Individual Tax 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.
The ATO is paying attention to people who are over-claiming work-related expenses. 

To get your deductions right, you need to satisfy the following rules:

  • you must have spent the money and were not reimbursed;
  • it must be directly related to earning your income, and not of a private nature;
  • you must have a record to prove it.

 

To do!
Talk to your tax agent about any claims you would like to make in your tax return. They will be able to assist you to ensure you get them right!
If you are a sole trader and have simple tax affairs, the ATO’s myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

To learn more, visit the ATO website.

Tip!
While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns.

 

For specialist advice and to ensure you claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

Disallowing travel deductions and limiting depreciation deductions

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

 

To do!
If you own a rental property, talk to your tax agent about whether these changes affect you in any way.
The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.

Claiming deductions for your holiday home?

Make sure it is genuinely available for rent by answering these four questions:

  • How do you advertise your rental property?
  • What location and condition is your rental property in?
  • Do you have reasonable conditions for renting the property and charge market rate?
  • Do you accept interested tenants, unless you have a good reason not to?
The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

  • for real property disposals where the contract price is $750,000 and above (previously $2 million);
  • the FRCGW withholding tax rate is now 12.5% (previously 10%).

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.

Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Main residence exemption

From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing” contribution into superannuation.

 

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

 

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

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.

Most of the changes to the superannuation system commenced on 1 July 2017.  

 

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

i) Change to personal super contributions deductions

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition.

From 1 July 2017, the 10% work test for claiming a deduction for personal super contributions will be removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

ii) Changes to concessional contributions – constitutionally protected and unfunded defined benefit funds

 From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap.

The ATO has released information on the following topics, which can be accessed on the ATO website.

  • What are CPFs and unfunded defined benefit funds?
  • What are the changes?
  • New rules for accumulation interests
  • New rules for defined benefit interests
  • Excess concessional contributions.

iii) Removal of election to treat super income streams as lump sums

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes.

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change.

iv) New transfer balance cap – child death benefit recipients

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams.

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18).

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests.

v) New transfer balance cap – death benefit income streams

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams.

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary:

  • reversionary – the income stream reverts to you automatically upon the member’s death
  • non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these).

vi) Transfer balance account – credits and debits

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

 

Note!
There have been a lot of changes to the superannuation rules recently. It is worth sitting down with your tax adviser or tax agent to discuss how these changes might affect you.
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.

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time. 

 

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year. 

 

For tips on how to avoid tax time traps, visit the ATO website

If you have graduated from studies in early childhood education, maths, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit. 

 

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments. 

 

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611.

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program.

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to increase:

  • the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
  • the Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
  • the Medicare levy surcharge low-income threshold in line with movements in the CPI.

 

In addition:

  • The singles threshold will increase from $21,335 to $21,655.
  • The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
  • The single seniors and pensioners threshold will increase from $33,738 to $34,244.

The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

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 registration threshold of A$75,000 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.

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. 

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|

Individual News – April 2016

As the current FBT year ends on 31 March 2016 and a new one begins on 1 April 2016, there are a number of upcoming changes to salary packaged meal and other entertainment benefits that employees need to be aware of, including:

i)    Changes for employees
From 1 April 2016, there are changes to the FBT treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits (meal and other entertainment benefits). Some of the changes will affect all employees, while others will affect employees of not-for-profit organisations.

The following applies to all employees:

  • all salary packaged meal and other entertainment benefits are reportable and will be included on the payment summary where the reporting exclusion threshold is exceeded; and
  • the 50-50 split method and 12-week register method cannot be used by the employer for valuing salary packaged meal and other entertainment benefits which may affect how much an employee can salary package.

ii)    Specific changes for Not-for-profit employees

For employees who work for a not-for-profit employer:

  • a separate single grossed-up cap of $5,000 will apply for salary packaged meal and other entertainment benefits for employees of not-for-profit organisations able to access a general FBT exemption or rebate ($31,177 or $17,667 exemption; or $31,177 rebate); and
  • the amount of those benefits exceeding the separate grossed-up cap of $5,000 are included in calculating whether the value of all benefits an employee receives exceeds the general FBT exemption or rebate cap.

This means that from 1 April 2016 employees can receive such benefits worth between $2,329.59 and $2,549.98 (depending on whether the employer is entitled to GST credits) without exceeding the $5,000 cap.

1)    FBT implications over the festive season

The ATO reminded employers over the festive season that employers who provide entertainment to their employees during the festive season (or at any other time of the year) should remember to think about the following:

  • when providing food, drink or recreation may be considered ‘entertainment’;
  • whether the entertainment is subject to fringe benefits tax (FBT); and
  • the methods available for valuing entertainment fringe benefits.

Depending on the sort of entertainment that your employer provided to you as an employee, there may be different FBT implications which may need to be included in your 2015-16 Payment Summary.

To do!

Talk to your tax adviser about the entertainment you may have received from your employer over the festive season (Did you have a Christmas party? Did you receive a gift from your employer?) if you are concerned with how this might impact your 2015-16 tax return.

2)    FBT exemptions for work-related electronic devices

From 1 April 2016, small business employers (with turnover of less than $2 million) will be able to provide employees with multiple electronic devices to use for work without incurring a fringe benefits tax (FBT) liability.

Employers can provide to employees:

  • mobile phones
  • tablets
  • laptops
  • calculators
  • GPS navigation receivers.

