Business News 2017

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

These include:

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

Key dates for Tax Time

The ATO started full processing of 2016-17 tax returns on 7 July 2017 and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt. 

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

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

i) Tax Concessions

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

Find out about:

 

a)  Expanded access to small business concessions

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

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

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

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

b) Increased small business income tax offset

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

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

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

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

  1. Company tax rate cut for small businesses

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

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

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

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

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

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

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

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

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

  1. Instant asset write-off extension

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

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

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

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

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

 

To do!
If you are not clear about how the recent changes for small businesses apply to you or your business, you should speak with your tax agent or adviser.
The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO’s tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

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

 

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

i) Simpler BAS

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

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

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

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

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

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

In summary, the reforms:

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

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

Treasurer’s press release on GST low value goods

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

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

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

  • Buy services or digital products from overseas?

 From 1 July 2017, GST will apply to imported services and digital products.

Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST.

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

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

iii) GST – Simplified Accounting Methods determination for food retailers

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

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

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

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

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

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

v) GST – removing the double taxation of digital currency

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

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

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

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

 

Note!
There are a number of changes to GST which may have an impact on your business. You should sit down with your tax agent or adviser to discuss if any of these changes affect you or your business.
From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

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

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

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

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

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

i) Key super rates and thresholds

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

For the 2017-18 income year, the:

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

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

ii) SuperStream roadmap

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

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

More information can be found on the ATO website.

i) Withholding on salary and wages

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

From 1 July 2017, the:

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

ii) TFN withholding for closely held trusts

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

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

iii) Withholding in business transactions

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

iv) Withholding from unused leave payments on termination of employment

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

v) Withholding from dividends paid to foreign residents

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

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

 

 

 

 

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

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

For more information, see the ATO website.

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

 

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

i) Certainty for stakeholders who rely on ATO systems

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

ii) Affected by recent company payroll issues?

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

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

September 6th, 2017|

End of Financial Year 2016

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

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

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

To do!

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

Increase to the small business entity turnover threshold

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

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

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

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

Unincorporated small businesses

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

The rate will increase as follows:

Income Year Rate

2015-16 5%
2016-17 8%
2017-18 8%
2018-19 8%
2019-20 8%
2020-21 8%
2021-22 8%
2022-23 8%
2023-24 8%
2024-25 10%
2025-26 13%
2026-27 16%
Changes to the rules applying to private companies

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

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

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

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

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

Income Year Rate Annual aggregated turnover threshold

2015-16 28.5% $2 million
2016-17 27.5% $10 million
2017-18 27.5% $25 million
2018-19 27.5% $50 million
2019-20 27.5% $100 million
2020-21 27.5% $250 million
2021-22 27.5% $500 million
2022-23 27.5% $1 billion
2023-24 27.5% No limit
2024-25 27% No limit
2025-26 26% No limit
2026-27 25% No limit

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

Changes in the Federal Budget

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

i) Expanding tax incentives for early stage investors

As part of the Federal Budget announcement:

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

ii) Expanding the new arrangements for venture capital limited partnerships

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

New legislation

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

i) Intangible asset depreciation

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

ii) Increasing access to company losses

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

Note!

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

GST on low value imports

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

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

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

GST treatment of digital currencies

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

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

Measures impacting other indirect taxes

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

Note!

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

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

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

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

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

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

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

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

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

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

Entities eligible for the rollover are:

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

The rollover can be accessed when:

  • it is part of a ‘genuine restructure’; and
  • there is no change to the ultimate economic ownership of the asset.

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

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

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

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

  • small business restructure rollover;
  • marriage or relationship breakdown;
  • loss, destruction or compulsory acquisition;
  • mining lease;
  • scrip for scrip;
  • demergers;
  • other replacement-asset rollovers;
  • other same-asset rollovers.

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

Car expenses – cents per kilometre

The Government has made changes to the cents per kilometre method. From 1 July 2015, separate rates based on the size of the engine are no longer available. Taxpayers should now use a single rate of 66 cents per kilometre for all motor vehicles for the 2015-16 income year. The Commissioner of Taxation will determine the rate for future income years.

i) Rate for fringe benefits calculations

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

These fringe benefits relate to:

  • relocation transport;
  • employment interviews or selection tests;
  • work-related medical services; and
  • transport to enable an employee employed in a remote area or employed overseas to have a holiday.

ii) Special arrangement for 2016

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

iii) After 2016

For future FBT years, which end on 31 March, employers should use the rate determined by the Commissioner for the income year that ends on the following 30 June. For example, for the FBT year ending 31 March 2017, employers should use the basic car rate determined by the Commissioner for the 2016-17 income year.

For more information on how to work out how much you can claim, visit the ATO website.

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

Rates and thresholds for 2016-17 FBT year

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

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

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

FBT exemption for work-related electronic devices

As noted in previous editions of TaxWise Business, small businesses can now provide their employees with multiple work-related devices without incurring FBT on providing those devices. This applies even if the devices have similar functions. Devices can include laptops, tablets, mobile phones, calculators and GPS navigators.
As 1 April has now ticked over, it is worth reiterating the following:

  • Items purchased prior to 1 April 2016, but supplied to the employee after this date are also eligible for the exemption.
  • Multiple devices bought and given to the employee before 1 April 2016 are not eligible. In these cases, the exemption only applies to one item for that FBT year.
SuperStream standardises how employers make super contributions on behalf of their employees. It involves employers sending all super payments and employee information electronically in a standard format.

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

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

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

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

The ATO has also answered a number of ‘frequently asked questions’ employers may have about SuperStream. The FAQs can be found on the ATO’s website.

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

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

  • the difference between employees and contractors;
  • common myths about contracting;
  • how to make the right decision about the status of workers;
  • what the tax and super consequences are for each.

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

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

The ATO is running an education campaign for employers in the bakery, supermarket, car retailing, and computer system design industries to help them meet their tax and super obligations in relation to employees and contractors. Businesses in these industries have been identified as having a higher risk of not meeting their business obligations in relation to employees and contractors.

