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.

Government launches new service to simplify business registrations

The government has officially launched a new stand-alone Business Registration Service, providing a simpler and clearer way to register a business. The service is available at www.business.gov.au.

The service can be used for things such as applying for an Australian Business Number (ABN) or goods and services tax (GST) registration. It is for people starting a new business as a sole trader, company, partnership, trust or superannuation fund. Existing businesses with an ABN can also use the service to apply for tax registrations such as GST.

The Business Registration Service has reduced the average time taken to obtain a business and associated licences to under 15 minutes.

Illegal early access to super: ATO warning about scammers

The ATO has issued a warning to be aware of scammers who promise to organise access to people’s retirement savings for a fee. Unscrupulous promoters encourage people to illegally access their super early to help with expenses such as the purchase of a car, paying off debts, sending money to overseas relatives and taking a holiday. The ATO has seen promoters, mostly in western Sydney, targeting people with small to medium super balances, those involved in local community groups, and those who may not have engaged with their super before being approached.

ATO gives small businesses the chance to seek independent review of ATO audit position

From 1 July 2018, the ATO is running a 12-month pilot to extend its independent review service to certain small business taxpayers. This means those taxpayers can have the ATO’s audit position on their tax affairs independently reviewed.

The independent review is conducted by an officer from the ATO’s Review and Dispute Resolution business line. This officer will not have been involved in the audit and will bring an independent “fresh set of eyes” to the case. The independent reviewer will consider the documents setting out the taxpayer’s position and the ATO audit position. They will schedule a case conference with the taxpayer and the ATO audit officer, generally within one month of receiving the taxpayer’s review request.

The ATO audit team will finalise the audit in accordance with the independent reviewer’s recommendations. The pilot is currently limited to small business disputes involving income tax audits in Victoria and South Australia.

Transacting with cryptocurrency: updated ATO info

The ATO says a capital gains tax (CGT) event occurs when a person disposes of their cryptocurrency (eg Bitcoin). A disposal can occur when someone:

• sells or gifts cryptocurrency;
• trades or exchanges cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency) – if the cryptocurrency received cannot be valued, the capital proceeds from the disposal are worked out by using the market value of the cryptocurrency disposed of at the time of the transaction;
• converts cryptocurrency to fiat currency like Australian dollars; or
• uses cryptocurrency to obtain goods or services.
• If you need assistance with the tax treatment of cryptocurrency, or the ATO’s record-keeping requirements for taxpayers who are involved in acquiring or disposing of cryptocurrency, please contact our office.

Tax gap for individuals is $8.8 billion, says ATO

The ATO has estimated that the net “tax gap” for individuals not in business in 2014–2015 is approximately 6.4%, or $8.8 billion. The gap is an estimate of the difference between the tax the ATO collects and the amount that would have been collected if every one of these taxpayers was fully compliant with the law.

In other words, the ATO estimates that individuals not in business paid over 93% of the total theoretical tax payable in 2014–2015.

ATO warns about scammers at tax time

The ATO has warned taxpayers to be on “high alert” for tax-related scams. ATO Assistant Commissioner Kath Anderson said the most common scam is still the “fake tax debt” phone scam, but the ATO is also seeing an increase in “fake refund” or “refund for a fee” scams, and email and SMS scams enticing people to click a hyperlink, download a file or open an attachment.

Scammers frequently claim to be from the ATO and taxpayers should be wary of any phone call, text message, email or letter about a tax refund or debt, especially if they were not expecting it.

Income tax residency rules for individuals: Board of Taxation recommends reform measures

The Board of Taxation has publicly released its initial report on its review of Australia’s income tax residency rules for individuals. The Revenue Minister said the Board found that the current individual tax residency rules require modernisation and simplification. The Board also identified opportunities for tax arbitrage, for example where individuals become “residents of nowhere” when they leave Australia and do not become tax residents of another jurisdiction.

The report considered whether the current rules (largely unchanged since 1930) are sufficiently robust to meet the requirements of the modern workforce, address the policy criteria of simplicity, efficiency, equity and integrity, and take into account a significant number of cases heard since 2009 relating to individual residency. The Revenue Minister has asked the Board to consult further on some key recommendations.

Retirement income covenant needs more flexibility: KPMG

KPMG has released a submission in response to the Treasury position paper on the proposed retirement income covenant announced as part of the 2018–2019 Budget. The proposed covenant will require trustees of superannuation funds (including self managed superannuation funds) to formulate a retirement income strategy for fund members. This requirement is aimed at supporting the government’s development of a comprehensive income products for retirement (CIPR) framework.

Illegal phoenix activity costs billions; new Phoenix Hotline

The ATO has released a new report on the economic impacts of potential illegal phoenix activity. It estimates that the annual direct impact of illegal phoenix activity on businesses, employees and the government was between $2.85 billion and $5.13 billion for the 2015–2016 financial year.