If you need more than one device for work, talk to your employer about having them provided to you, but note they won’t be able to provide you with multiple devices until 1 April 2016 or they will be subject to FBT

Note that providing these devices may be a benefit in addition to or part of your salary or wages package.

To do!

If you are planning on requesting multiple devices from your employer, talk to your tax adviser first to find out how the FBT rules may impact this.

To simplify the car expense deduction rules, from 1 July 2015, the government has abolished the one-third of actual expenses method and 12% of original value method. The cents per kilometre method (with the existing 5,000km cap) and the logbook method (with unlimited kms) remain.

The cents per kilometre method has been simplified to use a standard rate of 66 cents per kilometre for the 2015-16 income year, rather than a rate based on the engine size of the car. The Commissioner will set the rate for future income years.

The ATO has advised employers to be aware that the ATO set the approved PAYG withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015. Employers should withhold from any amount above 66 cents for all future payments of a car allowance. Failure to do so may result in the employee having a tax liability when he or she lodges a tax return.

Employees who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.

See your tax professional if you require more information about this change.

The ATO has released the key superannuation rates and thresholds for 2016-17. The rates apply to contributions and benefits, employment termination payments, super guarantee and co-contributions and include the following:

i)    Concessional contributions cap

  • The general concessional contributions cap is $30,000 for those aged under 49 years old. A higher cap of $35,000 applies to those aged 49 years or over on 30 June 2015.

ii)    Non-concessional contributions cap

  • The non-concessional contributions cap is $180,000.
  • People aged under 65 years may be able to make non-concessional contributions of up to 3 times their non-concessional contributions cap for the year, over a three-year period. This is known as the “bring-forward” option.

iii)    Maximum superannuation contribution base

  • The maximum superannuation contribution base for 2016-17 is $51,620 per quarter.

iv)    Superannuation co-contributions

  • If you are an eligible low or middle income earner and make personal (after-tax) contributions to your super during a financial year, the government will match your contribution with a co-contribution up to a certain amount. The maximum superannuation co-contribution entitlement for the 2016-17 year remains at $500. However, the lower income threshold increases to $36,021 and the higher income threshold increases to $51,021.

A summary of the past 5 years’ relevant income thresholds is below:

Financial year    Lower income threshold    Higher income threshold    Maximum entitlement
2016-17    $36,021    $51,021    $500
2015-16    $35,454    $50,454    $500
2014-15    $34,488    $49,488    $500
2013-14    $33,516    $48,516    $500
2012-13    $31,920    $46,920    $500

In the 2015-16 Federal Budget, the government announced it will implement a package of
measures to reduce red tape for superannuation funds and individuals by:

  • removing redundant reporting obligations; and
  • streamlining lost and unclaimed superannuation administrative arrangements.

The changes are intended to make it easier for individuals to be reunited with their lost and unclaimed superannuation.

The Treasury will work with the ATO and superannuation industry stakeholders to implement these changes, which will be rolled out progressively from 31 December 2015. For a detailed description of the proposed changes please visit the ATO website.

In previous editions of TaxWise, we noted changes that were going to occur in the following areas:

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

The changes have now become law. See earlier editions of TaxWise (and above in relation to the FBT concessions on salary packaged entertainment benefits and work-related car expenses) for details of the changes.

Note!

If you think any of these changes may affect you, speak to your tax adviser who will be able to advise you if these changes impact your personal circumstances.

On 12 November 2015, the ATO issued a Taxpayer Alert about arrangements where a purported partnership with a private company partner is used to enable individuals to access business profits without paying top-up income tax at their marginal rates of tax: TA 2015/4 (12 November 2015).

The ATO is currently reviewing arrangements where profits are claimed to be directed through a purported partnership that has a private company as a partner. Most of the profits are taxed to the private company at the corporate tax rate, but are accessed by one or more individuals without paying additional tax reflecting their higher marginal tax rate.

The ATO is currently undertaking a pilot compliance program reviewing a number of cases involving arrangements of this type and will be engaging with additional taxpayers over the coming months.

To do!

Should you be involved in arrangements of this kind, talk to your tax adviser to see if your arrangement could come under review by the ATO.

Are you a contractor in the building and construction industry? If so, you should be aware that the ATO is contacting businesses in the building and construction industry about information that businesses have provided on their Taxable Payments Annual Report. The ATO will be contacting businesses who have:

  • provided a report with missing or invalid ABNs;
  • included amounts paid for GST when the contractor isn’t registered for GST;
  • not lodged a report, when ATO records indicate they should;
  • advised the ATO they are not required to report, but the ATO’s records indicate the business should have reported.

The ATO will advise businesses that are reviewed what the review has found and will suggest ways to make it easier for the business to complete their reports more accurately in the future, such as using the ABN Lookup tool or ATO app to check a contractor’s ABN or if they are registered for GST.

This may impact the kind of information businesses ask contractors to provide. It may be best to review your ABN registration to ensure all the details recorded on the Australian Business Register about your registration are accurate (www.abr.gov.au).

i)    Restriction on the availability of Family Tax Benefit Part B for couple families

  • From 1 July 2016, Family Tax Benefit Part B will not be available for ‘couple families’ (other than grandparents and great-grandparents) with a youngest child aged 13 or over.
  • Single parents, grandparents and great-grandparents caring for a youngest child aged 13 to 18 will continue to have access to Family Tax Benefit Part B (subject to satisfying other relevant requirements).
  • These measures have now become law and was introduced by the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 on 21 October 2015.

ii)    Family Tax Benefit portability; large family supplement – amending Bill introduced

On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to introduce two 2015 Budget measures: Social Services Legislation Amendment (Family Measures) Bill 2015.

