Warning to watch out for myGov and ATO tax scams

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

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

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

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

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

Tip: More information is available online at www.staysmartonline.gov.au/. If you’re unsure about a tax-related message or phone call, you can phone the ATO’s Scam Hotline on 1800 008 540.

Tax time updates

ATO has refunded $10 billion so far

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

TIP: If you haven’t lodged your tax return yet, or you’re waiting on information about a refund or tax debt, we can help – contact us to find out more.

ATO watching for undisclosed foreign income

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

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

Tip: If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount.

Unusual claims disallowed

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

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

Tip: The “other” deductions section of your tax return is for expenses incurred in earning income that don’t appear elsewhere on the return – such as income protection and sickness insurance premiums.

ATO contacting small employers about Single Touch Payroll

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

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

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

Tip: Small employers have until 30 September 2019 to start reporting or apply for extra time to get ready.

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

Disclosing business tax debt information: ATO consultation

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

Tip: The ATO can’t currently pass on this sort of information because Australian law contains strict confidentiality requirements for ATO-held taxpayer information.

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

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

Cross-border recovery of tax debts

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

ATO superannuation focus areas

Lost super

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

Tip: You can find out about your lost or unclaimed super through ATO Online via myGov.

Pension cap indexation

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

Compassionate release of super only available in limited cases

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

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

Tip: Any amounts released early on compassionate grounds are paid and taxed as normal super lump sums.

Personal services income rules: unrelated clients test

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

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

CURRENCY:

This issue of Client Alert takes into account developments up to and including 18 April 2019.

ATO to ramp up ABN investigations and cancellations

The ATO has advised that over the coming months it will be increasing its focus on the bulk Australian Business Number (ABN) cancellation program, to continue “to ensure the integrity of the Australian Business Register”.

The ATO has refined its models to help it identify businesses that are no longer active or whose owners have forgotten to cancel their ABN when they ceased business. Generally, an ABN may be cancelled if:

• the Australian Securities and Investments Commission (ASIC) advises that a company is deregistered;
• the taxpayer advises that they have stopped business in their latest income tax return;
• the business hasn’t reported business income or doesn’t keep its lodgements up to date; and/or
• the taxpayer lodges a final tax return.

As part of the program, ABN holders or those applying for an ABN in certain industries may be contacted and asked to provide evidence to confirm that they’re setting up or operating a business. Evidence may include activities such as:

• advertising, setting up a social media account or a website for the business;
• buying business cards or stationery for the business;
• obtaining business licences or insurance to operate (eg public liability and professional indemnity);
• leasing or buying premises, equipment or stock for the business;
• issuing quotes or bidding for work;
• consulting with financial, business or tax advisers;
• applying for finance; and
• buying a business.

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

Additionally, if an ABN is cancelled and the taxpayer later decides they need it, they can reapply online and will get the same ABN if the business structure has stayed the same. A taxpayer who starts a different business will need to apply online for a new ABN.

Source: www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Bulk-ABN-cancellations/; https://abr.gov.au/About-us/Our-work/ABR-integrity/.

Fringe benefits tax: rates, thresholds and ATO focus for 2019–2020

The ATO has flagged the following FBT issues that are on its radar this year:

• for motor vehicle fringe benefits:

• failing to report such benefits;
• incorrectly applying exemptions; and
• incorrectly claiming reductions;

• for employee contributions, mismatches between the amounts reported on an FBT return and the income amounts on the employer’s tax return;
• for entertainment benefits:

• claiming a deduction but not correctly reporting the expenses as a fringe benefit; and
• incorrectly classifying entertainment expenses as sponsorship or advertising;

• for car parking fringe benefits:

• incorrectly calculating by significantly discounting market valuations;
• incorrectly calculating by using non-commercial parking rates; and
• not supporting claims with adequate evidence;

• not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates; and
• not lodging FBT returns (or lodging them late) to delay or avoid paying tax.

The ATO’s annual rulings regarding FBT rates, thresholds and other amounts have also been released for the 2019–2020 FBT year (1 April 2019 to 31 March 2020).

Cents-per-kilometre rate: vehicles other than cars

Taxation Determination TD 2019/3 sets out the cents-per-kilometre rates for the 2019–2020 FBT year for calculating the taxable value of a fringe benefit arising from private use of a motor vehicle other than a car. These are:

• 55 cents per kilometre for vehicles with engine capacity of up to 2,500cc;
• 66 cents per kilometre for vehicles with engine capacity of over 2,500cc; and
• 16 cents per kilometre for motorcycles.

