What’s next on the agenda for the government?

With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years. Two significant policies that Labor took to the election were child care changes (both in terms of the subsidy and structural changes) and dealing with multinational tax avoidance. In relation to the latter, it proposed a multifaceted approach by limiting debt-related deductions for multinationals, denying a tax deduction for intellectual property in some instances, and increasing transparency.

Multinational tax avoidance

One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia. To do this, Labor proposes a multipronged approach which includes:

• Limiting debt-related deductions (ie interest payments) by multinationals at 30% of profits to put an end to the creation of artificial debts and repayment arrangements within related entities. Further deductions over 30% may be considered if firms can substantiate those under either the arm’s length or the worldwide gearing ratio test.
• Limiting the ability of large multinationals to abuse Australia’s tax treaties while holding intellectual property in tax havens from 1 July 2023. Essentially, this means that if a firm makes payments for the use of intellectual property to a jurisdiction where they do not pay “sufficient tax”, a tax deduction in Australia will be denied for those payments.
• Increasing transparency by requiring large multinational firms to publicly release high-level data on how much tax they pay in the jurisdictions they operate in, along with the number of employees working in their business.
• Implementation of a public registry of beneficial ownership to show who ultimately owns, controls, or receives profits from a company or legal vehicle. This will stop individuals hiding behind complex corporate structures that avoid accountability and obscure their tax liabilities.
• Mandatory reporting to shareholders as a “material tax risk” where the company is doing business in a jurisdiction with a tax rate below the global minimum (15%).
• Requiring government tenderers for contracts worth more than $200,000 to disclose their country of tax domicile.

Child care subsidy

During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care. The following table summarises the current and Labor-proposed child care subsidy income thresholds and percentages.

In addition, Labor will be seeking to retain the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.

Over the longer term, it is also likely that Labor will be engaging with the Australian Competition and Consumer Commission (ACCC) to design a price regulation mechanism for child care and with the Productivity Commission to conduct a comprehensive review of the sector with the aim of implementing a universal 90% subsidy for all families.

Other areas to watch

During the election campaign Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.

Tax time 2022: ATO focus areas

Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure that individuals are doing the right thing and paying the right amount of tax. These key areas are considered by the ATO to be problem areas where individuals make the most mistakes.

Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time, avoiding the need for amendments which can delay processing and refunds. In the past, it has been noted that individuals who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.

The ATO also reminds taxpayers that while it receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals. Taxpayers will therefore need to ensure that all that information is included to avoid being caught up in ATO data-matching programs later on.

Some of the traditional areas that the ATO will be focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares. In addition, this year the ATO will focus on capital gains from cryptocurrency assets. It should be noted, however, that with recent crashes in cryptocurrency values, individuals are more likely to have related capital losses.

The ATO reminds taxpayers that any deductions that are claimed require substantiation, and those individuals who deliberately attempt to increase their refunds by falsifying records or are unable to provide evidence to substantiate their claims will be subject to “firm action”. For taxpayers who are working from home or in hybrid working arrangements and claim related expenses, the ATO has said it will be expecting a corresponding reduction in other expenses claimed, such as car, clothing, parking and tolls expenses.

Currently, there are still three methods available for taxpayers to deduct working from home expenses. These are actual cost, fixed rate and the all-inclusive shortcut method (80 cents per hour). Taxpayers should check their eligibility and work out which one that suits their own situation the best.

With the intense flooding experienced earlier this year, the ATO notes that some rental property owners may have insurance payouts related to their property. Any insurance payouts, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.

Lastly, the ATO will be keeping a close eye on individuals disposing of property, shares, and cryptocurrency, including non-fungible tokens (NFTs). Those with a capital gain need to include the gain in their tax return and pay tax on the gain at their marginal tax rates. Individuals who have recently sold out of cryptocurrency assets may have experienced a capital loss, which the ATO warns cannot be offset against other income such as salary and wages, and only against other capital gains.

Tax return checklists

Last month’s edition of Client Alert (May 2022) included a handy set of checklists for individual tax returns, super fund tax returns and company, trust or partnership tax returns to assist your clients in compiling all of the necessary information before seeing you about their returns this tax time.

Source: www.ato.gov.au/Media-centre/Media-releases/Four-priorities-for-the-ATO-this-tax-time/

Single Touch Payroll: Phase 2

While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have obtained deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software such as tax file numbers (TFNs) or Australian business numbers (ABNs) for payees, employment start dates for employees and details about employees’ basis of employment according to work type. Income and allowance information for individual employees will be further disaggregated and will also require reporting of more details.

Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run. Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems will need to be reported through the payroll software. A salient example is the start date of employees. While many newer businesses may have that information handy, older businesses may have trouble finding records of exact start dates, particularly for their long-serving employees. In those instances, the ATO notes that a default commencement date of 01/01/1800 can be reported for STP Phase 2 purposes.

Employers will also be required to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN is not available for an employee, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.

In addition to reporting TFNs and commencement dates for employees, employers are now also required to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement (is a contractor with their own ABN but is in a voluntary agreement with the business to bring payments into the PAYG system), a death beneficiary, or a non-employee (ie not in the scope of STP but included for the voluntary reporting of superannuation liabilities).

The report generated for STP Phase 2 will include a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from payments to these employees. Most STP solutions will automatically report these codes, but employers should still understand what the codes are to ensure that they are correct. For example, RTSXXX refers to regular (R) employees with a tax-free threshold (T), who have study and training support loans (S) and who have not asked for a variation of amount withheld due to Medicare levy surcharge (X) or Medicare levy exemption (X), or Medicare levy reduction (X).

