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.

Bill to implement housing affordability CGT changes

As part of the 2017–2018 Budget, the Federal Government announced a range of reforms intended to reduce pressure on housing affordability. Legislation has now been introduced into Parliament that proposes to:

• remove the entitlement to the capital gains tax (CGT) main residence exemption for foreign residents; and
• modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an “associate inclusive” basis.

The Bill also proposes to amend the tax law to provide an additional discount on CGT for affordable housing. The discount of up to 10% will apply if a CGT event happens to an ownership interest in residential property used to provide affordable housing.

TIP: The main residence exemption means that CGT doesn’t apply for a capital gain or loss that an individual makes from selling their main residence. A CGT discount applies if the dwelling was their main residence for only part of the time they owned it, or they partly used it to produce assessable income.

Changes to small business CGT concessions

Treasury has released draft legislation to make sure that taxpayers will only be able to access the small business CGT concessions for assets that are used (or held ready for use) in the course of a small business or are an interest in a small business.

The draft also proposes additional conditions to be satisfied from 1 July 2017 when applying the small business CGT concession for capital gains related to a share in a company or an interest in a trust.

TIP: A range of tax concessions are available for small businesses. Talk to us to find out how your business could benefit.

Bill to change residential property GST arrangements

A Bill has been introduced into Parliament that, when passed, will require purchasers of new residential premises and new subdivisions of potential residential land to pay the goods and services tax (GST) on the purchase directly to the ATO as part of the settlement process from 1 July 2018.

TIP: Under the current law, the supplier of the property (eg the developer) is responsible for paying the GST to the ATO when lodging a business activity statement (BAS). This can happen up to three months after settlement.

The new measure was announced in the 2017–2018 Federal Budget. It is intended to speed up the GST payment process, and to deal with the problem of some developers dissolving their business and setting up a new entity to avoid paying GST (a form of “phoenix” tax avoidance).

Moving to combat the black economy

The Black Economy Taskforce was established in 2017 “to develop an innovative, forward-looking whole-of-government policy response to combat the black economy in Australia, recognising that these issues cannot be tackled by traditional tax enforcement
measures alone”. In May 2017 the taskforce made a its initial recommendations, which it based on foreign jurisdiction experiences, consultation with stakeholders and anecdotal evidence it had received.

TIP: The black economy includes people who don’t correctly report and meet their tax obligations, and people who operate entirely outside the tax and regulatory system.

The Government accepted a number of the taskforce’s recommendations, and has now introduced a Bill into Parliament, proposing to combat the black economy by:

• prohibiting the production, distribution and possession of sales suppression tools, which are typically used to remove or alter transaction information recorded by point-of-sale (POS) systems;
• prohibiting the use of electronic sales suppression tools to incorrectly keep tax records; and
• requiring entities that have an ABN and that provide courier or cleaning services to report to the ATO (from 1 July 2018) information about transactions that involve engaging other entities to undertake those services for them.

Corporate tax avoidance: latest
ATO targets

The ATO has provided an update on its latest focus areas and the compliance projects it is undertaking to reduce corporate tax avoidance. These include:

• investigating possible manipulation of the thin capitalisation rules, including 27 taxpayers’ asset revaluations totalling $78 billion;
• looking into arrangements that move intellectual property assets and rights offshore to multinational entities’ related parties;
• focusing on the treatment of oil and gas industry labour costs associated with high-value asset construction;
• examining the arm’s length conditions operating in pharmaceutical industry arrangements;
• identifying tax professionals and advisers who are promoting unacceptable tax planning; and
• looking at the tax affairs of various major
  e-commerce players.

Social security means testing of lifetime retirement income streams

The Department of Social Services (DSS) has released its proposed means testing rules for pooled lifetime retirement income streams.

The pension standards were amended from 1 July 2017 to allow for more tax-exempt lifetime superannuation income stream products that enable pooling risk to manage longevity risk. Lifetime pensions and annuities that meet these new standards qualify for tax concessions tax treatment.

The DSS proposes to consider the following amounts when assessing such pooled lifetime income streams as part of social security means testing:

• income test: 70% of all income paid from the income stream product; and
• assets test: 70% of the purchase price of the product until the person reaches the age of their life expectancy at the time they made the purchase, and 35% from then on.

TIP: Under the new rules, deferred super income stream products would receive the same asset test assessment as products where payments begin immediately.

ATO now issuing excess transfer balance determinations

The ATO has advised that is now sending out excess transfer balance (ETB) determinations to individuals who have exceeded their superannuation transfer balance cap and not taken steps to remove the excess amount.