FBT record-keeping exemption threshold

Taxation Determination TD 2019/4 sets the FBT record-keeping exemption threshold for the 2019–2020 FBT year at $8,714. This is an increase from the threshold of $8,552 for the 2018–2019 FBT year.

Indexation factors for valuing non-remote housing

Taxation Determination TD 2019/5 sets out the indexation factors for the 2019–2020 FBT year for valuing non-remote housing. These are:

• 1.020 for New South Wales;
• 1.019 for Victoria;
• 0.997 for Queensland;
• 1.008 for South Australia;
• 0.937 for Western Australia;
• 1.043 for Tasmania;
• 0.948 for the Northern Territory; and
• 1.028 for the ACT.

Benchmark interest rate

Taxation Determination TD 2019/6 sets the benchmark interest rate for the 2019–2020 FBT year at 5.37% per annum (this is an increase from the rate of 5.20% for the 2018–2019 FBT year). The benchmark interest rate is relevant to calculating the taxable value of car fringe benefits, for employers using the operating cost method, and loan fringe benefits.

Living-away-from-home allowance: food and drink amounts

Taxation Determination TD 2019/7 sets out the weekly amounts the ATO treats as reasonable for food and drink expenses incurred by employees receiving a living-away-from-home allowance (LAFHA) fringe benefit for the 2019–2020 FBT year. These amounts take into account movement in the consumer price index (CPI) and the 2015–2016 Household Expenditure Survey.

Separate reasonable amounts apply for locations within Australia and for overseas locations. For Australian locations, the reasonable weekly amounts for the 2019–2020 FBT year are:

• $269 for one adult;
• $404 for two adults;
• $539 for three adults;
• $337 for one adult and one child;
• $472 for two adults and one child;
• $540 for two adults and two children;
• $608 for two adults and three children;
• $607 for three adults and one child;
• $675 for three adults and two children; and
• $674 for four adults.

For larger family groupings, add $135 for each additional adult and $68 for each additional child. An “adult” for this purpose is an individual aged 12 years or more as at 31 March 2019.

Source: www.ato.gov.au/Business/Business-bulletins-newsroom/Employer-information/FBT-issues-on-our-radar/.

Guidance on when a company carries on a business

On 5 April 2019, the ATO released its long-awaited final ruling on when a company carries on a business for the purposes of:

• the definition of “small business entity” in s 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997); and
• s 23 of the Income Tax Rates Act 1986 as it applied in the 2015–2016 and 2016–2017 income years, when a lower corporate tax rate was available to companies that were small business entities. From 2017–2018, a company needs to satisfy the definition of “base rate entity” to qualify for the lower rate.

Taxation Ruling TR 2019/1 finalises Draft TR 2017/D7, which was confined to whether a company carries on a business for the purposes of the Income Tax Rates Act 1986. While the final ruling has been expanded and restructured, the ATO’s overall approach and conclusions are largely unchanged. In particular, the ATO accepts that a company can be carrying on a business even if its activities are relatively limited and consist of passively receiving investment returns or rent that it distributes to shareholders. However, the ATO cautions that TR 2019/1 only applies to and binds it in relation to the particular sections of the Acts, and that “care must be exercised in applying the reasoning and conclusions expressed in this Ruling when applying other provisions”.

As if to prove this point, Draft Taxation Determination TD 2019/D4 was also issued on 5 April 2019. It states that a company carrying on a business in a general sense (as described in TR 2019/1) but whose only activity is renting out an investment property cannot claim any CGT small business concessions in relation to that property.

Carrying on a business “in a general sense”

Taxation Ruling TR 2019/1 considers whether a company incorporated under the Corporations Act 2001 (other than a company limited by guarantee) carries on a business “in a general sense”. Once this is established for a particular company, it is still necessary to consider the scope and nature of that business when determining the tax consequences of the company’s activities and transactions (eg whether an amount is income or capital).

The ruling emphasises that it is not possible to state with precision whether a company is carrying on a business. As this is a question of fact, the ATO says that the answer ultimately turns on an overall impression of the company’s activities, having regard to the indicators of carrying on a business (as identified by the courts). One key indicator is whether the company’s activities have a purpose of profit. The ATO accepts that where a profit-making purpose exists, it is likely the other indicators will support a conclusion that the company carries on a business.

In the case of limited, proprietary limited and no liability companies, the ATO accepts that these companies would normally be carrying on a business in a general sense if they:

• are established and maintained to make a profit for their shareholders; and
• invest their assets in gainful activities that have both a purpose and prospect of profit.