The income and allowance details attributed to employees will also be further drilled down in Phase 2. For example, instead of reporting a single gross amount of employees’ income, employers need to separately report on gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments (lump sum W) and salary sacrifice amounts.

If your DSP has a deferral in place, you do not need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.

Source: www.ato.gov.au/Business/Single-Touch-Payroll/Expanding-Single-Touch-Payroll-(Phase-2)/

www.ato.gov.au/Business/Single-Touch-Payroll/Need-more-time/STP-expansion-(Phase-2)-delayed-transitions/

ATO resumes collecting aged debts

Taxpayers with aged debts that the ATO had paused collecting or put on hold should be aware that offsetting aged debts against tax refunds or credits has now resumed. The aged debts can be offset either from ATO accounts or credits from other government agencies, although a debt will not be offset if the only available credit relates to a Family Tax Benefit amount.

“Aged debts” is a collective term the ATO uses to refer to uneconomical non-pursued tax debts that it has placed on hold and has not undertaken any recent action to collect. These debts do not typically show up on the online accounts of the taxpayers as an outstanding balance as the ATO has made them “inactive”.

Usually when a debt is put on hold, the ATO notifies the taxpayer via a letter that the debt collection has been paused, although any credits that the taxpayer is entitled to will be offset against the debt. In addition, the ATO will note that it reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection.

While most taxpayers (or their tax agents) should have received their aged debts letter by now, some may not have received anything, due to a change of address or patchiness in the postal service. The first clue for those taxpayers that they may have an aged debt may be when they notice that their refund is less than expected or that a credit on one account is less than it should be. To avoid surprises, taxpayers who are unsure whether they have aged debt can check their online services for a transaction with the description “non-pursuit” on their statement of account.

It’s important to remember that those with multiple accounts need to check all relevant accounts for that description to ensure they do not have an aged debt.

Taxpayers with aged debts who are unable to or choose not to pay all or part of the debt may find that they end up paying more, as general interest charge (GIC) may be automatically applied even where the debt is “on hold”. Where the ATO offsets aged debts either from ATO accounts or credits from other government agencies, taxpayers will be notified that the debt has been re-raised and offset. If it is offset against an ATO account, taxpayers will be able to find a transaction on online services with the description “offset”.

By law, the ATO is required to offset credits against any tax debts owed – except in some very limited circumstances, such where the taxpayer already has a fully compliant payment plan for outstanding debts; where the tax debt is a future debt or is related to a director penalty liability; where a deferral has been granted for recovery action; or where the available credit is a Family Tax Benefit amount.

Taxpayers that do not meet these criteria and are unable to pay their aged debt may be able to apply for a review or a debt waiver depending on their circumstances. For example, a permanent release of a debt may be available to on the basis of serious hardship (ie where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education).

Source: www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Resuming-offsetting-of-debts-on-hold/

www.ato.gov.au/General/Paying-the-ATO/How-much-you-owe/Debts-on-hold/

Operation Protego: detecting GST fraud

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, in order to warn the business community to not engage with fraudulent behaviour and to encourage those who have fallen into the trap to voluntarily disclose, before the application of tougher penalties.

Recently, the ATO has seen a rise in the number of schemes where taxpayers invent fake businesses in order to submit fictitious Business Activity Statements (BASs) and obtain illegal refunds. Most of these schemes have been promoted through social media and it has become such an issue that the ATO has commenced Operation Protego to tackle the problem.

According to the ATO, Operation Protego was initiated when its risk models, coupled with intelligence received from the banks, AUSTRAC-led Fintel Alliance, and the Reserve Bank of Australia (RBA), identified escalation of suspicious refunds. The operation itself is specifically investigating people inventing fake businesses to obtain Australian business numbers (ABNs), which are then used to submit fictitious BASs and get GST refund payments these “business owners” are not actually entitled to receive.

The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in potentially fraudulent payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts. The ATO notes that while $850 million in fraudulent payments is a substantial sum, the operation has been able to stop many more fraud attempts.

It may be the case that not all of the individuals involved in these refund schemes know they are doing something illegal. For example, schemes promoting loans from the ATO or obtaining government disaster payments from the ATO have been on the rise on various social media platforms. Ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.

“We are working with social media platforms to help remove content promoting this fraud, but if you see something that sounds too good to be true, it probably is”, Will Day, ATO Deputy Commissioner and Chief of the Serious Financial Crime Taskforce, has said.

The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort. Government disaster payments are administered through Services Australia if they are Federal Government payments (eg Australian Government Disaster Recovery Payments), or through various state and territory government bodies if they are state or territory government payments (eg Disaster Relief Grants from the NSW government administered by Resilience NSW).

Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details as a prerequisite to obtaining a fictitious loan or government disaster payment. Taxpayers who may have shared myGov login details for themselves or their business with scheme operators are encouraged to contact the ATO for assistance.

Another red flag the ATO is on the look-out for as a part of Operation Protego is activity backdating when a business is set up. It notes that backdating in conjunction with seeking a GST refund will flag a business as high risk and will subject it to more scrutiny, as well as compliance action.

While Operation Protego is running, the ATO notes that people and businesses acting legitimately may be affected by the extra controls put in place to stop fraudulent refunds.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-warns-community–do-not-engage-in-GST-fraud/

More ATO action on super guarantee non-compliance

Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO advises it will be prioritising engaging with taxpayers that have SG debts, irrespective of the debt value.

The Australian National Audit Office (ANAO) has recently issued a report on the results of an audit conducted on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance.

To measure the level of non-compliance in this area, the ATO uses a measure called the SG gap, which is an estimate of the difference between the amount the ATO collects and what would have been collected if every taxpayer was fully compliant. The most recent data from the ATO was published in 2021 and indicated that the Australian total net SG gap in 2018–2019 was around $2.5 billion.