The government has also established a new Phoenix Hotline to combat phoenixing activity and to protect compliant Australian workers and businesses. Employees, creditors, competing businesses and the general public can confidentially provide information about possible phoenix behaviour via the hotline on 1800 807 875 or the ATO website. Disclosures will be protected.

Super funds deliver healthy returns for 2017–2018

The median “growth” superannuation fund delivered a healthy investment return of 9.2% for 2017–2018, with the top spot going to Hostplus with a return of 12.5%, according to superannuation ratings firm Chant West. Growth super funds are those with a 61–80% allocation to growth assets.

Every fund in the growth category had positive returns, with even the lowest performer delivering a 6.5% return. Growth funds have delivered nine consecutive years of positive returns, averaging about 9% a year, said Chant West senior investment manager Mano Mohankumar.

GST exemption for offshore sellers of hotel bookings to be removed: draft legislation released

The Treasurer has released draft legislation to ensure offshore sellers of hotel accommodation in Australia calculate their GST turnover in the same way as local sellers from 1 July 2019.

Under the proposed changes, offshore suppliers of rights to use commercial accommodation (eg hotels) in the indirect tax zone (broadly, Australia) will be required to include these supplies in working out their GST turnover. If the supplier’s GST turnover equals or exceeds the registration turnover threshold, GST must be remitted for supplies that are taxable supplies.

Tax planning

With the end of the 2018 income tax year rapidly approaching, this issue draws attention to year-end tax planning strategies and compliance matters that you need to consider to ensure good tax health. It focuses on the most important issues for small to medium businesses and individuals to consider.

Tip: This is general information, but we’ll take your particular circumstances into account to help you achieve good tax health. Contact us to find out more.

Deferring derivation of income

If your business recognises income on an accruals basis (when an invoice is raised) and your cash flow allows, you may consider delaying raising some invoices until after 30 June, meaning the assessable income will be derived after the 2018 income tax year.

For business income derived on a cash basis (interest, royalties, rent and dividends), you may consider deferring the receipt of certain payments until after 30 June 2018. For example, setting term deposits to mature after 30 June 2018 rather than before.

Bringing forward tax-deductible expenses

To qualify for deductions in the 2018 income tax year, you may be able to bring forward upcoming expenses so that you incur them before 30 June 2018. Small businesses and individual non-business taxpayers may prepay some expenses (such as insurances and professional subscriptions) up to 12 months ahead. This should only be done subject to available cash flow and where the prepayment makes commercial sense.

Businesses

Lower company tax rates and imputation

Company tax rates are falling in Australia. Companies carrying on a business with turnover of less than $25 million will pay a rate of 27.5% in 2018 – the rate of 30% only applies if turnover is $25 million or more, or the company is not carrying on a business.

By 2027, the tax rate will reach a low of 25% for companies carrying on a business with turnover up to $50 million.

Tip: The dividend franking rate for 2018 may be different from a company’s tax rate, depending on whether turnover in 2017 was less than the current year’s turnover benchmark ($25 million for 2018).

Deductions for small business entities

Small business entities (companies, trusts, partnerships or sole traders with total turnover of less than $10 million) will qualify for a raft of tax concessions in the 2018 income tax year:

the $20,000 instant asset write-off – an immediate deduction when buying and installing depreciating assets that cost less than $20,000.

the simplified depreciation rules – accelerated depreciation rates of 15% or 30% for depreciable assets that cost $20,000 or more;

the small business restructure rollover;

an immediate deduction for start-up costs;

an immediate deduction for certain prepaid expenses;

the simplified trading stock rules – removing the need to do an end-of-year stocktake if stock value has changed by less than $5,000;

the simplified PAYG rules – the ATO will calculate PAYG instalments;

cash basis accounting for GST – the ATO will calculate the GST instalment payable and annual apportionment for input tax credits for acquisitions that are partly creditable;

the FBT car parking exemption (from 1 April 2017); and

the ability for employees to salary-sacrifice two identical portable electronic devices (from 1 April 2016).

These concessions are very powerful for small businesses, and can lead to substantial tax savings.

Small business CGT concessions

If you’re selling a business that has an aggregated turnover of less than $2 million (a “CGT small business entity”) or the value of its net CGT assets is $6 million or less (it satisfies the $6 million “net asset value” test), you may be able to access the small business CGT concessions.

These concessions include:

a 15-year exemption – no CGT is payable;

a 50% active asset reduction – a 50% CGT discount in addition to the 50% general discount;

the retirement exemption – up to $500,000 lifetime tax-free limit; and

the active asset rollover – minimum two years’ deferral.