In the case of a corporate trustee, TR 2019/1 only applies in relation to the activities it conducts on its own behalf. In determining whether the company carries on a business, any activities conducted in its capacity as a trustee are ignored. The ruling also notes that “the same profitable activity undertaken by a trustee is less likely to amount to the carrying on of a business, than if it were to be carried on by a company”.

The example section of TR 2019/1 concludes that the following companies are carrying on a business in the general sense:

• an inactive company that derives interest income from retained profits – the ATO’s preliminary view had been that the company was not carrying on a business;
• a newly formed company investigating the viability of carrying on a particular business, but which derives a small amount of interest income – again, the ATO’s preliminary view had been that the company was not carrying on a business;
• a property investment company that lets out a commercial property, and either manages the property itself or engages a professional property manager;
• a share investment company, whether or not it engages a professional investment advisor and manager to manage its portfolio of shares;
• a company that leases multiple boats to unrelated parties;
• a holding company that only holds shares in a subsidiary, where it invests the shares and also manages the company group; and
• a holding company that holds shares in, and provides loans to, a subsidiary, where it invests the shares and manages the group.

The draft of the ruling had included an example of a family company with income consisting only of an unpaid trust entitlement (UPE) which it reinvested. The draft concluded that if the company did not reinvest the UPE or receive its entitlement in cash, it would not be carrying on a business. This example has been omitted from the final ruling.

Taxation Ruling TR 2019/1 applies before and after its date of issue.

CGT small business concessions

Draft Taxation Determination TD 2019/D4, also issued on 5 April 2019, states that a company carrying on a business “in a general sense” as described in Taxation Ruling TR 2019/1 but whose sole activity is renting out an investment property cannot access the CGT small business concessions in relation to that property. This is because a CGT asset whose main purpose is to derive rent is specifically excluded from being an active asset (s 152-40(4)(e) of the ITAA 1997).

When finalised, the determination is intended to apply both before and after its date of issue.

Source: www.ato.gov.au/law/view/view.htm?docid=%22TXR%2FTR20191%2FNAT%2FATO%2F00001%22; www.ato.gov.au/law/view/view.htm?docid=%22DXT%2FTD2019D4%2FNAT%2FATO%2F00001%22.

Super guarantee amnesty not yet law, but $100 million recovered

The ATO has recovered around $100 million in unpaid superannuation from employers since the 12-month super guarantee (SG) amnesty was proposed on 24 May 2018.

At a Senate Economics Legislation Committee hearing on 10 April 2019, ATO Deputy Commissioner, Superannuation, Mr James O’Halloran estimated that there has been a 10–15% increase in the number of employers that have come forward and self-reported unpaid SG liabilities in response to the SG amnesty, despite it not yet being law.

The amnesty was announced by the government on 24 May 2018 to enable employers to self-correct historical underpayments of SG amounts until 23 May 2019 without incurring additional penalties that would normally apply. Importantly, a tax deduction would be allowed for payments of the SG charge made during the amnesty which would normally be non-deductible.

As at 28 February, Mr O’Halloran said 19,000 employers have come forward within the normal super guarantee charge (SGC) process for reporting unpaid SG contributions. Of the 19,000 employers that have come forward, the ATO believes that 73% are microbusinesses with less than $2 million turnover, 21% are medium businesses ($2 million to $250 million turnover), and 4% are not-for-profits. The average number of employees is 36.

For most of the disclosures, 51% of the payments are in the order of $10,000, while 35% are $10,000-$50,000 and the balance (14%) are over the spread. In terms of significant employers (1,000 to 5,000 employers), 12 employers have come forward for the period. However, the vast majority (93%) are small to medium businesses. Around 85% of the total declaration of the non-payment or the payment of SG (including nominal interest) is less than $50,000.

ATO applying existing law

With the Bill to implement the amnesty – the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018 – lapsing on 11 April 2019 when the Federal Election was called, the ATO must continue to apply the existing law.

The ATO says that employers who make a voluntary disclosure of historical SG non-compliance will not be entitled to the concessional treatment under the amnesty, unless and until the Bill is enacted into law. If the Bill is eventually enacted, the ATO will apply the new law retrospectively to voluntary disclosures made during the amnesty period.

In the absence of law to implement the amnesty, no-one can claim a deduction for SG payments as it currently stands. The ATO also cannot waive the $20 administration fee. However, the ATO still has a discretion to remit the additional Pt 7 penalty (200%) as part of its normal practice for voluntary disclosures under the current law and practice statement.

Mr O’Halloran also noted that many of the employers that have come forward would not be eligible for the amnesty anyway, primarily because they were still currently under audit by the ATO, or had reported outstanding SG in relation to periods after May 2018 that wouldn’t be covered by the amnesty.