This Bill will introduce the following 2015 Budget measures:

a)    Portability of Family Tax Benefit

From 1 January 2016, the Bill will reduce to six weeks the length of time for which Family Tax Benefit Part A, and additional payments that rely on Family Tax Benefit eligibility, will be paid to recipients who are outside Australia (known as ‘portability’). The ‘portability’ extension, and exemption provisions that allow longer portability under special circumstances, will continue to apply.

This measure will align the portability rules for Family Tax Benefit Part A with those for Family Tax Benefit Part B and most income support payments.

b)    Cease the large family supplement

The large family supplement will cease from 1 July 2016. The supplement is a component of Family Tax Benefit Part A, and is currently paid at a rate of $324.85 per year (or $12.46 per fortnight) for the fourth and each subsequent Family Tax Benefit child in the family.

iii)    Family Tax Benefit – Other reforms

On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to make further reforms to Family Tax Benefit Part A and Part B: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No 2) 2015.

a)    Reform Family Tax Benefit Part A and at-home under-18 year old youth fortnightly rates

  • Family Tax Benefit Part A fortnightly rates will be increased by $10.08 for each Family Tax Benefit child in the family aged up to 19. An equivalent rate increase, of around $10.44 per fortnight, will apply to youth allowance and disability support pension recipients aged under 18 and living at home. These increases will apply from 1 July 2018.

b)    Reforms to Family Tax Benefit Part B

  • From 1 July 2016, the Bill will introduce a new rate structure for Family Tax Benefit Part B, and make other amendments to the rules for Part B, to:
  • increase the standard rate by $1,000.10 per year for families with a youngest child aged under one;
  • maintain the current standard rate for families with a youngest child;
  • maintain the current standard rate for families with a youngest child aged between five and 13;
  • maintain the current standard rate for single parents who are at least 60 years of age, grandparents and great-grandparents with a youngest child aged between 13 and 18; and
  • introduce a reduced standard rate of $1,000.10 per year for individuals with a youngest child aged 13 to 16 (currently $2,737.50) who are not single parents aged 60 or more or grandparents or great-grandparents.

c)    Phase out the Family Tax Benefit Part A and Part B supplements

  • The Bill will phase out the Family Tax Benefit Part A supplement by reducing it to $602.25 a year from 1 July 2016, and to $302.95 a year from 1 July 2017. It will then be withdrawn from 1 July 2018.
  • The Family Tax Benefit Part B supplement will also be phased out. It will be reduced to $302.95 a year from 1 July 2016, and to $153.30 a year from 1 July 2017. It will then be withdrawn completely from 1 July 2018.

To do!

Some of these changes have now made their way into law and others are not far away from becoming law. It may be a little confusing to work out exactly how you might be affected by these changes if you are eligible for either Family Tax Benefit Part A or Part B. Therefore, you should seek professional advice from your tax agent or adviser to work out the precise impact on you, if any, of these changes.

The ATO will be contacting more than 500,000 taxpayers through a pilot program it is running to let them know that their recently submitted 2014-15 tax returns are finalised and will not be subject to any further review.

The ATO says that individuals who receive a ‘certainty’ letter can be assured that the ATO is happy with their tax return, and has closed the books permanently on the return, provided there is no evidence of fraud or deliberate avoidance of tax.

The letter is intended to acknowledge and provide certainty to taxpayers who meet their obligations with their tax. Receiving this letter means the ATO has completed its routine information checks on a recipient’s tax return and is satisfied with the information provided. There will be no further review or audit of that return.

  • The letter is being trialled with a sample of people who meet certain criteria. These include:
  • the taxpayer lodged his or her return electronically by myTax, e-tax or via a tax agent;
  • the taxpayer had taxable income under $180,000;
  • the taxpayer’s income was only from salary or wages, allowances, Australian government allowances and payments, gross interest and dividends;
  • deductions claimed were work-related expenses, interest or dividend deductions, gifts and donations or cost of managing tax affairs;
  • a range of other factors, including good lodgement, compliance and debt history;
  • the taxpayer had straight-forward tax affairs (such as no links to other entities).

Not everyone who meets the criteria will receive a letter during the pilot. Depending on the success of the pilot, the ATO aims to expand this program to more taxpayers for tax time 2016.

For more information, go to the ATO website.

On 7 December 2015, a suite of new tax and business incentive measures was announced under the Commonwealth government’s National Innovation and Science Agenda (NISA): Prime Minister’s media release (7 December 2015); Treasurer’s media release (7 December 2015).

The intention is that the government’s tax and business incentives under the NISA will encourage smart ideas to encourage innovation, risk taking and build an entrepreneurial culture in Australia.