Information on superannuation (how much to pay and who to pay it to), PAYG and FBT for small businesses can be found on the ATO website. However, you should talk to your tax agent or adviser to work out exactly what your obligations are in relation to employees and contractors you have on staff and what implications there may be for your business if you don’t meet your obligations.

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

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

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

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

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

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

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

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

‘Annual tax obligations for employers’ webinars

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

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 7th, 2016|

The 2016-17 Federal Budget

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

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

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

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

Medicare levy and Medicare levy surcharge

With effect from the 2015-16 year, the low-income thresholds for both the Medicare levy and the Medicare levy surcharge will increase per the table below:

Medicare levy income thresholds

2015-16    2014-15

Singles    $21,335    $20,896

Couples (no children)    $36,001    $35,261

Single seniors and pensioners    $33,738    $33,044

Senior and pensioner couples with no children    $46,966    $46,000

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

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

Medicare levy surcharge

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

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

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

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

Income tax relief for Australian Defence Force personnel deployed overseas

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

Increase to the small business entity turnover threshold

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

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

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

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

Unincorporated small businesses

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

The rate will increase as follows:

Income Year    Rate
2015-16    5%
2016-17    8%
2017-18    8%
2018-19    8%
2019-20    8%
2020-21    8%
2021-22    8%
2022-23    8%
2023-24    8%
2024-25    10%
2025-26    13%
2026-27    16%

Reduction in the company tax rate

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

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

Income Year    Rate    Annual aggregated turnover threshold
2015-16    28.5%    $2 million
2016-17    27.5%    $10 million
2017-18    27.5%    $25 million
2018-19    27.5%    $50 million
2019-20    27.5%    $100 million
2020-21    27.5%    $250 million
2021-22    27.5%    $500 million
2022-23    27.5%    $1 billion
2023-24    27.5%    No limit
2024-25    27%    No limit
2025-26    26%    No limit
2026-27    25%    No limit

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

Changes to the rules applying to private companies

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

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

National Innovation and Science Agenda measures

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

i)    Expanding tax incentives for early stage investors

As part of the Budget announcement:

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

ii)    Expanding the new arrangements for venture capital limited partnerships

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

Division 293 tax income threshold reduced

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

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

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

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

Transition to retirement

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

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

Lifetime non-concessional contributions cap

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

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

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

Removal of restrictions from making contributions to superannuation for people aged between 65 and 74.

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

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

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

Flexibility in super – individuals able to make personal superannuation contributions

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

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

Allowing ‘catch-up’ concessional contributions

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

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

Changes to superannuation for low income earners

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

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

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

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

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

Transfer balance cap

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

Anti-detriment rule

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

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

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

GST on low value imports

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

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

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

GST treatment of digital currencies

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

Measures impacting other indirect taxes

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

New ATO Tax Avoidance TaskForce

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

Tax whistleblowers

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

Tax Transparency Code

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

Public sector efficiency review

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

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

Measures included in the Ten Year Enterprise Tax Plan

Collective investment vehicles

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

Tax consolidation measures

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

Taxing financial arrangements

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

Diverted profits tax for multinationals

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

Where the tax paid on the profit that was diverted overseas is less than 80% of the tax that would have been paid in Australia, it is reasonable to conclude the arrangement involving related parties is designed to reduce tax in Australia and the arrangement does not have enough economic substance, the diverted profits tax will apply.

Multinational corporations that will be subject to the tax are ‘significant global entities’ with global annual revenue (including related parties) of $1 billion or more. Multinational corporations whose Australian annual turnover is less than $25 million will be exempt from the tax unless they have artificially booked income offshore.

Other measures affecting multinationals in the Tax Integrity Package

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

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

May 12th, 2016|

Business Bulletin – November

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

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

A previous edition of TaxWise Business detailed these measures. In summary:

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

To do!

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

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

  • Tax discount for small unincorporated businesses – Treasury estimates that the measure will increase regulatory costs on small businesses by $15.6 million a year due to system changes for taxpayers and their tax agents.
  • Small business company tax cut – Treasury estimates that the measure will increase regulatory costs on small businesses by $3.2 million a year due to system changes for taxpayers and their tax agents.
  • Expanding accelerated depreciation for small businesses – Treasury estimates that the measure will reduce regulatory costs on small businesses by $6.1 million a year for the two years the measure is in place by reducing record keeping costs.
  • Accelerated depreciation for primary producers – Treasury estimates that the measure will reduce regulatory costs for primary producers by $1.4 million per year by reducing record keeping requirements.
On 15 October 2015 the Assistant Treasurer introduced into the House of Representatives the Tax and Superannuation Laws Amendment (2015 Measures No 5) Bill 2015. The Bill will make amendments in the following areas:

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

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

a) Work-related car expenses

The Bill will change the methods for calculating work-related car expense deductions. Currently, there are four methods taxpayers can use to calculate work-related car expenses (12% of original value method, one-third of actual expenses method, cents per kilometre and logbook method).
The ‘12% of original value’ method and the ‘one-third of actual expenses’ method will be removed from the law leaving the ‘cents per kilometre’ and ‘logbook’ methods as the only two methods available.

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

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

b) FBT concessions on salary packaged entertainment benefits

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

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

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

c)    Third party reporting

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

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

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

The Bill contains measures dealing with:

  • reporting obligations;
  • timing of reports;
  • reporting exemptions; and
  • transactions that entities must report.

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

Note!

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

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

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

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

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

To do!

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

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

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

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

Note!

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

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

The determination sets out the Commissioner’s position on a retiring partner’s individual interest in net income for the partnership for an income year.
Subject to paragraph 3 of the Determination, the partner’s individual interest in the net income of the partnership is included in the partner’s assessable income under section 92 for the income year regardless of:

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

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

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

To do!

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

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

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

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

The ATO and AusIndustry are also concerned that other entities in the farming industry may be inappropriately claiming the R&D tax incentive under similar circumstances.
Innovation Australia has reviewed certain registered activities and found that they do not meet eligibility requirements under the law. These matters are being tested in the Administrative Appeals

Tribunal.

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

Note!

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

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

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

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

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

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

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

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

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

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

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

SuperStream – industry segment information

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

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

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

To do!

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

November 12th, 2015|

The end of the financial year is near!