Overall, the ANAO report found that ATO activities addressing SG non-compliance have been only partly effective. This also held true for the risk-based SG compliance framework in which the ATO operates. The report notes that while there was some evidence that the ATO’s compliance activities were improving employer compliance, the extent of improvement could not be reliably assessed.

The report makes three recommendations to improve ATO compliance activities in relation to SG non-compliance. The first is that the ATO should implement a preventative approach to SG compliance. The second is that the ATO should assess its performance measures against the Public Governance Performance and Accountability Rule 2014 and enhance its public SG performance information. This includes setting targets for measures such as the SG gap and having explanations for performance results, as well as changes over time.

While the first two recommendations are likely to have a negligible practical impact on day-to-day operations for employers in general, the ANAO’s third and final recommendation may be a different story. Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.

In its reply to the ANAO report, the ATO agrees with this third recommendation and states that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced. With the recommencement of recovery actions, the ATO’s focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.

The ATO’s reply also agrees with the first two recommendations in whole or part. It says that it has already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. The ATO expects to continuing prioritising a preventative approach while also strengthening its data capability.

In addition, the ATO has indicated it will continue to investigate every complaint received in relation to the non-payment of SG, and take action where non-payment is identified. The actions available include the imposition of tax and super penalties, as well as the recovery and back-payment of super to employees. It will also be increasing transparency of compliance activities and employer payment plans so that affected employees are aware of the expected timing of back payments of super.

Source: www.anao.gov.au/work/performance-audit/addressing-superannuation-guarantee-non-compliance

www.ato.gov.au/Media-centre/Media-releases/Statement-on-ANAO-performance-audit–Addressing-Superannuation-Guarantee-Non-compliance-audit/

www.ato.gov.au/Business/super-for-employers/missed-and-late-super-guarantee-payments/

Employees vs contractors: more clarity coming

For many businesses, the line between employees and contractors is becoming increasingly blurred, partly due to the rise of the gig economy. However, businesses should be careful, as incorrectly classifying employees as contractors may be illegal and expose the business to various penalties and charges.

Recently, the High Court handed down a significant decision in a case involving the distinction between employees and contractors. In the case, a labourer had signed an Administrative Services Agreement (ASA) with a labour hire company to work as a “self-employed contractor” on various construction sites. The Full Federal Court had initially held that the labourer was an independent contractor after applying a “multifactorial” approach by reference to the terms of the ASA, among other things. The High Court, however, overturned that decision and held that the labourer was an employee of the labour hire company.

The High Court held that the critical question was whether the supposed employee performed work while working in the business of the engaging entity. That is, whether the worker performed their work in the labour hire firm’s business or in an enterprise or business of their own.

As a result of the decision, the ATO has said it will review relevant rulings, including super guarantee rulings on work arranged by intermediaries and who is an employee, as well as income tax rulings in the areas of PAYG withholding and the identification of employer for tax treaties.

Movement at the FBT station: COVID-19 tests, car parking

FBT is generally seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.

RATs for employees

The 2022–2023 Federal Budget included a measure, now passed into law, to make costs for taking a COVID-19 test to attend their workplace tax-deductible for individuals from 1 July 2021.

COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees are considered benefits under the FBT regime.

However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero. The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.

Neat solution. Well, apart from the catch: employee-level declarations could be required when the provision of a RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).

Where a RAT is provided as an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).

In case collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend your time, we see three options at this stage:

• assess the potential application of the minor benefit rule to your situation;
• explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
• use an automated, electronic declaration tool to take some pain out of the process.

 “Commercial parking station” definition

As a reminder:

• a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
• there must be a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
• “all-day parking” means parking continuously for at least six hours between 7 am and 7 pm.

The scope of the term “commercial parking station” is therefore fundamental to determining if an employer has taxable car parking benefits.

Broadly, a commercial parking station is one where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.

The ATO issued a ruling in 2021 that no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking (usually charging significantly higher rates) are not commercial parking stations. This was to apply from 1 April 2022.

In effect, this would bring facilities like shopping centre car parks and hospital car parks into the definition of a “commercial parking station”. For employers with only that type of parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.

The Federal Government has announced it will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits, which is closer to the original policy intent of the car parking FBT provisions. The readjusted definition would then apply from 1 April 2022 instead.

ATO urges vigilance: new TFN and ABN scams

The ATO is urging people and businesses to be vigilant following an increase in reports of fake websites offering to provide tax file numbers (TFN) and Australian business numbers (ABN) for a fee, but failing to provide those services.

The fake TFN and ABN services are often advertised on Facebook, Twitter or Instagram. The scammers use the fraudulent websites they advertise to steal both money and personal information.

Tip: The ATO and Australian Business Register (ABR) do not charge fees for providing a TFN or an ABN. It’s free, quick and easy to use government services online to apply for a TFN through the ATO, or apply for an ABN through the ABR.

The ATO is also still seeing scammers impersonating the ATO, making threats, demanding the payment of fake tax debts or claiming a TFN has been “suspended” due to fraud.

In 2021, more than 50,000 people reported various ATO impersonation scams, with victims losing a total of more than $800,000.

Tips to protect yourself from scammers

• Know your tax affairs – You will be notified about your tax debt before it is due. Check if you have a legitimate debt by logging into your myGov account or calling your tax agent. Find the contact details for the ATO or your tax agent independently by searching online or using your own paper records – don’t trust details provided by possible scammers.
• Guard your personal and financial information – Be careful when clicking on links, downloading files or opening attachments. Only give your personal information to people you trust and don’t share it on social media.
• If you’re not sure, don’t engage – If a call, SMS or email leaves you wondering if it’s genuine, don’t reply. You can phone the ATO’s dedicated scam line on 1800 008 540 to check if it is legitimate. You can also verify or report a scam online at www.ato.gov.au/scams and visit ScamWatch at www.scamwatch.gov.au to get information about scams (not just tax scams).
• Know legitimate ways to make payments – Scammers may use threatening tactics to trick you into paying fake debts via unusual methods. For example, they might demand pre-paid gift cards or transfers to non-ATO bank accounts. To check that a payment method is legitimate, visit www.ato.gov.au/howtopay.