The following tax and business incentive measures have been announced as part of the agenda. The government will:

  • provide new tax breaks for early stage investors in innovative start-ups. Investors will receive a 20% non-refundable tax offset based on the amount of their investment, as well as a capital gains tax exemption. This scheme is based on the successful Seed Enterprise Investment Scheme in the United Kingdom, which has resulted in over $500 million in funding to almost 2,900 companies in its first two years. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
  • build on the recent momentum in venture capital investment in Australia including by introducing a 10% non-refundable tax offset for capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLPs), and increasing the cap on committed capital from $100 million to $200 million for new ESVCLPs. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
  • relax the “same business test” that denies tax losses if a company changes its business activities, and introduce a more flexible “predominantly similar business test”. This will allow a start-up to bring in an equity partner and secure new business opportunities without worrying about tax penalties. Legislation is expected to be introduced in the first half of 2016. The “predominantly similar business test” will apply to losses made in the current and future income years
  • remove rules that limit depreciation deductions for some intangible assets (like patents) to a statutory life and instead allow them to be depreciated over their economic life as occurs for other assets. The new arrangements will apply to assets acquired from 1 July 2016.
The government will:

  • support incubators which play a crucial role in the innovation ecosystem to ensure start-ups have access to the resources, knowledge and networks necessary to transform their ideas into globally scalable new businesses; and
  • make existing employee share scheme (ESS) rules more user friendly. The new rules will allow companies to offer shares to their employees without having to reveal commercially sensitive information to their competitors. These changes build on the recent reforms to ESS, which included deferring the taxing point for employees and introducing an additional concession for those working in start-up companies. Legislation is expected to be introduced in the first half of 2016.

The full text of the National Innovation and Science Agenda is available on the NISA website.

Should you have any plans to invest in start-up, or to start your own, it would be worth seeking advice from your tax adviser about these proposed changes,

Individual and sole trader taxpayers who have myGov accounts linked to the ATO will no longer receive paper activity statements or instalment notices.

If you previously received paper statements, all your activity statements or instalment notices will now be delivered electronically.

When an activity statement or instalment notice is ready, the ATO will send a message to your myGov Inbox. To lodge or pay, you should simply click the link in the message to go to the ATO’s online services for individuals and sole traders.

However, before proceeding to lodge, it would be worth asking your tax agent for assistance with this lodgement obligation.

If you are planning on living and working overseas, there are some things you should fix up with the ATO before you go. Your tax adviser will be able to tell you about what you will need to do before leaving Australia. For example, where you have a HELP debt, make sure you update your contact details with the ATO.

You should also note that once you earn a certain amount of income overseas, you will need to make payments towards your HELP debt.

More information about this can be found on the ATO website.
Also, if you work overseas, for 91 days or more, you may or may not need to pay tax on the income you earn overseas. For example you might get a credit for tax you pay overseas. More information about what you need to do can be found on the ATO website.

The ATO is undertaking a number of data matching programs that may impact you as an individual taxpayer depending on what sort of activities you have been engaged in. Should you have any concerns about these data matching programs or have received correspondence from the ATO about any of them, you should speak with your tax adviser.

1)    Real property transactions – Data matching program

The ATO has announced that it will acquire details of real property transactions for the period 20 September 1985 to 30 June 2017 from State and Territory revenue and land titles departments and offices and rental bond authorities in every State and Territory in Australia: Australian Government Gazette No C2015G02019 (8 December 2015).

The objectives of this data matching program are to:

  • obtain intelligence about the acquisition and disposal of real property and identify risks and trends of non-compliance across the broader compliance program;
  • identify a range of compliance activities appropriate to address risks with real property transactions by taxpayers;
  • work with real property intermediaries to obtain an understanding of the risks and issues, as well as trends of non-compliance;
  • gain support and input into compliance strategies to minimise future risk to revenue;
  • promote voluntary compliance and strengthen community confidence in the integrity of the tax system by publicising the outcomes of the data matching program; and
  • ensure compliance with registration, lodgment, correct reporting and payment of taxation and superannuation obligations.

2)    Data matching on insurance asset classes

The ATO is currently working with insurance providers to identify policy owners on a wider range of asset classes. These asset classes include:

  • Marine;
  • Aviation;
  • enthusiast motor vehicles;
  • fine art; and
  • thoroughbred horses.

The purpose of the ATO obtaining this information is to gain a better understanding of certain taxpayers’ wealth and to help the ATO to provide tailored services to taxpayers to ensure they meet their tax obligations.

During January and February, the ATO will issue formal notices to insurers to provide the ATO with these policy details. The ATO anticipates it will receive 100,000 records where the different asset classes meet certain threshold amounts.

3)    Ride sourcing – data matching program

The ATO has given notice of a data matching program pursuant to which it will acquire data to identify individuals that may be engaged in providing ride sourcing services during the 2013-14, 2014-15 and 2015-16 financial years: Commonwealth Gazette C2015G01623 (7 October 2015).

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

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

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

  • payee account name;
  • payee BSB;
  • payee account number;
  • date of payment to the payee; and
  • amount of payment to the payee.

4)    Online selling – data matching program

The ATO has given notice of a data matching program under which it will acquire online selling data relating to registrants who sold goods and services to a value of $10,000 or more during the period 1 July 2014 to 30 June 2015: Commonwealth Gazette C2015G01628 (8 October 2015).

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

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

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

5)    Visa holders, sponsors and migration agents – data matching program

The ATO has given notice of a data matching program under which the Department of Immigration and Border Protection will provide the ATO with names, addresses and other details of visa holders, their sponsors and migration agents for the 2013-14, 2014-15, 2015-16 and 2016-17 financial years: Commonwealth Gazette C2015G01712 (21 October 2015).