A range of measures for small businesses were included in the 2015-16 Federal Budget. These are listed below:

  • Company tax rate cut – The tax rate for companies with an aggregated annual turnover of less than $2 million will be reduced by 1.5% to (ie from 30% to 28.5%) from the 2015-16 income year.
  • Tax rate cut for other business entities – A 5% tax discount for individual taxpayers with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will also be introduced from the 2015-16 income year.
  • Increase to the instant asset write-off threshold to $20,000 – The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000. This applies to assets purchased from Budget night onwards.
  • Small business simplified depreciation pool – Assets costing more than $20,000 will be able to be put in the small business simplified depreciation pool. If the pool balance falls below $20,000, it will be able to be written off immediately. The rules preventing small businesses from re-entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended. This applies from Budget night onwards.
  • Professional expenses – new businesses will be able to claim an immediate deduction for professional expenses (eg for the cost of advice from lawyers, accountants and other professionals) associated with starting a business from the 2015-16 income year.
  • Employee share schemes – Further changes will be made to the taxation of employee share schemes. There is already a Bill in Parliament making changes to the rules; the Budget changes are in addition to the ones already coming.
  • New CGT relief – Capital gains tax relief will be available to small businesses for a CGT liability arising from the alteration of their legal structure from the 2016-17 income year.
  • Electronic devices and FBT – The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.
  • Preparing for drought – Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from 1 July 2016.

There is no legislation for these measures yet. However, the ATO has already issued some guidance in relation to the increased instant asset write-off threshold amount and some of the other changes. Visit the ATO website for guidance.

Note!
From 1 July 2017, the $20,000 threshold for the immediate deduction of assets and the value of the pool will revert back down to $1,000. Also, the suspension of the rules preventing re-entry into the small business simplified depreciation pool will be lifted.

 

To do!
If you run a small business with aggregated annual turnover of less than $2 million, see your tax adviser to see if you are eligible for these changes. There may be some planning that you need to do now for the start of the 2015-16 financial year.
Some new measures will be introduced to make it easier to register a new business. These include:

  • business registration processes will be streamlined with a single online portal (business.gov.au) developed for business and company registration, making it much easier to register a new business.
  • A new business will no longer need an Australian Company Number or business Tax File Number. It will be able to use its Australian Business Number to interact with the ATO and ASIC. The new portal (expected to be implemented by mid-2016) will provide all the relevant information clearly and will have integrated customer support; and
  • a regulatory framework to facilitate the use of crowd-source equity funding will be implemented, including simplified reporting and disclosure requirements, to help small businesses access innovative funding sources.
Tip!
If you are planning on starting a new business, you should speak to your tax adviser to see if you should wait for these new measures to be introduced before you set up your business.
On 28 December 2014, the Minister for Small Business, Bruce Billson, and the Assistant Treasurer, Josh Frydenberg, announced that the Government will cut red tape for employers by simplifying tax and superannuation reporting obligations through Single Touch Payroll.

Under Single Touch Payroll, employers will be required to electronically report payroll and super information to the ATO when employees are paid, using Standard Business Reporting-enabled software.

The ATO has now published a discussion paper on Single Touch Payroll containing a number of consultation questions.

Talk to your tax adviser or agent to find out what this means for your business. It may well mean a more streamlined way to report to Government via one main avenue.

The ATO recently issued a variety of pieces of guidance relevant to the 2015-16 FBT year that commenced on 1 April 2015.

FBT exemption threshold  

The ATO has issued Taxation Determination TD 2015/5 entitled “Fringe benefits tax: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2015?”

An employer may be exempt from keeping most records for a particular FBT year if, after establishing a ‘base year’, the amount of fringe benefits in that ‘base year’ do not exceed the exemption threshold.

The exemption threshold for the FBT year commencing 1 April 2015 is $8,164. This replaces the amount of $7,965 that applied in the previous year commencing 1 April 2014.

Your tax agent will be able to assist you to determine if you can apply this exemption in the current FBT year.

FBT: Benchmark interest rate

The ATO has issued Taxation Determination TD 2015/8 entitled “Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2015?”

The benchmark interest rate for the FBT year commencing on 1 April 2015 is 5.65% per annum. This rate replaces the rate of 5.95% that has applied for the previous FBT year commencing on 1 April 2014.

The rate is used to calculate the taxable value of a fringe benefit provided by way of a loan and a car fringe benefit where an employer chooses to value the benefit using the operating cost method.

FBT: Reasonable food and drink expenses

The ATO has issued Taxation Determination TD 2015/7 entitled “Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living away from home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2015”.

FBT: Cents per km rates for private use of motor vehicle  

The ATO has issued Taxation Determination TD 2015/6 entitled “Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2015?”

The rates to be applied where the cents per kilometre basis is used for the FBT year commencing on 1 April 2015 are:

Engine capacity – Rate per kilometre
0 – 2500cc – 51 cents
Over 2500cc – 61 cents
Motorcycles – 15 cents

Car parking threshold

The ATO has released the car parking threshold for the fringe benefits tax year commencing on 1 April 2015. The threshold is $8.37. This replaces the amount of $8.26 that applied in the previous year commencing 1 April 2014: TD 2015/11 “Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2015?” (13 May 2015).

Other Important information – due date for FBT returns and payments.

If you lodge your FBT return through your tax agent, it is due on 25 June. However, payment was due on 28 May. If you lodge it yourself, it was already due on 21 May.

  • Reporting limited recourse borrowing arrangements for SMSFs

The ATO says that it is time to prepare for the 2014 Self-managed super fund (SMSF) annual return (SAR). If an SMSF has assets held under limited recourse borrowing arrangements (LRBAs), they must be reported at the LRBA labels in Section H: Assets and liabilities of the SAR.

The ATO says that it has noticed some misreporting at these labels and has provided some tips to assist the preparation of the SAR. For more information, go to the ATO website.

If you have an SMSF, see your tax agent for help on preparing the tax return for it.

  • Channelling dividends through SMSFs

The ATO has warned members of self-managed super funds against claiming franking credit benefits by channelling dividends from shares in private companies through SMSFs.