Federal Budget fuel excise reduction: will all businesses benefit?

The uncertainty around availability of fuel has seen fuel prices soar across Australia. The 2022–2023 Federal Budget proposed an answer for this by way of a temporary (six-month) reduction to fuel excise.

The six-month reduction is now law, and will end at midnight on 28 September 2022.

For petrol and diesel, this means an excise reduction from 44.2 to 22.1 cents per litre, which is already being felt by users at the pump. But who will actually benefit from this Budget promise and what does it mean for businesses claiming fuel tax credits (FTCs)?

Snapshot: who will benefit?

Individuals:

• all fuel uses of individuals – benefit of 22.1 cents per litre.

Businesses:

• businesses operating light vehicles on public roads – benefit of 22.1 cents per litre;
• businesses operating heavy vehicles on public roads – benefit of 4.3 cents per litre;
• businesses operating vehicles on private roads – no benefit; and
• businesses using fuel for non-vehicle use (auxiliary, machinery, plant and equipment) – no benefit.

What should businesses do?

For businesses that currently claim FTCs, it’s important to understand the impact of these changes on their FTC entitlement and to adjust their FTC process accordingly.

We expect there will be increased complexity for businesses claiming FTCs in the first few weeks of the temporary measure and the weeks following its conclusion. This is because the changes in fuel excise are expected to trickle through from fuel suppliers depending on where businesses are located and how they purchase their fuel. Businesses will be required to determine which rate of fuel excise has been applied to fuel purchases to determine the rate of fuel tax credit available.

ATO’s COVID-related support for SMSFs

Because of the financial impacts of COVID-19, trustees of a self managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.

In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years.

This generally includes not taking any compliance action against an SMSF and not requiring the SMSF auditor to report related contraventions in the following areas:

• where an SMSF trustee or a related party of the SMSF offered rental relief to a tenant due to COVID-19;

Tip: Temporary changes to a lease agreement for rental relief need to be properly documented, together with the reasons for those changes. A formal variation of the lease may need to be executed.

• where a plan to get the value of SMSF’s in-house asset holdings below 5% of the fund’s total assets couldn’t be executed in time because of COVID-19;
• where a fund offered loan repayment relief because the borrower was experiencing difficulty repaying the loan because of COVID-19;
• where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period; and
• where a fund has a limited recourse borrowing arrangement (LRBA) with a related party lender, and the lender offered COVID-19 loan repayment relief to the fund.

Trustees must properly document all of these sorts of relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

2022/23 Federal Budget

PERSONAL TAXATION

Personal tax rates unchanged for 2022–2023

In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.

The 2022–2023 tax rates and income thresholds for residents are unchanged from 2021–2022:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – 19% of excess over $18,200;
• taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
• taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
• taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.

Stage 3: from 2024–2025

The Stage 3 tax changes will commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.

Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Low income offsets: LMITO temporarily increased, LITO retained

The low and middle income tax offset (LMITO) will be increased by $420 for the 2021–2022 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021–2022 (up from the current maximum of $1,080).

This one-off $420 cost of living tax offset will only apply to the 2021–2022 income year. Importantly, the Government did not announce an extension of the LMITO to 2022–2023. So it remains legislated to only apply until the end of the 2021–2022 income year (albeit up to $1,500 instead of $1,080).

The Government said the LMITO for 2021–2022 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021–2022 income year. Other than those who do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. That is, the proposed one-off $420 cost of living tax offset will increase the maximum LMITO benefit in 2021–2022 to $1,500 for individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000).

All other features of the current LMITO remain unchanged (including that it will only apply until the end of the 2021–2022 income year). Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.

As already noted, the Government has proposed that eligible taxpayers with income up to $126,000 will receive the additional one-off $420 cost of living tax offset for 2021–2022 on top of their existing LMITO benefit.

Currently, the amount of the LMITO for 2021–2022 is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.

Low income tax offset (unchanged)

The low income tax offset (LITO) will also continue to apply for the 2021–2022 and 2022–2023 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.

The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Medicare levy low-income thresholds increased

For the 2021–2022 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020–2021). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020–2021). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020–2021). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student.

Legislation is required to amend these thresholds, and a Bill will be introduced shortly.

COVID-19 test expenses to be deductible

The Budget papers confirm that the costs of taking COVID-19 tests – including polymerase chain reaction (PCR) tests and rapid antigen tests (RATs) – to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.

This measure was previously announced on 8 February 2022.

COST OF LIVING MEASURES

One-off $250 cost of living payment

The Government will make a $250 one-off cost of living payment in April 2022 to six million eligible pensioners, welfare recipients, veterans and eligible concession card holders.

The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. A person can only receive one economic support payment, even if they are eligible under two or more of the eligible categories.

The payment will only be available to Australian residents who are eligible recipients of the following payments, and to concession card holders:

• Age Pension;
• Disability Support Pension;
• Parenting Payment;
• Carer Payment;
• Carer Allowance (if not receiving a primary income support payment);
• Jobseeker Payment;
• Youth Allowance;
• Austudy and Abstudy Living Allowance;
• Double Orphan Pension;
• Special Benefit;
• Farm Household Allowance;
• Pensioner Concession Card (PCC) holders;
• Commonwealth Seniors Health Card holders; and
• eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

Temporary reduction in fuel excise

The Government will reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for six months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50% for six months.