TIP: The transfer balance cap, currently set at $1.6 million, is a limit on the total amount of super that can be transferred into retirement phase. You can make multiple transfers as long as the total amount transferred remains below the cap.

Self managed superannuation fund (SMSF) members that had exceeded their transfer balance cap by $100,000 or less on 1 July 2017 had until 31 December 2017 to remove the excess capital from retirement phase. If they didn’t do so, they will now have to remove the excess capital and ETB earnings, and also pay ETB tax.

Windfarm grant was an assessable recoupment

The Full Federal Court has dismissed a taxpayer’s appeal and held that a Commonwealth grant of almost $2.5 million for the establishment of a windfarm was an assessable recoupment (Denmark Community Windfarm Ltd v FCT [2018] FCAFC 11).

In May 2011, the taxpayer was given a renewable energy grant for 50% of the project costs it incurred in constructing two wind turbines. The grant was paid in instalments on the completion of identified project milestones.

The ATO made a private ruling that the grant would be assessable income. The taxpayer argued against the ruling, but the Full Federal Court dismissed the taxpayer’s appeal.

Consultation paper: combating phoenix activities

The Federal Government has released a consultation paper proposing company and tax law reforms to combat phoenix activities.

Phoenix activities involve stripping assets from a company that’s in debt and transferring them to another company to avoid paying the first company’s liabilities – that is, the new company “rises from the ashes” of the old one.

The government is considering a range of ways to combat this type of activity, including setting up a hotline for phoenix reporting, adding phoenixing to the offences specifically prohibited under the Corporations Act 2001, making directors personally liable for companies’ unpaid GST, and limiting the ability for sole directors to resign unless there is a replacement director or the company is wound up.

New passive income test for lower corporate tax rate

The Federal Government has recently introduced a Bill into Parliament to ensure that companies with more than 80% passive income will not qualify for the reduced company tax rate.

Under the Bill’s changes to the Income Tax Rates Act 1986, calculations of a business’s “passive income” would include:

• distributions by corporate tax entities (other than non-portfolio dividends);
• franking credits attached to such distributions;
• non-share dividends;
• interest;
• royalties;
• rent;
• gain on qualifying securities;
• net capital gains; and
• amounts included in the assessable income of partners in a partnership or beneficiaries of a trust estate that are referable to another base rate entity passive income amount.The lower company tax rate of 27.5% is available in 2017–2018 for small businesses and corporate base rate entities with turnover of less than $25 million.
• At the time of writing, the Bill is still before the Parliament. When passed, it will apply from the 2017–2018 income year.

tip: You must also “carry on a business” to be eligible for the lower corporate tax rate – read on to find out more about what this means for companies.

ATO guidance: what is “carrying on a business”?

The ATO has issued a draft taxation ruling to explain the factors it will consider when deciding whether a company (incorporated under the Corporations Act 2001) is “carrying on a business”. This is one of the tests companies and small businesses must pass to be eligible for the lower corporate tax rate.

It’s not possible to definitively state whether a company carries on a business, but the draft ruling says that ATO will consider a range of indicating factors. Specifically, a company is likely to be carrying on a business if it:

• is established and maintained to make a profit for its shareholders; and
• invests its assets in gainful activities that have both a purpose and prospect of profit.

tip: Wondering whether you can access the reduced corporate tax rate? Talk to us today to find out more about how the passive income and carrying on a business tests apply to your situation.

Total superannuation balances and pension transfer balance account reports

The concept of a person’s “total superannuation balance” is now being used to determine whether you are eligible for various super concessions, including the $1.6 million balance limit for non-concessional contributions, Federal Government co-contributions, the spouse contributions tax offset, carrying forward unused concessional contributions and self managed superannuation fund (SMSF) segregation.

The ATO has recently agreed to modify the reporting obligation for total superannuation balances, recognising that some funds are not in a position to correctly report their correct accumulation phase value for 30 June 2017.

The ATO has also set out when superannuation providers and life insurance companies must lodge transfer balance account reports. The ATO will use the reports to determine if individuals have exceeded their pension transfer balance cap.

An administrative concession will be provided for self managed superannuation funds (SMSFs), allowing later reporting to help the funds transition to event-based transfer balance cap reporting.

TIP: Super shouldn’t be a “set and forget” arrangement. It’s important to revisit your strategy and consider it carefully, especially in light of the wide range of super changes announced in this year’s Federal Budget.

Fringe benefits tax: should an Uber be treated as a taxi?