This occurs when a member of an SMSF with interests in a private company transfers his or her interest to a SMSF and then distributes retained profits and franking credits through the SMSF. The SMSF then claims the franking credit tax offset which results in the tax paid by the company being refunded directly to the SMSF which can then be distributed to the member tax free.

The ATO believes that SMSF members approaching retirement age are more likely to get involved in these schemes because profits from shares are tax exempt as they are treated as supporting the payment of pensions. The ATO may undertake compliance activity seeking to apply the taxation and superannuation provisions, including anti-avoidance rules to such arrangements. The ATO will also consult on the application of relevant anti-avoidance provisions and consider a public ruling on such arrangements.

If you have any concerns about this, you should consider seeking independent advice from a tax adviser.

  • Time to get SuperStream ready

The ATO has issued a reminder that it is time for self-managed super fund trustees to ensure they are ready for SuperStream.

All SMSF trustees must be able to receive super contribution payments and information sent using SuperStream when a member’s employer starts using SuperStream. To be able to do this, each SMSF member will need to provide the SMSF’s ABN, bank account details and electronic service address (ESA) to the member’s employer. The member should contact his or her employer about when the employer will need this information so the employer can get ready to make SuperStream contributions.

If you are an employer with 20 or more employees, you should already be using SuperStream, although you have until 30 June 2015 to finalise its implementation. If you are an employer with 19 or fewer employees, from 1 July 2015, you need to start sending SuperStream contributions electronically to all super funds, including SMSFs.

If an SMSF member does not provide details in time to you, you can issue a new Standard choice form to obtain these details. If it is not completed and returned within 28 days, you can make the employee’s super contribution into the default fund.

If you are unsure about this, speak to your adviser.

  • Simplifying when a standard choice form must be provided by an employer

On 1 April 2015 the Commonwealth Treasury released exposure draft legislation to implement the announcement on 26 November 2014 by the Minister for Small Business, the Hon Bruce Billson MP, that from 1 July 2015 employers will no longer be obligated to give a standard choice of fund form to temporary residents or provide this form to employees when their superannuation funds merge.

It is intended that these changes to the choice regime will reduce the compliance burden on businesses, especially small businesses. In particular, employers will no longer incur the choice shortfall penalty if they do not provide a standard choice of fund form to their employees in these situations.

These changes also complement the Government’s announcement that access to the small business superannuation clearing house (SBSCH) will be expanded from 1 July 2015. From 1 July 2015, all businesses with an annual turnover below the small business entity turnover threshold, currently set at $2 million, will be eligible to access SBSCH. This change means approximately 27,500 additional businesses will be able to access the SBSCH.

These changes have not yet been introduced into Parliament and as such are not yet law.

 

  • SuperStream certified product register

A register of SuperStream certified products including payroll, clearing houses and other providers is now available.

The ATO says that this is an important resource for employers and their advisers to check the status of solutions they are interested in using to implement SuperStream.

The register will be updated regularly as more products progress through the key stages to become SuperStream certified. The register can be viewed online at the ATO website.

  • Key superannuation rates and thresholds

For the key rates and thresholds that apply in relation to contributions and benefits, employment termination payments, super guarantee and co-contributions, go to the ATO website.

  • What to do if SGC is payable

For ATO information for businesses who have not met their superannuation obligations, and have thereby incurred a liability to superannuation guarantee charge (SGC), go to the ATO website.

To do!
If you have any questions about any of these superannuation-related changes, it would be wise to sit down with your adviser and talk them through.
Tip!
Visit the self-managed super fund section of the ATO website to view the updated page of questions and answers for Self-managed super funds.
Note!
The ATO has issued a Taxpayer Alert TA 2015/1 in relation to ‘dividend stripping arrangements’ involving transfers of shares in private companies with accumulated profits to SMSFs. The ATO is concerned that contrived arrangements are being entered into by individuals (typically SMSF members approaching retirement) so that dividends subsequently flow to, and are purportedly treated as exempt from income tax in, the SMSF because the relevant shares are supporting pensions. Consult your tax adviser if you have any concerns.
GST: Meaning of “passed on” and “reimburse

The ATO has recently issued a new GST ruling GSTR 2015/1 entitled “Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999”.

The ruling explains the Commissioner’s view on the meaning of the terms “passed on” and “reimburse” for the purposes of determining whether s 142-10 of the GST Act applies to an amount of excess GST.

  • Part A of the Ruling sets out the Commissioner’s views on when an amount of excess GST has been passed on to another entity.
  • Part B of the Ruling discusses the circumstances in which the Commissioner considers an amount of excess GST, which has been passed on to another entity, has been reimbursed to that other entity.

The ruling was previously issued in draft as GST 2014/D4.

ATO establishes GST for property discussion board

The ATO has set up a ‘GST for property’ discussion board to help taxpayers and practitioners better understand GST obligations for property. The purpose of the discussion board is to:

  • discuss property topics
  • share views on new and emerging tax-related issues
  • highlight areas that are confusing and need improvement
  • talk to the ATO’s GST property experts.

Tax integrity: Extending GST to digital products and other services imported by consumers

On Budget Night, the Commonwealth Treasury released an exposure draft Bill and associated explanatory material which amend the GST law to give effect to the 2015-2016 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

This measure does not commence until 1 July 2017, so there is quite a long lead time before this measure will be enacted. However, it is good to be aware that this change will soon be coming.

GST – avoiding common errors

For ATO information about avoiding common GST errors, go to the ATO website.

The Privacy Commissioner has issued a new privacy rule about Tax File Numbers, to replace the previous Tax File Number Guidelines 2011. The new rule is the Privacy (Tax File Number) Rule 2015 (Legislative Instrument F2015L00249; registered 4 March 2015). The rule is made under s 17 of the Privacy Act 1988 (Cth).

The primary purpose of the rule is to regulate the collection, storage, use, disclosure, security and disposal of individuals’ Tax File Number (TFN) information. A breach of the rule is an interference with privacy under the Privacy Act. Individuals who consider that their TFN information has been mishandled may make a complaint to the Privacy Commissioner

The rule explicitly authorises the use and disclosure of TFN information by a TFN recipient (eg employers) for the purpose of giving an individual any TFN information that the TFN recipient holds about an individual. This ensures that the TFN Rule does not prevent an individual being given access to his or her information under Australian Privacy Principle 12 of the Privacy Act, or another Act that provides for access by persons to documents.