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|

Individual News – April

Income thresholds

Legislation was passed in October 2014 to pause for three years the income thresholds which determine the tiers for the Medicare levy surcharge and government rebate on private health insurance from the 2015-16 financial year. Usually the income amounts would be increased by an indexed amount, but this is not going to happen for the next three years. The tables below set out the income levels for singles and families and confirm the income amounts will remain the same from the 2015 to the 2018 income years:

Singles

Income Year Base Tier Tier 1 Tier 2 Tier 3
2013-14 $88,000 or less $88,001 – $102,000 $102,001 – $136,000 $136,001 or more
2014-15 $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more
2015-16 $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more
2016-17 $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more
2017-18 $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more

 

Family

Income Year Base Tier Tier 1 Tier 2 Tier 3
2013-14 $176,000 or less $176,001 – $204,000 $204,001 – $272,000 $272,001 or more
2014-15 $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more
2015-16 $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more
2016-17 $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more
2017-18 $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more

It is anticipated indexation to increase the income amounts will begin again from the 2018-19 income year.

 

Private health insurance rebate percentage

From 1 April each year, the private health insurance rebate percentages for premiums paid will be subject to an annual adjustment. The rebate adjustment factor is based on a formula that uses the Consumer Price Index and the average annual increase in premiums. The first annual adjustment occurred on 1 April 2014.

This means there will be two different rebates to enter in your tax return for each tax year:

  • from 1 July 2014 to 31 March 2015, and
  • from 1 April 2015 to 30 June 2015.

These different rebates appear on your private health insurance statement as two separate lines. Both must be entered on your tax return.

The rebate amount for the period 1 July 2014 to 31 March 2015 is:

Age range Base Tier Tier 1 Tier 2 Tier 3
Under 65 years 29.04% 19.36% 9.68% 0%
65 – 69 years 33.88% 24.20% 14.52% 0%
70 years and over 38.72% 29.04% 19.36% 0%

The rebate amount for the period 1 April 2015 to 30 June 2015 is:

Age range Base Tier Tier 1 Tier 2 Tier 3
Under 65 years 27.820% 18.547% 9.273% 0%
65 – 69 years 32.457% 23.184% 13.910% 0%
70 years and over 37.094% 27.820% 18.547% 0%

Please note: These figures became available 9 April 2015.

Private health insurance rebate – reversal of amendments

The ATO has advised that it regularly matches data with health insurers to identify taxpayers who received the private health insurance (PHI) rebate through reduced premiums and have also claimed them in their income tax return. When this double claim occurs, the ATO automatically amends the taxpayer’s assessment to remove the rebate.

The ATO has reviewed amendments to reverse double claims for the PHI rebate and has identified some that have been made outside the taxpayer’s period of review.

The ATO says that in limited circumstances an assessment may be amended at any time to give effect to the provisions that relate to the PHI rebate.

The ATO has advised that if there are taxpayers affected, the ATO will write to the taxpayer’s registered contact (this could be your tax agent) about this decision and tell them a notice of amended assessment will issue soon. If you have been affected by this, you may have already received a notice of amended assessment, in which case, you should talk to your tax agent about it.

Medicare Levy Surcharge amounts

 

The following Medicare Levy surcharge amounts apply for the 2014-15 Income Year depending on which income tier you fall into (refer to the income tables above):

Income Tier Base Tier Tier 1 Tier 2 Tier 3
Surcharge amount 0% 1% 1.25% 1.5%
To do!
Completing your private health insurance rebate information in your tax return has become a little tricky with the introduction of an annual adjustment on 1 April for the private health insurance rebate percentages as now you have double the information to include in your return. See your tax agent for help in completing this part of return.

 

As we’ve noted in previous editions of TaxWise, the phase-out of Net Medical Expenses Tax Offset (NMETO) began on 1 July 2013. To be eligible to claim the NMETO in the 2014-15 income year, you need to have been able to claim the offset and received it in your 2013-14 return. The NMETO is no longer available after 30 June 2015 unless the medical expenses you are claiming relate to specific medical items, such as disability aids, attendant care or aged care. However, only these expenses will be able to be claimed up to the 2018-19 income year.

Note!
The Net Medical Expenses Tax Offset is being phased out. You should check with your tax agent if you are still eligible to claim it.
Previous editions of TaxWise have noted the change in the superannuation guarantee rate amounts. The rates have been included again as, if you are an employee, you should make sure your employer is contributing the right amount into your superannuation account:

Year Superannuation guarantee rate percentage
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 9.5%
From 1 July 2019 9.5%
From 1 July 2020 9.5%
From 1 July 2021 10%
From 1 July 2022 10.5%
From 1 July 2023 11%
From 1 July 2024 11.5%
From 1 July 2025 12%
Note!
Check you are getting the right amount of super being paid into your super fund.
With the super guarantee rate having changed, it is worth remembering what the contributions caps are as well.

The concessional contributions general cap includes:

  • employer contributions (including contributions made under a salary sacrifice arrangement);
  • personal contributions claimed as a tax deduction by a self-employed person.

The non-concessional contributions cap includes personal contributions for which you do not claim an income tax deduction.

Both of these are noted in the table below.

Income year Concessional contributions general cap Non-concessional contributions cap
2014-15 $30,000** $180,000
2015-16 $30,000 $180,000

**If you are 49 years old or over on 30 June 2014, the concessional contributions cap is temporarily increased for the 2014-15 income year to $35,000. This cap is not indexed and will cease to apply when the indexed cap that otherwise applies reaches $35,000.

From 1 July 2013, if you exceed your concessional contributions cap, the excess amount will be included in your assessable income and taxed at your marginal rate. An interest charge also applies.