Earlier in 2017, the Federal Court ruled that UberX drivers must be registered for GST, because they supply “taxi travel”. There has been much discussion of this finding since, and the ATO is now examining whether Uber trips should be eligible for the “taxi travel” FBT exemption.

The FBT exemption, introduced in 1995, currently only applies to travel in a vehicle that is state or territory licensed to operate as a taxi. However, with the Federal Court’s decision on GST for Uber, and some recent state and territory moves towards licensing changes, the ATO has decided to review its interpretation of the definition of “taxi” in the FBT law.

TIP: Any benefit arising from taxi travel by an employee is exempt from FBT if the travel is a single trip that begins or ends at the employee’s workplace.

In a discussion paper open for comment until late October, the ATO has asked questions such as, “Should the FBT definition of ‘taxi’ be interpreted to include not just vehicles licensed to provide taxi services … [but also] ride-sourcing vehicles and other vehicles for hire?”

TIP: Any benefit arising from an employee’s taxi travel is also exempt from FBT if the travel is a result of the employee’s sickness or injury and the journey is between the employee’s workplace, residence and/or another place appropriate because of the sickness or injury.

Tax treatment of long-term construction contracts

In new Draft Taxation Ruling TR 2017/D8, the ATO explains the methods that taxpayers can use to return income derived and recognise expenses incurred in long-term construction projects. A construction project is considered long-term if it straddles two or more income years.

Two methods of accounting are available: the basic approach (essentially the accruals method) and the estimated profits approach.

Once a particular method is chosen, the ATO expects the taxpayer to apply it consistently for the entire contract. The same method should also be applied to all of the taxpayer’s similar contracts.

The draft ruling also deals with several accounting methods that the ATO does not consider acceptable for long-term construction contracts, including the completed contracts method (bringing profits and losses to account when the contract is completed).

Foreign equity distributions to corporate entities

Two recent taxation determinations from the ATO deal with how the foreign equity distribution rules in the Income Tax Assessment Act 1997 apply where the distribution recipient is a corporate partner in a partnership or a corporate beneficiary of a trust.

Under the rules, a foreign equity distribution is treated as non-assessable, non-exempt income if the recipient is an Australian corporate tax entity that holds a participation interest of at least 10% in the foreign company making the distribution.

The ATO’s view is that a partnership or trust can hold a direct control interest in a foreign company for the purposes of the rules, so that an Australian corporate tax entity can have an indirect participation interest in the foreign company via the partnership or trust.

Bill to increase Medicare levy

The Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 has been introduced to implement the Government’s 2017–2018 Budget announcement to increase the Medicare levy by 0.5% to 2.5% from 1 July 2019 in order to help finance the National Disability Insurance Scheme (NDIS). Nine other Bills have been introduced to increase the following rates that are linked to the top personal tax rate.

TIP: Think you may be affected by personal tax rate changes? Contact us to find out more.

Budget changes to foreign resident CGT: draft legislation

Draft legislation has been released to implement 2017–2018 Federal Budget measures relating to the CGT liability of foreign residents. The measures, which applied from 9 May 2017:

• remove the entitlement to the CGT main residence exemption (MRE) for foreign residents that have dwellings that qualify as their main residence; and
• ensure that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an associate inclusive basis.

Foreign resident CGT withholding: early recognition of tax credit

The Commissioner has made a determination to modify the time at which the vendor is entitled to a tax credit in respect of an amount withheld under the foreign resident CGT withholding rules.

The modification, applicable for transactions entered into on or after 1 July 2016, ensures that, where a settlement period for a transaction covers more than one income year for the vendor, the credit entitlement will be available in the same year as that in which the transaction giving rise to the payment to the ATO is recognised for tax purposes for the vendor.

Further guidance for tax losses via a new “similar business” test

The ATO has released a draft guideline on how they will apply the new “similar business test” to supplement the existing “same business test” used for testing whether a company can utilise an earlier year tax loss.

The draft guideline says the similar business test will operate in a way that is comparable to the same business test, and that the overall business of a company must satisfy the similar business test to access losses. The focus remains on the identity of a business, as well as continuity of business activities to generate assessable income.

ATO increases its scrutiny on work-related expenses

Despite wide publicity on the issue, the ATO has reminded taxpayers that it is increasing its scrutiny on work-related expenses. Last year over 6.3 million people made a work-related expense claim for clothing and laundry expenses, totalling almost $1.8 billion. Common mistakes the ATO has seen include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

Tip: Unsure about what you can claim as work-related expenses? Talk to us to avoid making a mistake.