The Treasurer said this measure will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents. Mr Frydenberg said a family with two cars who fill up once a week could save around $30 a week, or around $700 over the next six months. The Treasurer made a point of emphasising that the Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on.

The measure will commence from 12.01 am on 30 March 2022 and will remain in place for six months, ending at 11.59 pm on 28 September 2022.

BUSINESS TAXATION

Deduction boosts for small business: skills and training, digital adoption

The Government announced two support measures for small businesses (aggregated annual turnover less than $50 million) in the form of a 20% uplift of the amount deductible for expenditure incurred on external training courses and digital technology.

External training courses

An eligible business will be able to deduct an additional 20% of expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training.

The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2024.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Digital adoption

An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.

PAYG instalments: option to base on financial performance

The Budget papers confirm the Treasurer’s earlier announcement that companies will be allowed to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software (with some tax adjustments).

The commencement date is “subject to advice from software providers about their capacity to deliver”. It is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date. There are no details yet as to what tax adjustments will be required (although presumably this will involve a reverse, modified form of tax effect accounting).

PAYG and GST instalment uplift factor

The Budget papers confirm the Treasurer’s earlier announcement that the GDP uplift factor for PAYG and GST instalments will be set at 2% for the 2022–2023 income year. The papers state that this uplift factor is lower than the 10% that would have applied under the statutory formula.

The 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022–2023 income year and fall due after the enabling legislation receives assent.

More COVID-19 business grants designated NANE income

The Government has extended the measure which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable, non-exempt (NANE) income for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.

Consistent with this, the Government has made the following state and territory grant programs eligible for this treatment since the 2021–2022 Mid-Year Economic and Fiscal Outlook:

• New South Wales Accommodation Support Grant
• New South Wales Commercial Landlord Hardship Grant
• New South Wales Performing Arts Relaunch Package
• New South Wales Festival Relaunch Package
• New South Wales 2022 Small Business Support Program
• Queensland 2021 COVID-19 Business Support Grant
• South Australia COVID-19 Tourism and Hospitality Support Grant
• South Australia COVID-19 Business Hardship Grant.

The changes are part of an ongoing series of announcements which will continue to have effect until 30 June 2022.

TAX COMPLIANCE AND INTEGRITY

Digitalising trust income reporting

The Budget confirms the Government’s previously announced intention to digitalise trust and beneficiary income reporting and processing.

It will allow all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes. There are no other additional details in the Budget papers than in the earlier announcement.

The measure will commence from 1 July 2024 – “subject to advice from software providers about their capacity to deliver”.

The Government advises that it will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications.

Taxable payments data reporting: option to link to BAS cycle

The Budget confirms the Treasurer’s earlier announcement that businesses will be provided with the option to report taxable payments reporting system data on the same lodgment cycle as their activity statements, via accounting software. The rules for the taxable payments reporting system are contained in Subdiv 396-B of Sch 1 to the Taxation Administration Act 1953.

The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of the measure.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024.

SUPERANNUATION

Super guarantee: rate rise unchanged

The Budget did not announce any change to the timing of the next super guarantee (SG) rate increase. The SG rate is currently legislated to increase from 10% to 10.5% from 1 July 2022, and by 0.5% per year from 1 July 2023 until it reaches 12% from 1 July 2025.

With the SG rate set to increase to 10.5% for 2022–2023 (up from 10%), employers need to be mindful that they cannot use an employee’s salary-sacrificed contributions to reduce the employer’s extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement (defined in s 15A of the Superannuation Guarantee (Administration) Act 1992) are not treated as employer contributions which reduce an employer’s charge percentage.

Super Guarantee opt-out for high-income earners

The increase in the SG rate to 10.5% from 1 July 2022 also means that the SG opt-out income threshold will decrease to $261,904 from 1 July 2022 (down from $275,000). High-income earners with multiple employers can opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap ($27,500 for 2021–2022 and 2022–2023). Therefore, the SG opt-out threshold from 1 July 2022 will be $261,904 ($27,500 divided by 0.105).

Superannuation pension drawdowns

The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to 30 June 2023.

The 50% reduction in the minimum pension drawdowns, which has applied for the 2019–2020, 2020–2021 and 2021–2022 income years, was due to end on 30 June 2022. However, the Government announced that the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022–2023 income year. Given ongoing volatility, the Government said the extension of this measure to
2022–2023 will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.

Minimum drawdowns reduced 50% for 2022–2023

The reduction in the minimum payment amounts for 2022–2023 is expected to apply to account-based, allocated and market linked pensions. Minimum payments are determined by age of the beneficiary and the value of the account balance as at 1 July each year under Sch 7 of the SIS Regulations.

No maximum annual payments apply, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year.

For the purposes of determining the minimum payment amount for an account-based pension or annuity for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed), the minimum payment amount is half the amount worked under the formula in clause 1 of Sch 7 of the SIS Regs. The relevant percentage factor is based on the age of the beneficiary on 1 July in the financial year in which the payment is made (or on the commencement day if the pension commenced in that year).

For market linked income streams (MLIS), the minimum payment amount for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed) must be not less than 45% (and not greater than 110%) of the amount determined under the standard formula in clause 1 of Sch 6 of the SIS Regs.

