-concessional contributions to those aged 65 and 66. The bring-forward rules currently allows individuals aged less than 65 years to make three years’ worth of non-concessional contributions (which are generally capped at $100,000 a year) in a single year. This will be extended to those aged 65 and 66. Otherwise, the existing annual caps for concessional contributions and non-concessional contributions ($25,000 and $100,000 respectively) will continue to apply.

Spouse contributions age limit increase

The age limit for making spouse contributions will be increased from 69 to 74. Currently, those aged 70 and over cannot receive contributions made by another person on their behalf.

The proposed increased age limit for spouse contributions may enable more taxpayers to obtain a tax offset for spouse contributions from 1 July 2020. A tax offset is currently available up to $540 for a resident taxpayer in respect of eligible contributions made on behalf of their spouse. The spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions must be less than $37,000 in total to obtain the maximum tax offset of $540, and less than $40,000 to obtain a partial tax offset. Of course, if the spouse in respect of whom the contribution is made is aged 67–74 from 1 July 2020, the spouse may still need to satisfy the requisite work test in order for the super fund to accept the contribution.

Exempt current pension income calculation to be simplified for super funds

Superannuation fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating exempt current pension income (ECPI).

The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

Background

There are two methods to work out the ECPI for a complying superannuation fund:

• segregated method – the segregation of specific assets (segregated current pension assets) which are set aside to meet current pension liabilities; or
• proportionate method – a proportion of assessable income attributable to current pension liabilities is exempt.

Since 1 July 2017, SMSFs and small APRA funds (SAFs) are prevented from using the segregated method to determine their ECPI if there are any fund members in retirement phase with a total superannuation balance that exceeds $1.6 million on 30 June of the previous income year. Such SMSFs and SAFs with “disregarded small fund assets” are instead required to use the proportionate method. This is currently the case even if the fund’s only member interests are retirement phase superannuation income streams whereby an actuarial certificate will provide a 100% tax exemption for the income in any event.

Where a SMSF is 100% in pension phase for all or part of an income year, the ATO considers that all of the fund’s assets are “segregated current pension assets” and the fund cannot choose to use the alternative proportionate method. The ATO has previously acknowledged that this legal view is at odds with an industry practice whereby some SMSFs have used the proportionate method even if the fund was solely in pension phase. The ATO therefore granted an administrative concession whereby SMSF trustees did not face compliance action for 2016–2017 and prior years for ECPI calculations based on an industry practice. However, for 2017–2018 and later years, the ATO has expected funds that are 100% in pension phase to only use the segregated method.

Super insurance opt-in rule for low balances: delayed start date confirmed

The Government has confirmed that it will delay the start date to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

That delayed start day of 1 October 2019 was previously announced as part of the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, which was introduced in the House of Reps on 20 February 2019. That Bill (currently before Parliament) proposes to amend the super law to
prevent insurance within superannuation from being provided on an opt-out basis for account balances less than $6,000 and members under 25 years old (who begin to hold a new product on or after 1 October 2019).

Members will still be able to obtain insurance cover within their superannuation by electing to do so (ie opting in). The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover.

The Putting Members’ Interests First Bill essentially re-introduced the Government’s policy proposal that was previously contained in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. That Bill received Royal Assent on 12 March 2019, after being passed with Greens’ amendments that removed aspects of the insurance opt-in rule for account balances less than $6,000 and members under 25. The Government agreed to those amendments in the Senate to ensure the prompt passage of the other measures in that Bill. As enacted, that Bill requires a trustee to stop providing insurance on an opt-out basis from 1 July 2019 to a member who has had a product that has been inactive for 16 months or more, unless the member has directed the trustee to continue providing insurance.

 

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by McPhail & Partners

Tax news, views and clues March 2019

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by McPhail & Partners

Tax news, views and clues February 2019

To help reduce the regulatory burden on businesses, including the tax burden, the government has allocated $1 million to set up 10 tax clinics across Australia under a trial program based on the Curtin University Tax Clinic.