Note!
This new rule is something of which employers need to be mindful.

 

The ATO has established two new data matching programs that could directly affect your business.

Contractor Payments

On 13 March 2015 the ATO gave notice in the Commonwealth Gazette that it will continue to acquire details of entities that receive contractor payments from other businesses for the 2013-14, 2014-15 and 2015-16 financial years. This is the continuation of an ongoing program where data will be obtained from businesses that are subject to compliance activities conducted by the employer obligations area within the ATO. Data may also be collected from other businesses associated with the primary businesses.

The data items that will be obtained are:

  • Australian Business Number (ABN) of the payer business;
  • ABN of the payee business (contractor);
  • Name of the contractor;
  • Telephone details of the contract;
  • Dates of payments to the contractors;
  • Amounts paid the contractor (including details of whether the payment included GST).

These records will be electronically matched with certain sections of ATO data holdings to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws. The purpose of this data matching program is to ensure that taxpayers are correctly meeting their taxation obligations in relation to contractor payments. These obligations include registration, lodgment, reporting and payment responsibilities.
Online selling

The ATO has announced that it will request and collect online selling data relating to registrants that sold goods and services of a total value of $10,000 or more for the period from 1 July 2013 to 30 June 2014: Commonwealth Gazette C2015G00559 (21 April 2015). This acquired data will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with registration, reporting, lodgment and payment obligations under taxation law.

Data providers are included in the program based on the following principles:

  • the data owner or its subsidiary operates a business in Australia that is governed by Australian law;
  • the data owner provides an online market place for businesses and individuals to buy and sell goods and services;
  • the data owner tracks the activity of registered sellers;
  • the data owner has clients whose annual trading activity amounts to $10,000 or more;
  • the data owner has trading activity for the year in focus;
  • where the client base of a data owner does not present an omitted or unreported income risk, or the administrative or financial cost of collecting the data exceeds the benefit the data may provide, the data owner may be excluded from the program.

Data will be sought from eBay Australia & New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au. It is expected that records relating to between 15,000 and 25,000 individuals will be matched.

This program is called the 2014 online selling data matching program and it will enable the ATO to:

  • address the compliance behaviour of individuals and businesses selling goods and services via the online selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgment and reporting for goods and services tax, and
  • be more strategic in its approach to determine appropriate educational and compliance strategies to encourage voluntary compliance for taxpayers in the online selling market to ensure they meet their taxation obligations.
Businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year, on the Taxable payments annual report.

The ATO has listened to feedback about the due date for lodgment of the Taxable payments annual report. For 2015 onwards, the Taxable payments annual report lodgment date has been extended to 28 August.

The LCT threshold for the 2015-2016 financial year is $63,184, up from $61,884 in 2014-2015. The fuel-efficient car limit for the 2015-2016 financial year remains at $75,375, the same limit as in 2014-2015: luxury car tax determination LCTD 2015/1 “Luxury car tax: what is the luxury car tax threshold and the fuel-efficient car limit for 2015-16 financial year?” (13 May 2015).
Small business benchmarks updated with 2012–2013 data

The small business benchmarks with 2012–2013 income and activity statement data are now available. For more information go to the ATO website.

Selling or closing a small business webcast

The ATO, in conjunction with the Department of Industry and Science, ASIC and the Fair Work Ombudsman, has developed a webcast about the end-to-end process of selling or closing a business. The webcast details the proprietor’s obligations across various government agencies. If you are interested, a transcript of The journey of selling or closing a small business is also available.

Small Business Consultation Panel

The ATO’s Small Business Consultation Panel is a list of small business operators who help the ATO deliver improved services for small business by providing practical business and industry expertise. The ATO says that it is always looking for new members. For more information about the Panel, go to the ATO website.

New director penalty regime web page

The ATO advises that it has created a new page on its website with information about the director penalty regime. To access the page, go to the ATO website here.

 

Division 7A – benchmark interest rates

For a list of Division 7A benchmark interest rates, including 2015 (5.95%), go to the ATO website.

The end of the financial year is nearly here and it is time to start thinking about your 2015 Income Tax Return. Take the time to review your financial position, particularly if there are things you should do before 30 June 2015. Some suggestions are:

  • Is there any income you are due to derive that you may not have to recognize until next financial year?
  • Are there any repairs and maintenance you should carry out prior to 30 June 2015 so you can claim the deduction in your 2015 return?
  • Are there any bad debts to write off out of your receivables?
  • Are there any recently announced measures in the May 2015-16 Budget you should talk to your tax adviser about? There are lots of changes for small business (see further below).
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2015 (you will need to speak to your lender.)
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances.

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 1st, 2015|

Business Bulletin – June

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

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

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

To do!
Your tax adviser is the best person to help you with these decisions as your tax adviser knows your business and has experience with other businesses similar to yours, they are able to offer you sound advice about how to best prepare your business for the start of the 2014-15 financial year.
In previous editions of TaxWise, we mentioned that, as part of its pre-election promises, the Coalition would abolish the mining tax. The abolition of this tax also involves the wind-back of certain other measures including:

  • The instant asset write-off amount of $6,500 for small businesses – from 1 January 2014, the instant asset write-off will be reduced back to $1,000;
  • The accelerated deprecation for motor vehicles that is available to small businesses – from 1 January 2014, this will no longer be available; and
  • The loss carry-back measure – this measure will only apply for the 2013 income year.
Note!
The ATO has offered the following guidance for taxpayers who have relied on these measures:

·         The instant asset write-off amount of $6,500 for small businesses – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a tax return for the 2013-14 income year can self-assess under the existing law. Once the law is enacted, the taxpayer will need to seek an amendment to apply the new law. No tax shortfall penalties will apply and if the amendment is sought within a reasonable time, we will remit any shortfall interest attributable to the amendment to nil. Otherwise the shortfall interest will run from the date the change becomes law.