Note that the 50% reduction in the minimum annual pension payments are not compulsory. That is, a pensioner can continue to draw a pension at the full minimum drawdown rate or above for 2019–2020, 2020–2021, 2021–2022 (and 2022–2023 proposed), subject to the 10% limit for transition to retirement pensions. However, it will generally be inappropriate to take more than the minimum annual drawdowns in the form of a pension payment given the pension transfer balance cap. Rather, it generally makes more sense to access any additional pension amount above the minimum drawdown in the form of a partial commutation of the pension instead of taking more than the minimum annual drawdowns. This is because a commutation will generate a debit for their pension transfer balance account, while an additional pension

CURRENCY:

This issue of Client Alert takes into account developments up to and including 18 February 2022.

Keeping you informed about the Federal Budget

We expect to see confirmation from Treasury soon about when the Australian Government will hand down its Federal Budget for 2022–2023. This being an election year, early Budget delivery – perhaps as soon as Tuesday 29 March – is likely.

The Client Alert team will, as usual, work to bring you a special Budget Extra edition that outlines the key announcements to assist you in dealing with your clients’ queries. You can expect to receive it by the morning after the Budget is handed down.

Work-related COVID-19 tests may be deductible

After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of polymerase chain reaction (PCR) tests at many COVID-19 testing sites, the Federal Government is hoping for some good press with the announcement that it will legislate to make both PCR tests and RATs tax-deductible for individuals who buy them for a work-related purpose.

According to the government’s proposal, deductibility of tests will take effect from the beginning of the 2021–2022 tax year (that is, starting 1 July 2021) and will be ongoing. Individuals will also be able to deduct the cost of a test regardless of whether they are required to attend the workplace or have the option to work remotely.

How people will benefit from this proposal depends on their individual tax rate. As a simple example, assuming that there are 249 working days in a year and that each RAT costs $20, if an employee was required to take a RAT every day that they worked, the total cost over the year would be $4,980. If that employee made the minimum wage rate of $20.33 per hour and worked 7.5 hours each day, then their yearly before tax income would be $37,966.

Based on that before-tax income, the individual would usually have to pay around $3,755 in tax. If the deduction for the COVID-19 tests was included, it would reduce the tax paid to $2,809 – a tax saving of $946 to the individual for the year. However, given that the initial test outlay for the entire year could be close to $5,000, the deduction certainly wouldn’t have the same monetary effect as to providing free tests to essential and hospitality workers.

For businesses that are able to obtain enough RATs for their workforce, the government has also proposed to make COVID-19 tests provided by employers to employees exempt from FBT, if they are used for work-related purposes. This essentially means that the tests would be excluded from the definition of a fringe benefit, and employers would not have to pay FBT on the costs of tests given to their employees in a work-related context.

With the Federal election fast creeping up, there doesn’t seem much time for this proposal to be introduced in Parliament and passed into law, especially given the lack of timeframes provided and the myriad of previous election promises also yet to be legislated. A possible change in government may even mean that this proposal remains just that, or we later see different arrangements altogether. There is uncertainty as to whether a Labor government would champion this specific tax-deductibility measure, in particular due to their election pledge of providing free RATs to all Australians through Medicare.

With all this in the background, the ATO has not provided any detailed advice or guidance on the practical aspects of this proposal. In the interim, it recommends that individuals and/or businesses incurring expenses for COVID-19 tests should keep a record of the expenses (receipts or other documentary evidence of purchase), to make the process straightforward should they become deductible in the future.

Natural love and affection: commercial debt forgiveness

The ATO has recently finalised its stance on the issue of commercial debt forgiveness – in particular, the “natural love and affection” exclusion.

A commercial debt is any debt where interest payable is deductible, or would be deductible if interest were payable, but for certain statutory restrictions. Under this definition, investments that are securities and equity for debt swaps could be included.

Under the commercial debt forgiveness provisions, if a taxpayer’s obligation to pay the debt is released, waived, or otherwise extinguished (ie by agreement, parking of debt, repurchase, redemption etc), the amount forgiven will be deducted from the taxpayer’s current and future tax deductions. Specifically, the amount forgiven will reduce prior-year revenue losses, prior-year net capital losses, undeducted balances of other expenditure being carried forward for deduction, and the CGT cost base of other assets held, in that order.

Given that commercial debts forgiven may mean a business will have to pay more tax, it can be advantageous if debts the business has forgiven are not captured under the commercial debt forgiveness provisions. The exclusions available include forgiveness of a debt that is effected under an Act relating to bankruptcy or by will, and a natural person’s forgiveness of a debt for reasons of natural love and affection for the debtor.

Before 6 February 2019, the natural love and affection exclusion to commercial debt forgiveness didn’t require the creditor who forgave a debt to be a “natural person”. This meant that a company, through its directors, could forgive the debts of an individual, giving the reason of natural love and affection for the individual, and this would not have been considered a commercial debt forgiveness, meaning a lower tax bill for the company.

Then, the ATO released a draft determination on 6 February 2019 which explicitly stated that the exclusion for debts forgiven for reasons of natural love and affection requires the creditor to be a natural person. This view has been confirmed in the finalised determination, which the ATO recently released.

Delving a little deeper into the final determination: while the ATO states that a debt-forgiving creditor must be a natural person and the object of their love and affection must be one or more other natural persons, where the conditions for the exclusion are otherwise satisfied, there is no requirement that the debtor must also be a natural person. For example, this means that the natural love and affection exclusion can apply in circumstances where the debtor is a company, such as where a parent (a natural person) forgives a debt they are owed by a company that is 100% owned by their child or children.

The natural love and affection exclusion to commercial debt forgiveness may also apply in instances where a natural person forgives a debt owed to a trust or partnership, in their capacity as a trustee of the trust or as a partner in the partnership, respectively. The ATO’s determination points out that cases where this could happen would be limited, given limitations that arise under trust and partnership law principles, statute and terms of any trust deed or partnership agreement.