TIP: Employers that may be waiting for the amnesty to become law before making a voluntary disclosure should be mindful that they may already be in the ATO’s sights. The introduction of the Single Touch Payroll (STP) regime, and event-based reporting obligations for super funds, means that the ATO will increasingly have more data to identify SG non-compliance much earlier than previously.

While employers who make a voluntary disclosure before the amnesty is passed into law run the risk of never receiving the concessional treatment under the amnesty, they could be in an even worse position when the ATO eventually catches up with them.

In this respect, employers with historical SG non-compliance need to be ready to make a voluntary disclosure (even without the protection of the amnesty) before the ATO begins an audit or review. This should at least place the employer in a better position to request the ATO remit some of the penalties, especially the additional Pt 7 penalty (200%) for failing to provide an SGC statement.

Source: https://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/f882a9f9-8b5f-4cd9-8c6a-13c74e92f58d/toc_pdf/Economics%20Legislation%20Committee_2019_04_10_7061.pdf.

Instant asset write-off with Budget changes now law

The Treasury Laws Amendment (Increasing and Extending the Instant Asset Write-Off) Bill 2019 – introduced as Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019) – received Royal Assent on 6 April 2019 as Act No 51 of 2019. The Bill was passed by the Senate with 18 government amendments to implement the changes announced in the 2019–2020 Federal Budget. Those amendments were agreed to by the House of Representatives on 4 April 2019.

As originally introduced, the Bill amends the tax law to increase the threshold below which amounts can be immediately deducted under the instant asset write-off rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extends by 12 months to 30 June 2020 the period during which small business entities can access the expanded accelerated depreciation rules (instant asset write-off). The Senate amendments to the Bill implement the Government’s 2019–2020 Budget changes so that:

• the write-off is extended to medium sized businesses (turnover up to $50 million), where it previously only applied to small business entities;
• the instant asset write-off threshold increases from $25,000 to $30,000 – the threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.

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

Medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Rental deductions: ATO audits to double

The ATO has warned that it will double the number of audits scrutinising rental deductions this year. It says some tax agents are still claiming travel to residential rental properties for their clients, but from 1 July 2017 taxpayers (aside from excluded entities) were no longer permitted to claim travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

Assistant Commissioner Gavin Siebert has said that this year the ATO is making rental deductions a top priority. “A random sample of returns with rental deductions found that nine out of 10 contained an error. We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year”, he said.

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

“Once our auditors begin, they may search through even more data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they’ve made”, Mr Siebert said.

In 2017–2018, the ATO audited more than 1,500 taxpayers with rental claims, and applied penalties totalling $1.3 million. In one case, a taxpayer was penalised over $12,000 for over-claiming deductions for their holiday home when it was not made genuinely available for rent, including being blocked out over seasonal holiday periods. Another taxpayer had to pay back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

If an income-producing asset such as an investment property is damaged or destroyed, the ATO has said the taxpayer will need to work out the correct tax treatment of insurance payouts they receive and their costs in rebuilding, repairing or replacing the assets.

Source: www.ato.gov.au/Media-centre/Media-releases/Tax-office-to-double-audits-of-dodgy-rental-deductions/.

Shortfall penalties reduced under new ATO initiative

The initial results of the ATO’s penalty relief initiative look positive.

Alison Lendon, ATO Deputy Commissioner, Individuals and Intermediaries, has announced that in the first six months of the ATO’s penalty relief initiative, shortfall penalties for “failure to take reasonable care” and “not having a reasonably arguable position” have been reduced by 89.2% for individuals and 83.8% for small businesses. She said thousands of small businesses and individuals have not been penalised for errors on their tax returns or activity statements. Instead, the ATO had shown them what the error was and how they can get it right next time.

The community and tax professionals had told the ATO that people should have a chance when they get their tax wrong, provided there wasn’t a dishonest intent behind their error. Ms Lendon has said the ATO listened and designed “a fair and consistent approach” to certain penalties. With the ATO’s new approach to penalty relief, if it finds an error on a tax return or activity statement during an audit or review, the taxpayer may be eligible for automatic penalty relief. This means the ATO will show the taxpayer where the error was made, won’t apply a penalty and will educate the taxpayer on getting it right.

Examples of use of the initiative include the following:

• An individual incorrectly claimed self-education expenses on their tax return. This error would have usually incurred a penalty of $788.55, but under the initiative, the penalty was not applied.
• A small business owner made an error on their company tax return relating to deductions on motor vehicle and other work-related expenses. Thanks to penalty relief, a penalty of $1,090.13 was not applied by the ATO.