Activity statements can now be lodged in advance

The ATO says nil activity statements can be generated early in some cases. Under normal bulk processes, activity statements generally issue from the ATO by the end of the month.

However, the ATO says there may be a specific reason for a business to access its activity statements early, such as: if you are a short-term visitor (for example, you are an entertainer or sports person and will be leaving during the relevant period); or know that you will be travelling when an activity statement is due.

Tip: Activity statements can be generated for up to six months in advance.

New downsizing cap available

If you are aged 65 or over, your home is your main residence for CGT purposes and you have owned it for a minimum of ten years, you could benefit from new draft legislation. You will be able to make additional non-concessional contributions, up to $300,000, from the proceeds of selling your home from 1 July 2018.

The downsizer contribution cap of $300,000 will be in addition to existing caps; the capital must come from the proceeds of the sale price and application must be made within 90 days after the home changes ownership. There will also be exemption from the contribution rules for people aged 65 and above, and the restrictions on non-concessional contributions for people with total super balances above $1.6 million.

Tip: Thinking of downsizing? Speak to us about what this could mean for you in terms of tax concessions.

GST: simplified accounting for food retailers

The ATO has released a draft determination on the choice available to you, if you are a food retailer, to use a simplified accounting method (SAM) to help you to work out your net amount by estimating your GST-free sales and GST-free acquisitions of trading stock.

The Draft SAM is substantially the same as the previous determination it replaces. If you were eligible to use a particular SAM specified in the previous determination, you will continue to be eligible to use that SAM under the draft determination.

Tip: Are you a food retailer? We can help you to use the simplified accounting method for your business.

Super system reforms

Australian Prudential Registration Authority (APRA) has written to RSE licensees setting out its approach to the Government’s super system reforms aimed at enhancing APRA’s prudential powers to improve member outcomes. Under the proposed reforms, the current “scale test” will be replaced with an “outcomes test” requiring MySuper trustees to attest to outcomes promoting the financial interests of members on a broader range of indicators.

Segregated current pension assets

A warning has been issued from the Actuaries Institute that tens of thousands of self-managed super funds (SMSFs) could be at risk of incorrectly claiming exempt current pension income (ECPI) under the ATO’s approach to segregated current pension assets.

First Home Super Saver Scheme – draft legislation

Treasury has released draft legislation to implement the 2017–2018 Federal Budget superannuation measures aimed at improving housing affordability by the establishment of the First Home Super Saver Scheme (FHSSS).

The FHSSS will allow voluntary superannuation contributions made from 1 July 2017 to be withdrawn for a first home deposit starting from 1 July 2018. The scheme provides for up to $15,000 per year (and $30,000 in total) to be withdrawn from superannuation.

Tip: To be eligible to use the FHSSS, a person must be 18 years or over, have not used the scheme before and never have owned property before in Australia.

Super assets total $2.3 trillion at June 2017

APRA has released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for the June quarter 2017. As at 30 June 2017, superannuation assets totalled $2.324 trillion (up 10% from $2.113 trillion in June 2016).

Total assets in MySuper products amounted to $595 billion (up 25.5% from $474 billion in June 2016). Self-managed super fund (SMSF) assets totalled $697 billion (up 9.8% from $635 billion in June 2016) held in over 596,000 SMSFs, representing 30% of all super assets.

Higher education HELP changes announced

The Government has announced a package of reforms to higher education – the Higher Education Reform Package – to take effect generally from 1 January 2018. Under the package the maximum student contribution will increase from 1 January 2018, but there will be no up-front fees and no deregulation of fees.

A new set of repayment thresholds will be introduced from 1 July 2018, affecting all current and future Higher Education Loan Program (HELP) debtors.

Maximum student contributions will also be increased, phasing in by 1.8% each year between 2018 and 2021 to cumulate in a 7.5% total increase.

TIP: Already have a HELP debt, or thinking about undertaking more study? Talk to us to find out how these changes may affect you.

Super reforms from 1 July 2017

Rolling back excess pension balances

If you are a member of a self managed super fund (an SMSF) you may need to take action before 1 July 2017 to avoid exceeding the new $1. 6 million transfer balance cap. You can do this by requesting that the trustee of your SMSF commutes some or all of your income streams, rolling the amount over as an accumulation interest within the SMSF or withdrawing it from the SMSF as a lump sum.

Capped life expectancy and market-linked pensions

The value of “capped defined benefit income streams” will count towards an individual’s pension transfer balance cap of $1.6 million from 1 July 2017. However, capped defined benefit income streams cannot, of themselves, result in an excess transfer balance. This is because they generally cannot be commuted and cashed as a lump sum. Modified rules that will apply to achieve an equivalent tax outcome for defined benefits.