·         The accelerated deprecation for motor vehicles that is available to small businesses– as above for the instant asset write-off.

·         The loss carry-back measure – Taxpayers, including those who use early balancing substituted accounting periods, who lodge a company tax return for the 2013-14 income year can self-assess under the existing law. Once the law is enacted, the ATO will amend the company tax return to disallow the claim for the loss carry-back tax offset for the 2013-14 income year. This will result in an increase in the taxpayer’s tax liability. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil. There is further information on the ATO website.

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

Year Superannuation guarantee rate
From 1 July 2013 9.25%
From 1 July 2014 9.5%
From 1 July 2015 9.5%
From 1 July 2016 9.5%
From 1 July 2017 9.5%
From 1 July 2018 10%
From 1 July 2019 10.5%
From 1 July 2020 11%
From 1 July 2021 11.5%
From 1 July 2022 12%

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

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

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

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

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

Minor amendments to tax laws

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

Inspector-General of Taxation to manage certain tax complaints

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

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

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

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

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

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

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

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

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

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

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

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

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

Note!
If you provide either of these types of benefits to your employees, make sure you are aware of the new amounts that apply to the 2015 FBT year.
Some changes are being made to the farm management deposits (FMD) scheme that taxpayers who rely on the scheme should be aware of. These include:

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

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

ATO reviews approach to SMSFs as industry takes off

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

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

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

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

“SMSF trustees should rectify any contraventions as soon as possible or they may face a penalty. In some cases these changes will impact the way SMSFs operate so for the ATO our focus will continue to be on education and support to ensure trustees understand the rules,” Deputy Commissioner Lendon said.

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

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

SuperStream changes for SMSFs

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

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

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

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

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

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

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

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

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

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

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

Tip!
If you are trying to see if you are eligible for any of the small business CGT concessions and are wondering whether these changes affect you, seek advice from your professional tax adviser who is best able to assist you with this as the rules are complex and they will be able to help you navigate them.
There is always activity in the superannuation space. Some of the main things to be aware of are noted below, particularly if you are in the process of separating or have unclaimed amounts of super.

  1. Adjustment of superannuation entitlements of separated and divorced spouses and of separated de facto couples

A legislative determination has been made which relates to the adjustment of superannuation entitlements of separated and divorced spouses, and of separated de facto couples (except in Western Australia). The entitlements are provided under certain orders or agreements that split particular kinds of future superannuation benefits made in property settlements under the Family Law Act 1975 (Cth). The determination relates to orders or agreements that provide for a base amount split of future superannuation benefits that are payable in respect of a defined benefit superannuation interest or an interest in a self-managed superannuation fund

  1. Tax treatment of interest paid on unclaimed super amounts

The ATO has advised that as a result of amendments made in 2013, interest on payments of unclaimed superannuation to Australian residents from 1 July 2013 will be free from income tax.Interest paid to previous temporary residents who are now current residents of Australia for unclaimed super will not be subject to ‘departing Australia superannuation payment’ (DASP) tax.Payments of super to temporary residents will be subject to DASP withholding tax. If the former temporary resident died before the payment is made, the DASP tax rate will still apply.

  1. SMSFs – timing of pension payments

If you receive a pension payment from a self-managed super fund (SMSF), the payment must comply with the standards set for SMSFs.The ATO advises that to ensure that the pension standards for SMSFs are met, it is important that fund trustees consider the time that a member’s benefit is cashed (that is, ‘paid’). That is, the timing is affected by whether you receive the payment as cash, electronic transfer, cheque and so forth. As a general rule, a benefit is cashed when the member receives an amount and the member’s benefits in the SMSF are reduced.Guidance can be found on the ATO website.

Note!
If you want to make sure your SMSF is properly complying with the required standards when paying a pension to you, you should speak with your tax adviser.
There is lots of news from the ATO that small business taxpayers should be aware of – see below for what might be relevant to you and your business.

  1. Standard Business Reporting

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

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

  1. Business Communicator

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

  1. Project DO IT: ATO says “Disclose offshore income and assets now”

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

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

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

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

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

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

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

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

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

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

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

  1. Stopping paper activity statements

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

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

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

  1. Receiving your payment instalment by email

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

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

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

  1. ATO’s Facilitation Process

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

In 2013, the ATO conducted a trial of a new dispute resolution process, “facilitation”, in smaller and less complex indirect tax objections. The process used ATO officers as facilitators in meetings between taxpayers /their agents and ATO case officers responsible for the dispute. The ATO facilitators who assisted the parties to identify and review options to resolve disputes had not been involved in the dispute.

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

  1. Lodging a PAYG withholding variation

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

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

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

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

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

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

  1. Information for primary producers

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

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

  1. The ATO App for Small Businesses

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 1st, 2014|

2014 -15 Budget Edition

The 2014-15 Federal Budget was handed down on 13 May 2014. This Budget is intended to reduce the deficit from the current level of $49.9 billion to $29.8 billion. The Treasurer, the Hon. Joe Hockey MP, stated that the budget is about the “national interest” and that there is no easy way to repair the Budget.

The main focus of the Budget is on the expenditure side, which is only half of the equation; the other half of the equation being about revenue.

Some sectors of society will be affected by the measures proposed in the Budget more than others. The main measures likely to affect you are outlined below. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax adviser.

Temporary Budget Repair Levy

Over the next three years, starting from 1 July 2014 and ending on 30 June 2017, individuals who have a taxable income greater than $180,000 will have to pay the budget repair levy of 2%.

This levy will flow through and affect a number of other tax rates that factor in the top personal marginal tax rate for the same three year period.

The fringe benefits tax rate will also be increased from 47% to 49% from 1 April 2015 until 31 March 2017 to ensure that high income earners are not able to avoid the levy by utilising fringe benefits.

** Other FBT changes

If you receive fringe benefits, you should also note that the cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps. In addition, the fringe benefits rebate rate will be aligned with the FBT rate from 1 April 2015.

Dependent spouse tax offset to be abolished

From 1 July 2014, the dependent spouse tax offset (DSTO) will be abolished for all taxpayers.