According to the ATO, whether a creditor’s decision to forgive a debt is motivated by natural love and affection for a person needs to be determined on a case-by-case basis. In addition, while the ATO will not devote compliance resources in relation to debts forgiven before 6 February 2019, if required to state a view in a private ruling or litigation the Commissioner of Taxation will do so consistently with the views set out in the final determination.

Source: www.ato.gov.au/law/view/document?docid=TXD/TD20221/NAT/ATO/00001

Last chance to claim the loss carry-back

Businesses that need a little more financial help will have one last opportunity to claim the loss carry-back in their 2021–2022 income tax returns. Businesses that have an early balancer substituted account period (SAP) for the 2021-22 income year are eligible to claim the loss carry-back offset before 1 July 2022.

To recap, the loss carry-back is a refundable offset that effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. It may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO. Eligible businesses include companies, corporate limited partnerships and public trading trusts.

A company, corporate limited partnership or public trading trust may be eligible if it made a tax loss in 2021, carried on a business with an aggregated turnover of less than $5 billion, had an income tax liability in 2019 or 2020, and has met all of its lodgment obligations for the five prior income years.

Loss carry-back can either be claimed by businesses through their standard business reporting enabled software, where it has the additional loss carry-back labels required, or by using the paper copy of the company tax return 2021 and attaching a schedule of additional information to report the extra aggregated turnover and loss carry-back labels required (because these are not included in the company tax return 2021 itself).

For example, if a business is carrying back a tax loss from the 2021–2022 income year, the additional information needed includes the income year the business is choosing to carry the loss back to, the tax losses incurred, net exempt income, the income tax liability for the prior year, and the aggregated turnover range of the business.

Since there are so many additional labels which may need to be completed, the ATO has developed a loss carry-back tax offset tool which will assist businesses that are claiming the loss carry-back before 1 July 2022 to determine which labels are relevant in their unique situations. Once all of the relevant information is provided, the tool will first determine whether the business is eligible to claim the loss carry-back tax offset, then calculate the maximum amount of tax offset available. It will also provide a printable report of the labels which will need to be completed.

However, to use the tool, businesses will need to have the following information handy:

• income tax lodgment history;
• for the 2019–2020 and later income years, details of the loss that was made, including the amount of tax losses, the tax rate and the aggregated turnover for that year and the prior year;
• for the 2018–2019 and later income years, details of the tax liability, including the amount, and any net exempt income; and
• opening and closing balances of the franking account for the income year that is being lodged (ie 2021–2022).

If your clients’ businesses have been battered by the latest COVID-19 wave, they may be able to take advantage of this refundable offset one last time. Remember, the offset effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. Because the offset is refundable, it may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO, all of which should help with cash flow.

Source: www.ato.gov.au/business/loss-carry-back-tax-offset/

www.ato.gov.au/Calculators-and-tools/Loss-carry-back-tax-offset-tool/

Tax debts may affect business credit scores

The ongoing COVID-19 pandemic has caused uncertainty in many parts of the economic and has led to what many experts term a “two-speed economy”: while some businesses are recovering well, others continue to suffer from the effects. If your clients’ businesses have had issues paying debts, or have prioritised trade debts ahead of tax debts, remember that these actions may lead to penalties and have a lasting impact on the business.

The best option is to engage with the ATO to manage business debts. Failure to get in touch with the ATO to come to an arrangement will not only affect the potential penalties imposed, but may also affect a business’s credit score.

Laws were passed in 2019 which allow the ATO to disclose information about overdue business tax debts to credit reporting agencies including Equifax, Experian and Illion. The laws were originally promoted as a way to support businesses in making more informed decisions about dealings with various parties by making overdue tax debts more visible. The flow-on effects from that include reducing unfair financial advantages obtained by businesses that do not pay their tax on time, and encouraging businesses to engage with the ATO to manage their tax debts to avoid having those debts disclosed.

To protect taxpayers, the laws passed contained some safeguards. Not all tax debts can be disclosed by the ATO. The following criteria must be met for a business’s debt to qualify for disclosure:

• the business has an ABN and is not an excluded entity (excluded entities include deductible gift recipients, complying super funds or self managed super funds, registered charities and government entities);
• the business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
• the business operators have not engaged with the ATO to manage the debt; and
• there is no active complaint with the Inspector-General of Taxation and Tax Ombudsman regarding the ATO’s intent to report tax debt information.

Even if a business debt satisfies these criteria, where exceptional circumstances apply to the situation the ATO may still have the discretion to not report the debt information to credit reporting agencies. “Exceptional circumstances” may include, but are not limited to, family tragedy, serious illness and the impact of natural disasters. The ATO will assess claims of exceptional circumstances on a case-by-case basis.

It should be noted that the ATO does not consider cash flow issues nor financial hardship to be exceptional circumstances, although it still recommends that taxpayers who are experiencing these issues initiate ATO contact as soon as possible to discuss debt management options. For example, where a business has been affected by COVID-19, the ATO has committed to additional administrative support in the areas of lodgment and payment.

Before any debt is disclosed to credit reporting agencies, the ATO is required to send the business a written notice confirming its intent to report the debt information, and setting out the criteria that the business has met and the debt information that will be disclosed. The letter will also outline the steps which the business can take to avoid having the tax debt reported – and these need to be taken within 28 days of receiving the notice. Business owners who believe that the ATO has made a mistake or who disagree with a disclosure decision are advised to contact the ATO immediately upon receiving a notice.