If a pension or annuity from a life expectancy or market-linked income stream (MLIS) product is payable, a credit arises in the person’s transfer balance account equal to the “special value” of the superannuation interest that supports the income stream.

There will be additional income tax consequences for people with defined benefit pension income exceeding the defined benefit income cap ($100,000 for a financial year).

Death benefits

Where a deceased fund member’s superannuation interest is cashed to a dependant beneficiary as a death benefit income stream, a credit will arise in the dependant beneficiary’s transfer balance account. The amount and timing of the transfer balance credit will depend on whether the recipient is a reversionary or non-reversionary beneficiary.

Draft legislation: LRBA integrity measures for pension cap

New exposure draft legislation contains integrity measures for limited recourse borrowing arrangements (LRBAs) as part of the Government’s super reform legislation.

The exposure draft proposes to include LRBAs in fund members’ total superannuation balance and the $1.6 million pension transfer balance cap. The changes seek to address concerns about SMSF members’ ability to use LRBAs to circumvent contribution caps and effectively transfer accumulation growth to retirement phase that is not currently captured by the transfer balance cap regime. The amendments will only apply in relation to borrowings entered into on or after the Bill is enacted.

Deductions for super funds: major ruling update

The ATO has issued an important ruling to clarify its views on the deductions available for superannuation funds.

Superannuation funds are generally restricted to claiming deductions to the extent that they are incurred in producing assessable income. The new ruling sets out the acceptable methods for apportioning tax deductions for expenses incurred in partly gaining non-assessable income.

The ATO has also clarified its views on deductions for the costs of establishing a fund, managing the related tax affairs and amending trust deeds.

TIP: The ATO has extended the due date for lodgment of 2015–2016 SMSF annual returns from 15 May to 30 June 2017.

Bill to reduce corporate tax rate

The Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 has been introduced to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023–2024 income year. The corporate tax rate will then be cut for all corporate tax entities, phasing down to a 25% tax rate for the 2026–2027 and later income years.

Budget updates

Foreign owners of “ghost” property

The 2017–2018 Federal Budget announced that the Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor.

Tougher residency rules for pensioners

The Government has announced it will revise the residency requirements for claimants of the Age Pension and Disability Support Pension (DSP). From 1 July 2018, claimants will be required to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP, or meet other, more specific, time requirements.

Transfer pricing

Chevron: interest rate on borrowing not arm’s length

In a major transfer pricing judgment, the Full Federal Court has unanimously dismissed Chevron Australia’s appeal, finding that its loan arrangement with its related US company Chevron Texaco Funding Corporation was not at arm’s length and the Commissioner was justified in denying Chevron Australia’s interest deduction claims.

Draft guideline on cross-border related-party financing

The ATO has released a Draft Practical Compliance Guideline that sets out its compliance approach to the taxation outcomes associated with a related-party financing arrangement. It makes no direct reference to the Chevron decision, but has clearly been produced as a risk assessment tool for entities that engage in broadly similar related-party financing arrangements.

The ATO assesses related-party financing arrangement risk using a framework of six risk zones, ranging from white zone (arrangements already reviewed and concluded by the ATO) and green zone (low risk) to red zone (very high risk).

If a related-party financing arrangement falls outside the low risk category, taxpayers can expect the ATO to monitor, test and/or verify the taxation outcomes of the arrangement.

Car expenses for transporting equipment disallowed

A taxpayer working as a stevedore has been denied a deduction for car expenses incurred in transporting equipment to and from work. The Administrative Appeals Tribunal (AAT) decided that it was not necessary for the taxpayer to take home her hard hat, safety glasses, hearing protection or headlight to clean them, and her overalls were laundered by the employer. Accordingly, she could only justify transporting her shirts, trousers and occasional wet weather gear, which were not bulky. The car expenses were therefore not deductible.

TIP: The ATO pays attention to unusual claims when it comes to work-related expenses. We can help you maximise your tax return while staying within the rules.

Draft legislation: financial complaints and dispute resolution

As part of the 2017–2018 Budget, the Government announced that it would create a new one-stop shop for financial disputes – the Australian Financial Complaints Authority (AFCA) – to be established by 1 July 2018. AFCA will replace the existing framework of the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman (CIO) and Superannuation Complaints Tribunal (SCT). These existing bodies will continue to operate after 1 July 2018 to work through their existing complaints. Financial firms will be required to be members of AFCA, and its decisions will be binding on all firms.