From 1 July 2012, access to the DSTO was limited to individuals with spouses born before 1 July 1952. Taxpayers who were eligible for the Zone Tax Offset, Overseas Civilians Tax Offset or Overseas Forces Tax Offset were exempt from the phase-out and can currently receive the DSTO regardless of the age of their dependent spouse. These taxpayers are also eligible to claim eight other dependency tax offsets that were consolidated into a single, streamlined and non-refundable offset, the Dependent (Invalid and Carer) Tax Offset (DICTO). The offsets that were consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.

From 1 July 2014, the eight dependency tax offsets will be replaced with the DICTO for individuals eligible for the Zone Tax Offset, Overseas Civilians Tax Offset or Overseas Forces Tax Offset

Taxpayers with a dependant who is genuinely unable to work due to a carer obligation or a disability may be eligible for the DICTO.

 

Mature age worker tax offset abolished

The mature age worker tax offset (MAWTO) will be abolished from 1 July 2014.

The reason for this change is that the government considers that encouraging mature age workers to participate in the workforce can be achieved more effectively through direct payments or incentives.

The mature age worker tax offset (MAWTO) began to be phased out from 1 July 2012 for taxpayers born on or after 1 July 1957. This did not affect any person who received MAWTO. Access to the MAWTO was maintained for taxpayers who were aged 55 years or older in the 2011-12 income year.

Savings from this measure will be redirected to the government’s expanded seniors employment incentive payment called Restart to support mature age job seekers in re-entering the workforce. Under that measure, from 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 years or over who has been receiving income support for at least six months.

Medicare levy low-income threshold for families increased

The increase to the Medicare levy low-income threshold for families applies to the 2013-14 income year.

The threshold for couples with no children will be increased to $34,367, and the additional amount of threshold for each dependent child or student will be increased to $3,156 for the 2013/14 income year.

This increase takes into account movements in the consumer price index (CPI) and ensures that low-income families who were not liable to pay the Medicare levy in 2012/13 will continue to be exempt, unless their incomes have increased by more than the CPI.

No change to the Medicare levy low-income thresholds for individuals and pensioners will occur as they have already been increased by more than the growth in the CPI so no further increase is required.

First Home Saver Accounts scheme to be abolished

The First Home Saver Accounts (FHSA) scheme will be abolished from 1 July 2015. The Government has made this decision due to lower than forecast take-up rates of these accounts. After this scheme is abolished, FHSA accounts will be treated like any other account held with a relevant provider.

From 1 July 2014

  • The government co-contribution that was provided to individuals who made personal contributions to their FHSA to assist them to save for their first home will cease.

From 1 July 2015

  • Tax concessions and the income and asset test exemptions for government benefits associated with FHSA will cease.
  • Account holders will be able to withdraw their account balances without restriction.

Also, new accounts opened from Budget night 2014 (13 May 2014) will not be eligible for concessions. Regulations will be made to ensure that anyone seeking to open a new account from Budget night 2014 is informed of these changes by the account provider. Existing account holders will continue to receive the government co-contribution, and all tax and social security concessions associated with these accounts, for the 2013 -14 year.

 

Tax receipts for individuals

From 1 July 2014, taxpayers will receive a “tax receipt” from the ATO that will show taxpayers in dollar terms how their taxes were spent on each budget area. In most circumstances, the tax receipt will be issued together with a taxpayer’s notice of assessment. The government has indicated that the purpose of this initiative is to help ensure that pressure is maintained on governments to spend taxation revenues wisely.

Changes to HELP repayment thresholds, indexation, and loan fees

The following changes will be made to the Higher Education Loan Programme (HELP).

  1. There will be a new reduced minimum repayment threshold that applies from 1 July 2016 set at 90% of the threshold that would have otherwise applied for the 2016-17 income year. This is estimated to be $50,638 in 2016-17. The repayment rate will be reduced to 2% for people with debts and their income is above the new minimum threshold. No other rates will change. (To compare, the minimum repayment threshold for 2013-14 is $51,309 and the minimum repayment rate is 4%.)
  2. The annual indexation that applies to HELP debts will be adjusted from CPI to a rate equivalent to the yield on 10-year bonds issued by the Australian Government (capped at 6% per annum) from 1 June 2016.
  3. The loan fee of 25% that applies to FEE-HELP loans for fee-paying undergraduate courses and the loan fee of 20% that applies to VET FEE-HELP loans for eligible full fee-paying students in higher level vocational education and training courses will be removed for the 2015-16 income year.

Increased Newstart eligibility age

The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years from 1 January 2015. Current recipients of these allowances aged 22 to 24 on 31 December 2014 will remain on those allowances. The eligibility thresholds for the Newstart Allowance will also be maintained for three years from 1 July 2014.

Family Tax Benefit reforms and new single parent benefit

A number of changes are being made to the Family Tax Benefit and New Single Parent Benefit. These are:

From 1 July 2014

  • FTB payment rates will be maintained for two years by pausing the indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B from 1 July 2014 until 1 July 2016.
  • Income thresholds for the FTB Part A lower income free area and maintenance income free area and the FTB Part B secondary earner income free area will remain unchanged for three years from 1 July 2014 as a result of an indexation pause.

From 1 July 2015

  • The Family Tax Benefit (FTB) Part B primary earner income limit will be reduced from the current $150,000 pa to $100,000 pa. This measure will also reduce the income threshold for the Dependent (Invalid and Carer) Tax Offset (DICTO) to $100,000.
  • The FTB Part B payments will be limited to families whose youngest child is younger than six years of age. A transitional arrangement will ensure families with a youngest child aged six and over on 30 June 2015 remain eligible for the payments for two years.
  • A new allowance of $750 per child aged between six and 12 years will be introduced for single parents on the maximum rate of FTB Part A whose youngest child is between six and 12 years of age from the point when they become ineligible for the FTB Part B.
  • The FTB Part A Large Family Supplement (currently $313.90 per child pa) will be limited to families with four or more children and will be paid in respect of the fourth and each subsequent child in the family.
  • The FTB Part A per child add-on to the higher income free threshold for each additional child will be removed.

