Insurance Payouts: Are They Taxable?

In recent months, parts of Australia have been battered by a combination of fire and floods. As people try to piece their lives together in the aftermath, insurance payouts can go a long way in helping rebuild homes and replace lost items.

However, if you receive an insurance payout in relation to your business, home business or rental property you need to be aware there may be associated tax consequences. For example, if you keep a home office or run a business from home, or make money from renting out your home on a short-stay website, you may be subject to capital gains tax (CGT) when receiving an insurance payout on the home.

Businesses that receive an insurance payment may be subject to varying tax consequences depending on what the payment is designed to replace.

Tip: If you’ve recently received an insurance payment or you’re expecting one, contact us to find out more about how your tax obligations could be affected.


New Measures To Combat Illegal Phoenixing

New laws are now in place to target illegal phoenixing of companies in Australia.

Phoenix activity is when a new company is created – “rising from the ashes” of another company that was in debt and has been deliberately liquidated – to continue the business of the old company while avoiding having to pay its debts. Recent estimates are that illegal phoenix activity directly costs Australian businesses, employees and governments between $2.85 billion and $5.13 billion each year.

To combat this type of debt and tax evasion, the new laws target a range of behaviours, including preventing property transfers to defeat creditors, improving the accountability requirements for resigning company directors, allowing the ATO to collect estimates of anticipated GST liabilities and authorising the ATO to retain tax refunds where lodgements are outstanding.


ATO Tackling International Tax Evasion

Australian tax residents are taxed in Australia on their worldwide income. While most do the right thing and declare all their income, some people and businesses try to avoid paying tax by exploiting secrecy provisions and information-sharing gaps between countries.

A recent coordinated effort by the Joint Chiefs of Global Tax Enforcement (J5) has yielded evidence of tax evasion by Australians. The J5 consists of the tax and revenue agencies of Australia, the United Kingdom, the United States, Canada and the Netherlands and was initially formed in 2018 to fight global tax evasion. The countries share intelligence on international tax crime as well as money laundering.

According to the ATO, several hundred Australians are suspected of participating in arrangements with an international financial institution in Central America whose products and services are believed to be facilitating worldwide money laundering and tax evasion. Multiple investigations are currently under way, and anyone with information about the scheme or other similar arrangements is encouraged to contact the ATO.

The ATO has a network of international tax treaties and information exchange agreements with over 100 jurisdictions. In recent years over 2,500 exchanges of information have occurred, enabling the ATO to identify unpaid tax amounts totalling $1 billion.

TIP: The message from the ATO is that anyone with offshore income or assets is better off declaring their interests voluntarily. Those who do so may be eligible for reductions in related administrative penalties and interest charges.


Super Guarantee Loopholes Closed

The concept of a superannuation guarantee – the legal requirement for your employer to contribute 9.5% of your salary into a nominated super account – should be familiar to everyone, as it makes up the bulk of most people’s future retirement income. You may also salary-sacrifice amounts of your salary to put extra into your super.

Until recently, loopholes in the law meant that your employer could count your salary-sacrificed amounts towards their super guarantee contribution amounts – essentially working against your intention to boost your super. Employers could also calculate their super guarantee obligations based on your post-sacrifice earnings rather than on your full pre-sacrifice earnings.

Depending on your employment agreement, these loopholes meant that if you salary-sacrificed an amount equal to or more than your employer’s super guarantee amount, your employer could choose to not contribute any amount and the legal requirements of the super guarantee would still be met.

TIP: It’s important to note that this wasn’t the original intention of the law, and not all employers would choose to exploit these loopholes. However, where they did, employees who salary-sacrificed could be short-changed and end up with lower super contributions as well as a lower salary overall.

The good news is that the law has now been changed. From 1 January 2020, amounts that you salary-sacrifice to super can’t be used to reduce your employer’s super guarantee obligations, and employers must calculate their super guarantee obligations based on all of your ordinary time earnings (OTE), including any amounts you sacrifice into superannuation that would have otherwise been OTE.


We Are On Social Media!

We are pleased to announce we have entered the world of Social Media!

We are now active on our Linkedin, Instagram and Facebook pages.

We would love to engage with you all across these platforms so please support us as we navigate this new world by connecting, following, liking, sharing, hash tagging and commenting on our posts.


First Home Loan Deposit Scheme (FHLDS)

The Australian Government, via the National Housing Finance and Investment Corporation, has recently implemented a new scheme to assist eligible first home buyers to enter the property market with as little as a 5% deposit.  The First Home Loan Deposit Scheme (FHLDS) was introduced on the 1st January 2020 with the first 10,000 scheme places allocated across the CBA, NAB and 25 other non-major lenders.  A further 10,000 scheme places will be made available from July 2020.