You can choose to release out of your super fund up to 85% of the excess contribution made if you complete an election form. If you do elect to release an amount, the ATO will issue your super fund with an ‘excess concessional contributions release authority’. Your super fund must pay the amount to be released to the ATO (as well as return the release authority statement) within 7 days.

The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

To do!
It is worth checking your super fund account to ensure no excess contributions have gone in, or if they have, considering whether you want to withdraw them. Talk to your tax agent if you are unsure whether the right amount of super has been paid into your account.

Amendment to taxing excess super contributions

Following on from the above, the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 amends some provisions that relate to the taxation of excess super contributions to:

  • provide individuals with an option to be taxed on the earnings associated with their excess superannuation non-concessional contribution at their marginal tax rate;
  • ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan are not disadvantaged through the transfer; and
  • remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred, and allow taxation officers to record or disclose personal information in certain circumstances.

If you are concerned you have made excess contributions to your super fund, speak to your tax agent about whether you are likely to be affected by any of these recent changes.

The Bill received Royal Assent on 19 March 2015.

The ATO noted in a recent media release that Australians with multiple superannuation accounts could be paying thousands of dollars in unnecessary fees every year. According to new figures released by the ATO, 45% of working Australians have more than one superannuation account.

The ATO is encouraging taxpayers with multiple accounts to consider consolidating their superannuation into one preferred account. Australian Prudential and Regulation Authority (APRA) figures show the median figure for fees and charges paid by Australians for a low cost superannuation account is $532 per year.

To do!
Do you have multiple super fund accounts and are wasting money on unnecessarily paying fees in all the funds? If so, it is time to combine all your super into one account. Your tax agent can help you to do this.
If you want to claim any of the following family assistance payments for the 2014 financial year, you must lodge your claim with the Department of Human Services (Centrelink) by 30 June 2015 to be eligible:

  • Family Tax Benefit
  • Child Care Benefit
  • Single Income Family Supplement (SIFS).

Your tax agent will be able to help you make this claim.

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

Income Tax

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

FBT

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

GST

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

(See GSTR 2014/3)

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

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

Also, at the time of writing, there is a Senate committee conducting an inquiry into how Australia should regulate digital currency, including how the tax system should treat digital currency, such as Bitcoin. The tax treatment for Bitcoin could potentially change pending the outcome of the inquiry due to report in August this year.

Crowdfunding involves using the internet and social media to raise funds for specific projects or particular business ventures. For ATO information about the GST treatment of crowdfunding, go to the ATO’s website.
In November last year, the ATO issued an addendum to Taxation Ruling TR 2005/7:

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

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

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

If you are in a partnership, this change might affect you. Talk to your tax adviser to see if you are affected in any way.

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

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

Note!
If you have a loan from a private company, check with your tax adviser to see if you need to take any corrective action.
If you have Activity Statements to lodge, even if your Activity Statement is nil for a particular period, the Activity Statement still needs to be lodged. Failure to lodge an activity statement, even one with zero obligations, may delay processing and result in penalties.

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

Tip!
The ATO has published some tips for getting your Activity Statement right which you can find on the ATO website.
The ATO has published the following information about the taxable payments reporting obligations of persons in the building and construction industry:

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

  • return label and amounts in question;
  • the proposed adjustments;
  • what to do in the event of a disagreement; and
  • where to find relevant information on ato.gov.au about what can be claimed, including QR reader codes to scan for smart phones or tablets.
To Do!
You should see your tax adviser if you have a rental property and receive one of these letters.
If you are selling or closing down a business, there are some important tax obligations for the business that you should attend to, such as:

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

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

a) Are you a director of a company?

The ATO advises that it has created a new page on its website with information about the director penalty regime, which is all about what happens when a company deducts PAYG withholding amounts from its employees’ salaries and wages, but fails to remit those amounts to the ATO. To access the page, go to the ATO website.

b) Deductibility of working with children checks

The ATO advises that the requirement for people to obtain a Working with Children check will be introduced in NSW and exists in many other states.

For information about when the cost of a working with children check is deductible, check the ATO website.

c) GST – avoiding common errors

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

d) Farm management deposits scheme

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

The Privacy Commissioner has issued a new privacy rule under the privacy law 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 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 (such as the Commissioner of Taxation and the trustees of a superannuation fund) 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.

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.

April 1st, 2015|

Individual News – September

It is that time of year again – it’s time to do your 2014 Income Tax Return. The financial year ended on 30 June 2014 so all individuals who earn income must now start to think about (and then do) their tax returns. Individuals generally should lodge their returns by 31 October 2014, however depending on your circumstances, you may be eligible to lodge your return at a later date if you lodge through a tax agent (ie in May or June 2015).

To do!
You should already be pulling out your financial statements and other information that you will need to prepare your tax return. It is highly recommended that you seek the assistance of your tax agent in preparing your tax return. They are highly experienced and know all the tips and tricks to getting your return right!
This year, the ATO is continuing to pay close attention to the $19.5 billion in work-related expenses individuals claim each year as deductions when they lodge their tax returns. Rather than focusing on particular occupations as it has done in the past, this year the ATO is focusing on particular types of work-related expense claims relating to:

  • overnight travel;
  • transporting bulky tools and equipment; and
  • the work-related proportion of use for computers, phones or other electronic devices.

If you usually claim these types of deductions, or are planning to in your 2014 return, you should bear in mind that the ATO will be closely scrutinising these claims.