The FTB Part A and FTB Part B end-of-year supplements will return to their original amounts of $600 pa for each FTB Part A child and $300 pa for each FTB Part B family and cease indexation.

Changes to the Medicare system

There are a variety of changes being made to the Medicare system that will affect patient contributions, indexation of fees and thresholds and Medicare safety net arrangements.

  1. Patient contributions

From 1 July 2015, the Medicare Benefits Schedule (MBS) rebates will be reduced by $5 for standard general practitioner consultations and out-of-hospital pathology and diagnostic imaging services, while providers of these services will be allowed to collect a patient contribution of $7 per service.

For patients with concession cards and children under 16 years of age, the MBS rebate will only be reduced for the first 10 services in each year, after which it will return to current benefit levels.

A new Low Gap Incentive will replace bulk billing incentives for providers of these services. The Low Gap Incentive will be paid to providers where they provide services to patients with concession cards or children under 16 years of age and only charge the $7 patient contribution — for the first 10 services in a year, or where they charge no patient contribution — for additional services in that year.

The measure will also remove the restriction on State and Territory governments from charging patients presenting to hospital emergency departments for general practitioner-like attendances.

  1. Pausing of indexation
  • The indexation of some MBS fees will be paused for two years from 1 July 2014.
  • The indexation for income thresholds for the Medicare Levy Surcharge and Private Health Insurance Rebate will be paused for three years from 1 July 2015.

Note that general practice MBS fees will be excluded from this. MBS fees which are not currently indexed, such as pathology and diagnostic imaging services, will not be affected.

  1. Medicare safety net arrangements

From 1 January 2016, the existing Original Medicare Safety Net, Extended Medicare Safety Net and Greatest Permissible Gap will be replaced by the new Medicare Safety Net. There will be new safety net thresholds of $400 for concessional singles and concessional families, $700 for non-concessional Family Tax Benefit Part A (FTB-A) families and non-concessional singles, and $1,000 for non-concessional families who do not receive FTB-A.

The Medicare Safety Net assists families and singles by contributing towards out-of-pocket costs for Medicare eligible out-of-hospital services. Once the annual thresholds have been reached in a calendar year, Medicare will pay 80% of any subsequent out-of-pocket costs, capped at 150% of the MBS fee. The out-of-pocket costs that accumulate in reaching the safety net thresholds will also be capped at 150% of the MBS fee.

Pension age increase and other pension reforms

There are a variety of changes occurring that will affect the pension.

  1. Qualifying Age Pension age increases

In the 2009-10 Budget, the then government proposed to increase the Age Pension qualifying age from 1 July 2017 to ensure it reached 67 by 1 July 2023. In the 2014-15 Budget, this government will further increase the Age Pension qualifying age to ensure it reaches 70 by 1 July 2035. This ensures the qualifying age will continue to rise by 6 months every two years consistent with the original proposal.

Table 1 sets out the qualifying ages at which the new Age Pension qualifying age applies for the income years impacted by this measure and the range of birth dates which apply.

Table 1

Income Year Range of Birth Dates Age at which eligible for Age Pension
Up to 30 June 2017 Before 1 July 1952 65
2017 – 18 1 July 1952 to31 December 1953 65 1/2
2018-19 1 July 1952 to31 December 1953 65 1/2
2019-20 1 January 1954 to30 June 1955 66
2020-21 1 January 1954 to30 June 1955 66
2021-22 1 July 1955 to31 December 1956 66 1/2
2022-23 1 July 1955 to31 December 1956 66 1/2
2023-24 1 January 1957 to30 June 1958 67
2024-25 1 January 1957 to30 June 1958 67
2025-26 1 July 1958 to31 December 1959 67 1/2
2026-27 1 July 1958 to31 December 1959 67 1/2
2027-28 1 January 1960 –30 June 1961 68
2028-29 1 January 1960 –30 June 1961 68
2029-30 1 July 1961 to31 December 1962 68 1/2
2030-31 1 July 1961 to31 December 1962 68 1/2
2031-32 1 January 1963 to30 June 1964 69
2032-33 1 January 1963 to30 June 1964 69
2033-34 1 July 1964 to31 December 1965 69 1/2
2034-35 1 July 1964 to31 December 1965 69 1/2
2035-36 From 1 January 1966 70
  1. Income test

From 20 September 2017, the government will change how it deems the return from a person’s financial assets for the purposes of the pension income test. This involves resetting the deeming thresholds:

  • single pensioners – from $46,600 to $30,000; and
  • pensioner couples – from $77,400 to $50,000.
  1. Indexation changes
  • The indexation of income and assets test free areas for the pension will be paused for three years from 1 July 2017.
  • From 1 September 2017, pension increases will be linked only to CPI.
  1. Commonwealth Seniors Health Card changes

The income thresholds for the Commonwealth Seniors Health Card will be indexed annually to the CPI from September 2014. Payments of the Senior Supplement will also cease from 20 September 2014.

Superannuation excess contributions tax

For contributions made after 1 July 2013, the government will allow individuals to withdraw excess contributions and associated earnings that breach the non-concessional cap.

If an individual chooses this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual’s marginal tax rate.

Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate. However, the final details of the policy will be ironed out following consultation with key stakeholders in the superannuation industry.

Rescheduling the increase in superannuation guarantee rate

The scheduled increase to the superannuation guarantee rate is changing and will no longer be paused at 9.25% for another two years. Instead, it will increase to 9.5% from 1 July 2014, will pause at this level until 30 June 2018 and will then start to rise by 0.5% reaching 12% in the 2022-13 income year, one year later than previously proposed. See Table 2.

Table 2

Year Superannuation guarantee rate
From 1 July 2013 9.25%
From 1 July 2014 9.50%
From 1 July 2015 9.50%
From 1 July 2016 9.50%
From 1 July 2017 9.50%
From 1 July 2018 10%
From 1 July 2019 10.50%
From 1 July 2020 11%
From 1 July 2021 11.50%
From 1 July 2022 12%
Tax compliance through third party reporting and data matching: start date deferred

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

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

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

Minor amendments to tax laws

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

 

Inspector-General of Taxation to manage certain tax complaints

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

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

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

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

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

May 1st, 2014|Tags: |