Each clinic will receive up to $100,000 for 12 months to support unrepresented individual or small business taxpayers by providing general taxation advice and helping them with their tax obligations and reporting requirements. The clinics, through identifying issues and building greater understanding of the tax system in operation, are also designed to improve the interactions that small businesses and individual taxpayers have with the ATO.

The clinics will cover advice, representation, education and advocacy, and will offer students training in the profession the opportunity to work with taxpayers, under the direct supervision of qualified tax professionals.

The Federal Government has created a new opportunity for some recent retirees to make additional superannuation contributions. From 1 July 2019, a 12-month exemption from the “work test” for newly retired individuals aged between 65 and 74 years with a total superannuation balance below $300,000 means many older Australians will now have an extra year to boost their superannuation savings.

The work test requires that a person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made.

The contributions rules are complex, but with the right planning and advice you can maximise your contributions into superannuation at the right time.

The ATO has begun issuing determinations to people who exceeded their concessional superannuation contributions cap for the 2017–2018 financial year. These determinations will also trigger amended income tax assessments and additional tax liabilities. Individuals can elect for the ATO to withdraw their excess contributions from their super fund to pay any additional personal tax liability.

You have 60 days from receiving an ECC determination to elect to release up to 85% of your excess concessional contributions from your super fund to pay your amended tax bill. Otherwise, you will need to fund the payment using non-superannuation money.

The Federal Government has asked the Board of Taxation to undertake a review of the tax treatment of “granny flat” arrangements, recommending potential changes that take into account the interactions between tax laws and the social security rules. This request for review is in response to the 2017 Australian Law Reform Commission’s report Elder abuse: a national legal response.

Currently, homeowners may have to pay capital gains tax (CGT) where there is a formal agreement, for example, for an older parent to live with their child, either in the same dwelling or a separate granny flat. This may deter families from establishing a formal and legally enforceable agreement, leaving no protection of the rights of the older person if there is a breakdown in the informal agreement.

The Federal Government intends to make it easier, cheaper and quicker for small businesses to resolve tax disputes with the ATO. It will establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal (AAT) process to small businesses before they make an application. The government will also create a dedicated Small Business Taxation Division within the AAT.

The ATO has provided new tips for avoiding common errors when reporting net small business income and claiming the small business income tax offset for unincorporated small businesses. These include tips on reporting amounts in the right sections of your tax return, providing all of the relevant information, and using net income (not gross income) in your calculations.

The offset (up to $1,000) is worked out by the ATO on the proportion of income tax payable on an individual’s taxable income that is net small business income. For 2018–2019 and 2019–2020 the rate of offset is 8%.

The ATO has released an updated version of Practice Statement PS LA 2001/6, its guidance on calculating and substantiating home office running expenses and electronic device expenses that are claimed as tax deductions.

The basic principles have been amended to emphasise that you must actually incur the expenses you claim, and that there must be a real connection between your use of a home office or device and your income-producing work. On the other hand, the requirement that your income-producing use must be substantial – not merely incidental – has been removed.

There is new information on what type of evidence you need to be keep, and the cents per hour rate you can claim for eligible home office running expenses has increased from from 45 cents to 52 cents per hour, effective from 1 July 2018.

The Federal Government has announced that it will amend the law to extend the concessional tax treatment for genuine redundancy payments and early retirement scheme payments to align with the Age Pension qualifying age.

Currently, an individual must be aged below 65 at the time their employment is terminated to qualify for a tax-free component on a genuine redundancy payment or an early retirement scheme payment.

Where an individual is under age 65 and meets the requirements of the Income Tax Assessment Act 1997, they receive tax-free a base amount of $10,399 (for 2018–2019), plus $5,200 for each whole year of service.

The government says it will amend the law to align genuine redundancy and early retirement scheme payments with the Age Pension qualifying age from 1 July 2019.

The ATO says it is reviewing arrangements involving property developers acquiring land from government entities, specifically where the developer provides development works to the government entity as payment for the land.

The ATO is concerned that some developers and government entities are not reporting the value of their supplies under these arrangements in a consistent manner, resulting in GST being underpaid.

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.

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by McPhail & Partners