Further information on penalty relief is available on the ATO’s website.

Source: www.ato.gov.au/General/Interest-and-penalties/Penalties/Penalty-relief/; www.linkedin.com/pulse/penalty-relief-experience-lives-up-its-promise-alison-lendon/.

How the ATO identifies wealthy individuals and their businesses

According to the ATO, wealthy individuals are resident individuals who, together with their business associates, control net wealth of $5 million or more. The ATO uses sophisticated data matching and analytic models, drawing on tax returns and referrals from other government agencies or the community, to identify wealthy individuals and link them to associated businesses.

The ATO says it will “engage with” such taxpayers, offering assistance and services to help them “get things right up front”. The ATO can tell them what it knows about them, including its view of their group’s income tax profile, “so you can work with us where needed”.

If the information the ATO holds about a wealthy individual is limited, the ATO says it may contact the individual or their tax adviser to better understand their circumstances, and to confirm or correct its view of the individual’s wealth and group structure. As part of this engagement, the ATO says the individual will “have the opportunity to check if the information we have about you is correct”.

High wealth individuals

Wealthy individuals who control net wealth of $50 million or more are classified as high wealth individuals . Given the importance of this group to community confidence in the tax and super systems, the ATO says it has an ongoing focus on them.

The ATO says if its systems indicate that an individual has effective control of $50 million or more in net wealth, it may ask for validation of the individual’s net wealth. The ATO says it will review any information given by high wealth individuals and update its records as required.

Source: www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/What-you-should-know/About-privately-owned-and-wealthy-groups/How-we-identify-wealthy-individuals-and-their-businesses/

Single Touch Payroll reporting for small businesses: get ready!

Legislation has recently passed to bring in Single Touch Payroll (STP) reporting for all small employers (with fewer than 20 employees) from 1 July 2019.

STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. For large employers (with 20 or more employees), STP reporting started gradually from 1 July 2018, and until now it has been optional for small employers.

ATO Commissioner Chris Gordon has said he wants to “reassure small business and give my personal guarantee that our approach to extending Single Touch Payroll will be flexible, reasonable and pragmatic”.

The basics of STP reporting

• With STP reporting, employers no longer need to provide payment summaries to employees for payments reported through STP. Payments not reported through STP, like employee share scheme (ESS) amounts, still need to be reported on a payment summary.
• Employers no longer need to provide payment summary annual report (PSARs) to the ATO at the end of the financial year for STP reported payments.
• Employees can view their year-to-date payment information using the ATO’s online services, accessible through their myGov account, or can ask the ATO for a copy of this information.
• Employers need to complete a finalisation declaration at the end of each financial year.

• Employers need to report employees’ super liability information for the first time through STP. Super funds will then report to the ATO when the employer pays the super amounts to employees’ funds.
• From 2020, the ATO will pre-fill some activity statement information for small to medium withholders with the information reported through STP. Employers that currently lodge an activity statement will continue to do so.

TIP: Contact us today for more information about STP for your business.

Super guarantee compliance:
time to take action

The government’s latest initiatives targeting non-compliance with superannuation guarantee (SG) obligations give businesses plenty to think about. With Single Touch Payroll on the way for small businesses, all employers should take time to review their arrangements for paying employees’ super.

The government is proposing a 12-month “amnesty” for employers to voluntarily disclose and correct any historical underpayments of SG contributions for any period up to 31 March 2018 without incurring penalties or the usual administration fee. This is provided the ATO hasn’t already commenced a compliance audit of that employer. Additionally, employers will be entitled to claim deductions for the catch-up payments they make under the amnesty.

Tip: It’s an important time for businesses to get their SG affairs in order. If you’re an employer with outstanding underpayments of SG contributions, we can assist with the process of making a voluntary disclosure to the ATO.

Proposed increase for small business instant asset write-off

Prime Minister Scott Morrison recently announced the government’s intention to increase the instant asset write-off already available for small businesses from $20,000 to $25,000. Mr Morrison also said that the instant write-off would be extended by another 12 months to 30 June 2020. These measures are expected to benefit more than three million eligible small businesses to access the expanded accelerated depreciation rules for assets costing less than $25,000.

Labor has previously proposed an “investment guarantee” giving all businesses an immediate 20% tax deduction from 1 July 2020 for any new eligible asset worth more than $20,000. This would be a permanent accelerated depreciation measure so that businesses could continue to take advantage of an immediate 20% tax deduction when investing in an eligible asset.