Individuals

No more Budget repair levy

The Budget repair levy (2% of the part of your taxable income over $180,000) no longer applies in 2018. This means that the top marginal rate for 2018 (including the 2% Medicare levy) is 47%, as opposed to 49% in 2017. The FBT rate is also 47% for the 2018 FBT year.

Deduct work-related expenses

People overclaiming deductions for work-related expenses like vehicles, travel, internet and mobile phones and self-education are on the ATO’s hitlist this year. There are three main rules when it comes to work-related claims:

You can only claim a deduction for money you have actually spent (and that your employer hasn’t reimbursed).

The expense must be directly related to earning your work income.

You must have a record to prove the expense.

Deductions are not allowed for private expenses (eg travel from home to work that’s not required to transport bulky equipment) or reimbursed expenses (eg for the cost of meals, accommodation and travel). And although you don’t need to include records like receipts with your tax return, the ATO can deny your claim – and penalties may apply – if you can’t produce the evidence when asked.

Tip: The ATO now uses real-time data to compare deductions across similar occupations and income brackets, so it can quickly identify higher-than-expected or unusual claims.

Superannuation contributions and changes

There have been a number of fundamental changes to the superannuation landscape for the 2018 income tax year, including changes to the caps for concessional contributions (now $25,000 for all taxpayers) and non-concessional contributions ($100,000, or $300,000
under the three-year bring forward rule) and the introduction of the general transfer balance cap and total super balance threshold (each currently $1.6 million).

Also from 2018, both employees and self-employed individuals can claim a tax deduction annually (maximum $25,000) for personal superannuation contributions, provided the superannuation fund has physically received the contribution by 30 June 2018 and the individual provides their superannuation fund with a “notice of intention to claim” document.

Property owners

There have been recent changes to:

the tax treatment associated with residential rental properties (eg travel deduction and depreciation changes);

CGT and GST withholding tax obligations for purchasers of property;

superannuation measures impacting home ownership (eg the first home super saver scheme and the superannuation downsizer incentive); and

stamp duty and land tax, which varies from state to state.

The government has also proposed to abolish the main residence CGT exemption for taxpayers who are no longer Australian tax residents at the time they sign a contract to sell their home, regardless of how long the home has actually been used as a main residence.

Tax compliance and developments

Single Touch Payroll

From 1 July 2018, employers with 20 or more employees will have to run their payroll and pay their employees through accounting and payroll software that is Single Touch Payroll (STP) ready. This is a major reporting change, as employers will report payments such as salaries and wages and allowances, PAYG withholding and super information to the ATO directly from their payroll solution at the same time employees are paid.

GST on low value imported goods

From 1 July 2018, overseas vendors with GST turnover of AUD$75,000 or more in Australian sales will have to account for GST on sales of imported goods costing AUD$1,000 or less to consumers in Australia.

Payments to contractors in building and construction

Businesses in the building and construction industry must report to the ATO about their total annual payments to contractors by 28 August 2018. The government has proposed to extend this reporting regime to cleaners and couriers (from 1 July 2018) and to security providers, road transport and computer design services (from 1 July 2019).

ATO closely examines work-related car expenses

The ATO is concerned about taxpayers making mistakes or deliberately lodging false claims for work-related car expenses, and has announced it will be closely examining claims for these expenses in 2018 tax returns. Last year, around 3.75 million people made a work-related car expense claim, totalling about $8.8 billion.

The best way for to avoid mistakes is to make sure you follow “the three golden rules”, only making a car claim if:

• you paid for the expense yourself and you weren’t reimbursed;
• it’s directly related to earning your income – in other words, your employer required you to make the trips as part of your job; and
• you have a record to support your claim.

TIP: We can help you avoid mistakes and understand what you’re entitled to claim this tax time. Contact us about your tax return today.

Data matching finds taxpayers with unnamed Swiss bank accounts

More than 100 Australians have been identified as “high risk” and will be subject to ATO investigation because they have links to Swiss banking relationship managers who are alleged to have actively promoted and facilitated tax evasion schemes.

The ATO constantly receives intelligence from a range of local and international sources which it cross-matches against existing intelligence holdings through its “smarter data” technology.

Australians who may have undeclared offshore income are encouraged to contact the ATO with that information – if penalties or interest apply, the amounts will generally be reduced (by up to 80%) if you make this kind of voluntary disclosure.

TIP: It’s important for Australia tax residents to declare all of their worldwide income to the ATO. Australia has many international tax agreements that work to avoid double taxation for people who are resident in Australia but make income from offshore sources.