Under the scheme the Government will guarantee the portion of the first home buyer’s loan between the deposit amount (at least 5%) and 20% of the property value thereby exempting the first home buyer from paying Lenders Mortgage Insurance and allowing them to enter the market sooner.

Obviously there are eligibility conditions that must be met to access one of these scheme places and there are also property price thresholds in place (e.g. $600k cap in Metro Melbourne).  Further details about the scheme and eligibility conditions can be found on the dedicated Government website https://www.nhfic.gov.au/what-we-do/fhlds/

We note that one of the documents required to be provided to your lender is your 2018-19 Notice of Assessment from the ATO.  So if you (or perhaps your adult children) are interested in exploring this scheme and you haven’t yet prepared your 2018-19 tax return please get in touch with our team who can help you get this organised.


$10,000 Cash Payment Limit: The Facts

The proposed $10,000 economy-wide cash payment limit has understandably elicited some confusion. While the proposal is not yet law, once enacted it will be a criminal offence for certain entities to make or accept cash payments of $10,000 or more. This is intended to combat the use of cash in black economy activities.

Chief among the questions is to what extent personal transactions will be included in the limit. The government has now released information outlining the circumstances in which the limit would not apply in relation to personal or private transactions.

Among other categories, payments relating to personal or private transactions (excluding transactions involving real property) would not be subject to the limit. Cash gifts to family members (as long as they are not donations to regulated entities such as charities) and inheritances are likely to be exempt. In other words, it is unlikely you will be prosecuted if you give your family members a lavish cash wedding gift or help your kids with a house deposit that happens to be over $10,000.

However, if you occasionally sell private assets (eg a used car) you may need to be careful and take reasonable steps to ascertain whether the other party is acting in the course of an enterprise.


SMSF Sole Purpose Test And Fractional Investments

To be eligible for superannuation fund tax concessions, self managed super funds (SMSFs) must be maintained for the sole purpose of providing retirement benefits to members. This is known as the sole purpose test. Failing the test could expose trustees to civil and criminal penalties in addition to the SMSF losing concessional tax treatment.

Previously, it was thought that any benefit provided directly or indirectly to members or related parties of an SMSF from an investment would contravene the sole purpose test. However, a recent Full Federal Court decision will provide some flexibility to trustees on certain investments. The Court decided that an SMSF investment in a fund to acquire a fraction interest in a property to be leased at market rent to the member’s daughter did not breach the sole purpose test.

While the Full Court found the SMSF had not breached the sole purpose test, it ultimately ruled against the trustee, finding that the investment was an in-house asset and breached the 5% limit. Crucially, the ATO warned it may still apply compliance resources to scrutinise whether an SMSF investment in fractional property investments contravenes other legal requirements.


No-Cost Strategies To Increase Your Super

With all the pandemonium of the new year, your super is probably the last thing on your mind. However, this is precisely the right time to think about implementing some strategies to increase your super for the coming year.

Currently, 5.8 million people in Australia have two or more super accounts. Every year the ATO runs a postcode “lost super” campaign to help raise community awareness. As a consequence of the 2018 campaign, more than 66,000 people consolidated over 105,000 accounts worth over $860 million. For the latest campaign, the ATO has created tables of lost and unclaimed super per state and postcode that anyone can access.

Finding and consolidating your lost super with your active account means you’ll pay fewer management fees and other costs, saving you in the long term.

Another easy way to grow your super is to make sure the super fund that you’re putting your money into is performing well. Recently, the regulator of super funds, the Australian Prudential Regulation Authority (APRA), released “heatmaps” that provide like-for-like comparisons of MySuper products across three key areas: investment performance, fees and costs, and sustainability of member outcomes. While the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it, they can also be an invaluable resource in choosing the right super fund.


Expansion Of Tax Avoidance Taskforce Activity

The ATO has recently expanded its Tax Avoidance Taskforce activity to include top 500 private groups, high wealth private groups, and medium and emerging private groups.

The Tax Avoidance Taskforce was originally conceived in 2016 to ensure that multinational enterprises, large public and private business pay the right amount of tax. The Taskforce’s main role is to investigate what the ATO considers aggressive tax avoidance arrangements, including profit shifting.

As a part of the expansion, the ATO now has three “programs” for private groups under the Taskforce’s umbrella: top 500 private groups, high wealth private groups, and medium and emerging private groups. The expansion that will perhaps affect the most taxpayers will be the program covering medium and emerging private groups. This program includes private groups linked to Australian resident individuals who, together with their associates, control wealth between $5 million and $50 million, and businesses with an annual turnover of more than $10 million that are not public or foreign owned and are not linked to a high wealth private group. The ATO estimates this will cover around 97% of the total private group population.