ATO warns about new scams
in 2019

The ATO is warning taxpayers to be alert for scammers impersonating the ATO, using a range of new ways to get taxpayers’ money and personal information.

While the ATO regularly contacts people by phone, email and SMS, there are some tell-tale signs that you’re being contacted by someone who isn’t with the ATO. The ATO will never:

• send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
• use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
• request payment of a debt using iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
• ask you to pay a fee in order to release a refund owed to you.

ATO refers overdue lodgments to external collection agencies

The ATO has recently started referring taxpayers with overdue lodgment obligations to an external collection agency to obtain lodgments on the ATO’s behalf. External collection agencies will focus on income tax and activity statement lodgments, and referral to an external collection agency doesn’t affect a taxpayer’s credit rating.

If your case is referred to a collection agency, the ATO will notify you in writing before phoning you or your authorised contact to negotiate lodgment of the overdue documents and request payment of any debt.

Tip: If your tax return or other ATO paperwork is overdue, don’t panic! We can help work out what you need to do next, and even make arrangements with the ATO on your behalf.

Government consultation on sharing economy reporting

The government has released a consultation paper seeking views on a possible reporting regime to provide information on Australians who receive income from sharing economy websites like Uber, Airtasker, Menulog and Deliveroo.

The ATO and other government agencies currently have limited information about the income of “gig workers” in the sharing economy, and the government’s Black Economy Taskforce recently recommended designing and implementing a compulsory reporting regime. Although there are a lot of issues still to consider, including costs and data privacy, a new regime could mean gig platforms, payment processors or even banks may soon need to report to the ATO and other agencies on gig workers’ income.

Extra 44,000 taxpayers face Div 293 superannuation tax

An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017–2018. This is because the Div 293 income threshold was reduced to $250,000 for 2017–2018 (it was previously $300,000).

Individual taxpayers with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their concessional contributions.

Taxpayers have the option of paying the Div 293 tax liability using their own money, or electing to release an amount from an existing super balance, which means completing a Div 293 election form.

Company losses “similar business test” Bill passes

Legislation originally introduced in March 2017 to supplement the “same business test” with a more relaxed “similar business test” has finally been passed.The test will be used to work out whether a former company’s tax losses and net capital losses from previous income years can be used as a tax deduction for a new business in a current income year. It also is relevant to whether a company joining a consolidated group can transfer its losses to the head company of the consolidated group.

Work-related tax deductions down for 2018

The ATO has reported a decline in the overall value of work-related deductions for tax time 2018. In his opening statement to Senate Estimates on 24 October 2018, Commissioner Chris Jordan said taxpayers appear to be taking extra care when claiming work-related expenses in their 2017–2018 income tax returns. This follows recent ATO awareness and education efforts to close the income tax gap for individuals.

ATO identifies 26,000 incorrect rental property travel expense claims

The ATO has identified 26,000 taxpayers who have claimed deductions during tax time 2018 for travel to their investment residential rental properties, despite recent changes to tax laws.

From 1 July 2017, investors cannot claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, subject to certain exceptions. An exclusion does apply for this restriction if the expenditure is necessary for the income-producing purposes of carrying on a business (for example, a rental property business), or if the costs are incurred by an “excluded entity”.

Small business corporate tax rates Bill is now law

The company tax rate for base rate entities will now reduce from 27.5% to 26% in 2020–2021, and then to 25% for 2021–2022 and later income years. This means eligible corporate taxpayers will pay 25% in 2021–2022, rather than from 2026–2027.

The new law also increases the small business income tax offset rate to 13% of the basic income tax liability that relates to small business income for 2020–2021. The offset rate will then increase to 16% for 2021–2022 and later income years.

The maximum available amount of the small business tax offset does not change – it will stay capped at $1,000 per person, per year.

GST reporting: common errors and how to correct them

Some businesses are making simple mistakes reporting their GST. The ATO reminds taxpayers that avoid the following common GST reporting errors:

• transposition and calculation errors – these mistakes often happen when manually entering amounts, so it’s important to double-check all figures and calculations before submitting your BAS;
• no tax invoice – you must keep tax invoices to be able to claim GST credits on business-related purchases;
• transaction classifications – it’s important to check what GST applies for each transaction; for example, transactions involving food may be GST applicable; and
• errors in accounting systems – a system with one coding error can classify several transactions incorrectly.