CGT main residence exemption to disappear for non-residents

A person’s Australian tax residency status may be about to assume a whole new meaning. Currently, both residents and non-residents qualify for a full or partial exemption from capital gains tax (CGT) when they sell a property that is their home (main residence). But if a Bill that is currently before Parliament is passed, that will change, and any individual who is a non-resident for tax purposes at the time they sign a contract to sell their home – for example, if they have moved overseas before signing the sale contract – will no longer qualify for the full or partial main residence exemption, regardless of how long the home was actually their main residence when they were an Australian tax resident.

TIP: If you’re considering selling your home and moving or travelling overseas, talk to us to find out how this could affect your Australian tax residency and CGT costs.

Residential rental property travel expense deduction changes

Recent changes to Australian tax law mean that individuals, self managed superannuation funds (SMSFs) and “private” trusts and partnerships can longer claim tax deductions for non-business travel costs related to their residential rental properties. Such costs also cannot form part of the cost base or reduced cost base of a CGT asset.

The ATO has issued guidance to make it clear that tax deductions are only permitted for taxpayers who incur this kind of travel expense as a necessary part of
carrying on a business such as property investing, or providing retirement living, aged care, student accommodation or property management services.

TIP: The ATO will consider a range of factors, such as number of properties leased, time and expertise needed for their maintenance, and taxpayer record-keeping, when deciding if someone carries on a business that requires travel expenditure related to their residential properties.

Government to increase civil penalties for white-collar crime

In response to recent Senate Economics References Committee and Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce reports, the Federal Government has agreed to increase the civil penalties for corporate and financial misconduct (white-collar crime), for both individuals and bodies corporate. ASIC infringement notices will also be expanded to cover a broader range of financial services and managed investments infringements.

The new maximum civil penalties will be set at:

• for individuals, the greater of 5,000 penalty units (currently $1.05 million) or three times the value of the benefits obtained or losses avoided; and
• for corporations, the greater of 50,000 penalty units (currently $10.5 million) or three times the value of the benefits obtained or losses avoided, or 10% of annual turnover in the 12 months before the misconduct, up to a total of one million penalty units ($210 million).

Businesses, get ready: GST on
low value goods

From 1 July 2018, GST will be imposed on the supply low value goods from outside of Australia to Australian consumers. Businesses need to be ready for this change.

tip: Businesses must register for Australian GST once their annual turnover reaches $75,000, but registering is optional for businesses with lower turnover. The low value goods changes will apply from 1 July 2018 for all businesses registered for GST, whether their registration was required or they chose to register.

Under the low value goods regime, businesses that sell goods valued at A$1,000 or less to an Australian consumer (who is not registered for GST) will be liable to pay GST on those sales. GST will also apply where the business delivers or facilitates delivery of the goods into Australia.

tip: If your business will be affected, now is the time to make sure your systems are ready to collect GST on low value sales, that your online terms and conditions are up to date, and that your website meets Australian consumer law requirements for displaying prices.

Business-to-business (B2B) sales, where a business sells low value goods to a recipient business that is registered for GST, are excluded from the regime.

Tip: The New Zealand Government has also recently proposed to levy GST on goods valued under the country’s current threshold of NZ$400.

Financial Complaints Authority takes shape

Minister for Revenue and Financial Services Kelly O’Dwyer has announced the authorisation of the new financial dispute resolution scheme, the Australian Financial Complaints Authority (AFCA), which will start accepting complaints from 1 November 2018. AFCA is intended to be a “one-stop shop”, having the expertise to deal with all financial disputes, including superannuation and small business lending disputes, with higher monetary limits and compensation caps.

All Australian financial services (AFS) licensees, Australian credit licensees, superannuation trustees and other financial firms legally required to join AFCA will need to do so by 21 September 2018.

Banking Royal Commission wraps up evidence on financial advice

The Banking Royal Commission has wrapped up its two weeks of hearings focused on financial advice.

The hearings have included gruelling evidence of misconduct in financial services entities’ provision of financial advice, occurring in the context of fees being charged for no service, platform fees, inappropriate advice, improper conduct and the disciplinary regime.

The Royal Commission has adjourned until 21 May 2018, when it will begin its third round of hearings with a focus on small and medium enterprises (SMEs). The Commission’s final report is due by 1 February 2019.

ATO assessments issued for excess super pension balances

The ATO has started issuing excess transfer balance (ETB) tax assessments to self managed super fund (SMSF) members, or their agents, who had previously received an ETB determination and rectified the excess. These ETB tax assessments are sent to SMSF members (or their professionals), and not to the fund. It’s then up to the member to decide how to cover the ETB liability for exceeding their $1.6 million pension transfer balance cap.

The ATO warns that SMSF members may receive an ETB assessment even if they didn’t receive an ETB determination. If they rectified the excess before they were assessed for a determination, they are still liable for the ETB tax. However, SMSF members who were covered by the transitional rules for excesses not exceeding $100,000 and rectified in full by 31 December 2017, will not receive an ETB tax assessment.