The ATO will also continue to review incorrect or excessive claims for all other work-related expenses.

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.

Details about some of the more significant changes can be found below in this edition of TaxWise below.

Individuals and families

  • A three year temporary levy of 2% (the ‘Budget Repair Levy’) will be imposed on individuals’ taxable income in excess of$180,000 a year, from 1 July 2014 until 30 June 2017.
  • The dependent spouse tax offset (DSTO) will be abolished for all taxpayers from 1 July 2014.
  • The mature age worker tax offset will be abolished from 1 July 2014.
  • The Medicare levy low-income threshold for families will be increased from the 2013/14 income year.
  • The First Home Saver Accounts scheme will be abolished from 1 July 2015.
  • From 1 July 2014, taxpayers will receive a tax receipt showing how and where their tax dollars were used.
  • The income threshold at which students commence repayment of their Higher Education Loan Programme (HELP) debts will be reduced with effect from 1 July 2016.
  • Various reforms will be introduced to the pension system including increasing the qualifying age for the Age Pension to 70 by 1 July 2035.
  • The eligibility age for the Newstart Allowance and Sickness Allowance will increase from 22 to 24 years from 1 January 2015.
  • Various reforms to the Family Tax Benefit (FTB) Part A and Part B payments will be introduced, including reducing the FTB Part B primary earner income limit to $100,000 pa and changing certain eligibility requirements. A new $750 allowance will be introduced for single parents on the maximum FTB Part A rate, but who will no longer receive FTB Part B payments due to eligibility changes. These measures largely commence on 1 July 2015, with some transitional arrangements.
  • Changes will be made to the Medicare system relating to patient contributions, indexation of fees and thresholds, and Medicare safety net arrangements.
  • Individuals will be given the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate.

Superannuation

The schedule for increasing the superannuation guarantee rate to 12% will be changed.

The law introducing the 2% Temporary Budget Repair Levy payable by high income earners (individuals earning over $180,000 a year), passed into law in June this year.

The levy is payable at a rate of 2% of each dollar of an individual’s annual taxable income over $180,000. No levy is payable where the taxpayer has a taxable income of $180,000 or less except in cases where a tax law integrity rule applies the top personal marginal tax rate as a flat rate to certain types of income.

The levy only applies to the income years in the period 1 July 2014 to 30 June 2017 (ie the 2015, 2016 and 2017 years).

Note!
If you think you might have to pay the Temporary Budget Repair Levy, and are not sure, speak to your tax agent.
Following the announcement in the 2014-15 Federal Budget, the family income threshold for the 2013-14 income year has been $34,367 (from $33, 693 in 2012-13). The child-student component of the family income threshold for the 2013-14 income year has been increased to $3,156 (from $3,094 in 2012-13).

These amendments apply to assessments for the 2013-14 income year and later income years.

The legislation that was introduced in 2009 to allow the Government to pay tax bonus payments (the $900 stimulus cheques) was repealed in May this year. No further stimulus cheques will be issued.

The previous edition of TaxWise alerted readers to this change which has now come into law.

Several tax measures introduced when the Minerals Resource Rent Tax (MRRT) was introduced in 2012 are set to be repealed when the MRRT is repealed. The measures directly relevant to individual taxpayers that will be affected are:

  • low income superannuation contribution;
  • the income support bonus; and
  • Schoolkids bonus.

Two attempts have been made to repeal the MRRT and the other measures affected. However, at the time of writing, the Bill to repeal these measures had not yet been passed.

The scaled increase to the superannuation guarantee rate will also be affected by the Bill that repeals the MRRT. Per the announcement made in the 2014-15 Federal Budget, it was planned to increase the rate to 9.5% from 1 July 2014, pause at this level until 30 June 2018 and then start to raise it by 0.5% each year, reaching 12% in the 2022-23 income year, one year later than previously proposed.

However, this has not been included in the current Bill before Parliament. Instead what is currently before Parliament is that the rate will remain at 9.25% until 1 July 2016 where it will increase to 9.5% and then gradually rise in 0.5% increments each year to 12% over the following 5 years. 12% will be reached by 1 July 2021.

See the following table:

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

However, at the time of writing, this was not yet law so it is not yet certain how the superannuation guarantee rates will change over the next few years.

Tip!
If you are wondering about the progress of any of these changes, it is best to contact your tax adviser. They will be able to tell you if any of these changes have come into effect or whether they are no longer going to happen.
Built into the current law are some changes to the individual income tax rates that are set to take effect from 1 July 2015. They are:

  • the tax-free threshold to increase to $19,400;
  • the second personal marginal tax rate to increase to 33%;
  • the maximum value of the Low Income Tax Offset (LITO) to fall to $300;
  • the withdrawal rate of the LITO to fall to 1%; and
  • the threshold below which a person may receive LITO to increase to a taxable income of $67,000.

The current Government is seeking to ensure these changes do not go ahead. The tax cuts were intended to compensate for the cost of the carbon tax. However, the carbon tax was repealed in July this year.

Currently, there is a Bill before Parliament to repeal these changes. Should this Bill pass through Parliament, this will mean that:

  • the tax-free threshold will remain at $18,200 rather than increase to $19,400;
  • the maximum value of the LITO will remain at $445 rather than fall to $300;
  • the second personal marginal tax rate will remain at 32.5% rather than increase to 33%;
  • the withdrawal rate of the LITO will remain at 1.5% rather than fall to 1%; and
  • the threshold below which a person may receive LITO will remain at a taxable income of $66,667 rather than increase to a taxable income of $67,000.