Government announces super refinements

The Government has announced it will amend the super tax laws to address some minor but important issues, as part of the ongoing super reforms. The changes include:

• deferring the start date for the comprehensive income product for retirement (CIPR) framework;
• adjusting the definition of “life expectancy period” to account for leap years in calculations, and amending the pension transfer balance cap rules to provide credits and debits when these products are paid off in instalments;
• adjusting the transfer balance cap valuation rules for defined benefit pensions to deal with certain pensions that are permanently reduced after an initial higher payment;
• correcting a valuation error under the transfer balance cap rules for market-linked pensions where a pension is commuted and rolled over, or involved in a successor fund transfer;
• making changes to ensure that death benefit rollovers involving insurance proceeds remain tax-free for dependants.

CGT on grant of easement or licence

Taxation Determination TD 2018/15, issued on 31 October 2018, considers the capital gains tax (CGT) consequences of granting an easement, profit à prendre or licence over an asset.

In the ATO’s view, CGT event D1 (creating contractual or other rights) rather than CGT event A1 (disposing of an asset) happens when any of the following rights are granted over an asset:

• an easement, other than one arising by operation of the law;
• a right to enter and remove a product or part of the soil from a taxpayer’s land (a profit à prendre); or
• a licence (which does not confer the exclusive right to possess the land).

First Home Super Saver scheme and downsizer super contributions: ATO guidance

In November 2018, the ATO issued a Super Guidance Note to provide people with general information about how the First Home Super Saver (FHSS) scheme works. The guidance note explains who is eligible to use the scheme, the kind of contributions that can be made and then released from super for buying a first home, how to apply to the ATO for a FHSS determination, and the requirement to purchase a house.

The ATO also issued guidance on the recently enacted downsizer superannuation contribution measures, which allow people aged over 65 to contribute the proceeds from selling certain property into their super.

ATO scam alert: fake demands for tax payments

Although tax time 2018 is over, the ATO has warned taxpayers and their agents to remain on high alert for tax scams. Scammers are growing increasingly sophisticated and hope to exploit vulnerable people, often using aggressive tactics to swindle people out of their money or personal information.

Be wary if anyone contacts you demanding payment of a tax debt that you didn’t know about. The ATO will never ask you to make a payment into an ATM or using gift or pre-paid cards such as iTunes and Visa cards, and will never you to deposit funds into a personal bank account.

TIP: Scammers have been known to impersonate tax agents as well as ATO staff. If you have any doubts about the legitimacy of a phone call or other communication, you can call the ATO directly (toll free) on 1800 888 540.

Government to establish $2 billion fund for small business lending

The Government has announced that it will establish a $2 billion Australian Business Securitisation Fund and an Australian Business Growth Fund to provide longer-term equity funding for small businesses.

Treasurer Josh Frydenberg has said some small businesses currently find it difficult to obtain finance on competitive terms unless it is secured against real estate. To overcome this, the proposed Australian Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

ATO information-sharing: super assets in family law proceedings

Superannuation is often the most significant asset in a separated couple’s property pool, particularly for low-income households with few assets. Parties to family law proceedings are already legally required to disclose all of their assets to the court, including superannuation, but in practice parties may forget, or deliberately withhold, information about their super assets.

The Government has announced an electronic information-sharing mechanism to be established between the ATO and the Family Law Courts to allow superannuation assets held by relevant parties during family law proceedings to be identified swiftly and more accurately from 2020. This measure was included as part of a broader financial support package for women announced on in November.

Claiming work-related expenses: ATO guides and toolkits

This year, the ATO has launched its biggest ever education campaign to help taxpayers get their tax returns right. The ATO says the campaign, which is running throughout tax time, includes direct contact with over three million selected taxpayers, as well as specialised guides and toolkits for taxpayers, agents, employers and industry bodies. A key component of the campaign is simple, plain English guidance for people with the most common occupations, like teachers, nurses, police officers and hospitality workers.

ATO Assistant Commissioner Kath Anderson says that last year work-related expenses totalled a record $21.3 billion, “and we have already flagged that over-claiming of deductions is a big issue”. The most popular topics this year include car, clothing, travel, working from home, and self-education expenses, and the guides for tradies, doctors, teachers, office workers and IT professionals have been popular.

Illegal phoenix activity: public examinations in Federal Court matter

The ATO has announced that public examinations started in a Federal Court matter on 27 August 2018 in relation to a group of entities connected to a pre-insolvency advisor. The examinations will focus on the suspected promotion and facilitation of phoenix activities and tax schemes.

More than 45 service providers, clients and employees of pre-insolvency advisors, as well as alleged “dummy directors” of phoenix companies, will be examined.