Source: www.ato.gov.au/General/Paying-the-ATO/If-you-don-t-pay/Disclosure-of-business-tax-debts/

https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports

Contributions into SMSFs: minimum standards

There are many compliance obligations for trustees of self managed superannuation funds (SMSFs). One of the simplest but most important is ensuring that contributions from members can be accepted into the fund. This involves reporting the tax file numbers (TFNs) of members to the ATO, ensuring non-mandated contributions are not accepted for members over a certain age, and observing certain restrictions on in specie (asset) contributions. If an SMSF inadvertently accepts a non-allowable contribution in error, it must generally be returned within 30 days of the fund becoming aware, otherwise breaches of the contribution rules may occur.

Broadly, whether a contribution to an SMSF can be accepted depends on the type of contribution, the age of the member making the contribution, certain caps, and whether the fund has the TFN of the member.

When a member joins an SMSF, they need to provide their TFN, which then needs to be passed on to the ATO through the registration process. It should be noted that members are not legally required to provide their TFNs. However, if a TFN is not provided, the fund cannot accept certain member contributions, including personal contributions, eligible spouse contributions and super co-contributions. Employer contributions, including salary sacrifice contributions and other assessable contributions, may also be liable for additional income tax of 32% on top of the 15% tax already paid.

As a trustee, you must ensure that any TFNs reported to the ATO for members are correct. If you do not know a member’s TFN, you cannot report an exemption code such as 444 444 444. According to the ATO, exemption codes like this are intended for use by banks/investment bodies for an exemption from withholding tax on interest and other investment income, and are not for use when an SMSF member has not provided a valid TFN to the trustee.

In circumstances where an SMSF mistakenly accepts a contribution it should not have, the fund must return it within 30 days of becoming aware of the error. The 30-day limit is a grace period allowing the fund to remove the contributions from the super system without breaching the payment or contribution rules. Failure of the SMSF to comply with the time limit does not affect the fund’s legal obligation to return contributions.

Even if a member has provided their TFN, the type of a contribution combined with the age of the member can affect what is acceptable. For example, mandated employer contributions such as super guarantee contributions from a member’s employer can generally be accepted at any time, regardless of the member’s age or the number of hours they work. Non-mandated contributions largely cannot be accepted if a member is aged 75 years or older.

Non-mandated contributions include the following:

• contributions made by employers over and above super guarantee or award obligations (that is, salary sacrifice contributions); and
• member contributions, including personal contributions, downsizer contributions, super co-contributions, eligible spouse contributions and contributions made by a third party such as an insurer.

Lastly, there are restrictions on when an SMSF can accept an asset as a contribution from a member. These are referred to as “in specie contributions”, which just means contributions to the fund in the form of a non-monetary asset. Generally, an SMSF must not intentionally acquire assets (including in specie contributions) from related parties to the fund; however, there are exceptions for listed shares and other securities, as well as business real property.

Source: www.ato.gov.au/Super/Self-managed-super-funds/Contributions-and-rollovers/Contributions-you-can-accept/

SMSFs investing in crypto-assets: be informed and keep records

According to the Australian Securities and Investments Commission (ASIC), there has recently been a surge of promoters encouraging individuals to set up self managed superannuation funds (SMSFs) in order to invest in crypto-assets. ASIC warns people to be aware that while crypto-asset investments are allowed for SMSFs, they are high risk and speculative, as well as being an attractive area for scammers targeting uninformed investors.

Seek reliable information

Current record low deposit rates and volatility in stock markets around the world have motivated many retirees to seek alternative asset classes to either protect their investments or get higher returns. In conjunction, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many promotions recommending switching from retail or industry super funds in order to do so.

For example, late last year ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.

Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test. Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people, licensed or otherwise.

SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so. Careful consideration must also be given to the following factors:

• the fund’s governing rules: trustees need to ensure that any investments in crypto-assets are allowed under the particular SMSF’s deed;
• investment strategy: there should be documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity and the ability of the fund to discharge its liabilities; and trustees need to consider the level of risk for the proposed crypto-asset investments, including reviewing/updating the fund’s investment strategy to ensure they are permitted;
• ownership and separation of assets: crypto-assets must be held and managed separately from any personal or business investments of trustees and members – the SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”; and
• valuation: SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances.

Other considerations include restrictions on related-party transactions (that is, if you currently own crypto-assets and want to transfer them to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occurs upon a condition of release.

Keep your records in order

If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO.

Each time you transact in crypto, the ATO requires you to keep a record of:

• the date and value of the cryptocurrency (or digital asset) in Australian dollars at the time of the transaction;
• what the transaction was for; and
• who the other party was (a cryptocurrency address is sufficient).

You must keep these records for at least five years after lodging the relevant return or form.

The ATO started its first crypto data-matching program in April 2019, comparing taxpayer self-reported income to cryptocurrency transaction data for the 2015–2020 financial years. This program was expanded mid-last year to cover the 2021–2023 financial years, and the ATO will no doubt continue to gather and compare data into the future under subsequent programs. Records relating to between 400,000 and 600,000 individuals will be obtained each financial year under the current program.

The ATO sources its data from designated service providers (DSPs) or entities providing a designated service under Australia’s anti-money laundering/counterterrorism legislation. It may also obtain data from other sources.

A designated service is any service that exchanges, issues, transacts or deals in digital currency. This includes centralised cryptocurrency exchanges, exchanges that convert fiat currency to cryptocurrency (or vice versa) or other designated or regulated entities.

The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a taxpayer’s tax return for an unlimited period where it considers that fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description. Possible penalties and interest are also a consideration.

Source: https://asic.gov.au/about-asic/news-centre/articles/warning-self-managed-super-funds-and-crypto-investments/

https://moneysmart.gov.au/investment-warnings/cryptocurrencies

www.ato.gov.au/super/self-managed-super-funds/in-detail/smsf-investing/smsf-investing-in-cryptocurrencies/

www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia—specifically-bitcoin/