 

Note!
Your tax agent will be able to keep you informed of the changes to the superannuation guarantee and if the proposed changes to the individual income tax rates are going to go ahead.
On 27 March 2014, the ATO announced the beginning of Project DO IT: Disclose Offshore Income Today. Through this initiative, the ATO is urging all taxpayers with offshore assets to declare their interests, ahead of a global crackdown on international tax havens.

The ATO advises that if taxpayers 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.

This initiative provides taxpayers 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.

In July this year, the ATO advised that it is mining data it has to identify individuals with undisclosed offshore income and assets. The new information will be used to encourage people to disclose under Project DO IT.

The ATO will significantly increase its compliance focus by examining data including information from overseas tax authorities on Australians with offshore investments and bank accounts, information from Australian and foreign banks on fund flows, interest and account balances, information from informants about offshore accounts, and money transfers to and from offshore bank accounts.

The ATO says that up to 30 June 2014, the Project DO IT initiative had received significant interest with 166 disclosures raising an additional $13 million in tax liabilities. There have been more than 250 expressions of interest, where taxpayers have identified themselves and said they will be making a disclosure. There have also been more than 600 general enquiries.

To do!
If you have offshore income and assets and are wondering if you are affected by Project DO IT, it is highly recommended you contact your tax adviser. Your tax adviser will be able to assist you if you have any concerns or believe you might have income or assets that you haven’t already declared to the ATO.
This year, the ATO has been cracking down on dividend washing arrangements. These arrangements involve taxpayers getting two lots of franking credits on the same number of shares (normally you are only entitled to one lot of franking credits).

Dividend washing is a practice through which taxpayers seek to claim two sets of franking credits by selling shares held on the Australian Securities Exchange (ASX) and then effectively repurchasing the same parcel of shares on a special ASX trading market. The timing of this transaction occurs after the taxpayer becomes entitled to the dividend but before the official record date for dividend entitlements.

A new integrity rule applying from 1 July 2013 has been introduced into the tax law to prevent dividend washing from occurring. Where a taxpayer receives a dividend as a result of dividend washing, they are:

  • not entitled to a tax offset for the franking credits associated with the dividend received on the equivalent parcel of shares purchased on the special ASX trading market;
  • not required to include the amount of the franking credits on those shares in their assessable income.

Penalties can apply to taxpayers participating in these schemes.

In March this year, the ATO began targeting taxpayers who they thought may have been caught up in dividend washing schemes. In mid-August, the ATO commenced the next phase of targeting taxpayers who the ATO think may have been involved in dividend washing schemes.

More information about dividend washing can be found on the ATO website.

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.
On 30 July 2014, the ATO issued Taxation Ruling TR 2014/5 entitled “Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate)”.

The Ruling is concerned with the tax impact of transfers of money or property from private companies to separating spouses that comply with an order made s 79 of the Family Law Act 1975 (Cth). The Ruling considers that these can amount to a dividend and therefore are taxable in the hands of the individual who receives the money or property.

To do!
If you are in the midst of such proceedings and money and property sitting in a private company is involved, you should seek advice from your tax adviser about what this might mean for you and whether you could potentially have a tax liability arise.
From 1 July 2014, the ATO is offering new and simpler tax returns that will allow people to lodge their tax returns through a smartphone, tablet or computer using their web browser.

This is an online and substantially pre-prepared tax return for people with very simple tax affairs and is intended to reduce the time needed to prepare and lodge an income tax return.

However, MyTax is only suitable for individuals with very basic tax affairs (eg you earn a salary or wage and only have very minor deductions to claim).

For example, taxpayers will not be eligible to use MyTax if they have:

  • business income or losses;
  • rental properties;
  • partnerships or trusts, including managed investment trusts;
  • capital gains or losses;
  • foreign income;
  • lump sum payments;
  • employee share schemes; and
  • superannuation income streams and superannuation lump sum payments.

If your circumstances have any complexity in them at all, or you are simply unsure about deductions you might be entitled to, you should always seek the assistance of a tax agent.

Note!
Even if you think your tax affairs are simple, it is always better to seek the advice and assistance of a tax agent. Australia’s tax system is complex and you never know what you might be missing that could cause you to get your tax return wrong.
  1. Business Industry Codes

The Business industry codes 2014 for use by individuals, partnerships, trusts and companies to assist with the completion of 2014 tax returns have been released.

  1. 2014 PAYG withholding schedules made

The 2014 PAYG withholding schedules have been made. They apply from 1 July 2014 and incorporate changes, such as the increase in the Medicare levy from 1.5% to 2% and the temporary Budget Repair Levy. Individuals wanting to know how much tax should be withheld from their pay can refer to the tables published on the ATO website to find out.

  1. Changes to private health insurance policy labels

Some changes to the private health insurance labels on the Individual Tax Return form have been made. From 1 April 2014, private health insurance rebate percentages are subject to an annual adjustment. This means that there will be two different rebates that will need to be shown on your income tax return for 2014 and in future years. There is further information about this on the ATO website, though it would be wise to see your tax agent for assistance in completing this part of your tax return form to make sure you get it right.

  1. Tax receipts

From 2014 onwards, taxpayers are going to receive a ‘tax receipt’ with their tax return that will show approximately how the tax paid by taxpayers contributes to government expenditure.

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 1st, 2014|