Banking Royal Commission: possible super contraventions

On 24 August 2018, the Royal Commission into banking, superannuation and financial services misconduct released the closing submissions, totalling over 200 pages, that set out possible contraventions by certain superannuation entities. The evidence surrounding these alleged breaches was revealed during the fifth round of public hearings, when high-level executives of some of the largest superannuation funds were grilled about practices that may involve misconduct or fall below community expectations.

The Commission heard evidence about fees-for-no-service conduct and conflicts of interests which affect the ability of some super fund trustees to ensure that they always act in the best interests of members. Questioning during the hearings focused particularly on how trustees supervise the activities of a fund and respond to queries from the regulators. Executives were also quizzed about expenditure on advertisements and sporting sponsorships, and finally, the Commission turned its attention to the effectiveness of the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) as regulators.

What’s next?

The Royal Commission’s interim report is now due, and the sixth round of public hearings (10–21 September 2018) is investigating conduct in the insurance industry. The Royal Commission has released four background papers covering life insurance, group life insurance, reforms to general and life insurance (Treasury) and features of the general and life insurance industries.

SMSF issues update: ATO speech

ATO Assistant Commissioners, Superannuation, Tara McLachlan and Dana Fleming recently spoke at the SMSF Association Technical Days in various capital cities. The speech was mainly about practical considerations to be taken into account when setting up a new self managed superannuation fund (SMSF) and during the first year of its operation. Other issues raised included SMSF registrations, annual return lodgements, SuperStream SMSFs and exempt current pension income and actuarial certificates.

ATO data analytics and prefilling help tax return processing

The ATO reports that a record number of tax returns have been finalised in the first two months of this year’s “tax time” period, thanks to prefilling of tax return data and the ATO’s correction of mistakes using analytics and data-matching. Over $11.9 billion has been refunded to taxpayers, and errors worth more than $53 million were detected and corrected before refunds were issued.

The ATO has prefilled over 80 million pieces of data from banks, employers, health funds and government agencies to make tax returns easier for taxpayers and agents. The ATO’s advanced analytics allow it to scrutinise more returns than ever before, and make immediate adjustments where taxpayers have made a mistake.

TIP: Having a tax agent prepare and lodge your return is a tax-deductible cost. Why not let us handle your tax this year?

Parliamentary committee recommends standard tax deduction, “push return” system

The House of Representatives Standing Committee on Tax and Revenue has tabled its 242-page report on taxpayer engagement with the tax system. This significant report covers issues that have also been canvassed in previous tax reform reviews such as the Australia’s Future Tax System Review and the Henry Review.

In its inquiry, the Committee examined the ATO’s points of engagement with taxpayers and other stakeholders, and reviewed the ATO’s performance against advances made by revenue agencies in comparable nations. The inquiry asked what taxpayers should now expect from a modern tax service that is largely or partly automated.

Australia’s complex system for claiming work-related tax deductions, for example, was highlighted during the inquiry as being out of step with approaches in most other advanced nations, which have almost universally standardised their approach. The Committee concluded that under Australia’s self-assessment model, more should be done to make tax obligations easier for taxpayers to understand and simpler to comply with. The report includes 13 recommendations to help achieve this goal.

12-month extension of $20,000 instant asset write-off

The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 has now passed through Parliament without amendment.

The Bill makes changes to the tax law to extend by 12 months the period during which small businesses can access expanded accelerated depreciation rules for assets that cost less than $20,000. The threshold amount was due to revert to $1,000 on 1 July 2018, but will now remain at $20,000 until 30 June 2019.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the extension, but reminded small businesses and family enterprises that the instant asset write-off is a tax deduction, not a rebate – your small business needs to make a profit to be eligible to claim the benefit.

Cyptocurrency and tax: updated guidelines

The ATO says that for taxpayers carrying on businesses that involve transacting with cryptocurrency, the trading stock rules apply, rather than the capital gains tax (CGT) rules.

The ATO’s guidelines on the tax treatment of cryptocurrencies have recently been updated, following feedback from community consultation earlier this year. The ATO received about 800 pieces of individual feedback and submissions, and has now provided additional guidance on the practical issues of exchanging one cryptocurrency for another, and the related recordkeeping requirements.

The ATO as SMSF regulator: observations

In the opening address to the Chartered Accountants Australia and New Zealand National SMSF Conference in Melbourne on 18 September 2018, James O’Halloran, ATO Deputy Commissioner, Superannuation, shared some observations and advice from the ATO’s perspective as regulator for the SMSF sector. He spoke about matters including the crucial role of fund trustees, the ATO’s activities to address behaviour that seeks to take advantage of SMSFs, what sort of SMSF events attract close ATO scrutiny, and issues relating to the use of multiple SMSFs to manipulate tax outcomes.