Excessive deduction claims on holiday homes on ATO hit list

The ATO is increasing its focus on holiday home investors and, in particular, whether they are correctly claiming deductible expenses. A key concern is when people make claims for expenses when the property was not available for rent. The ATO has recently advised that it will be sending letters to taxpayers in approximately 500 postcodes across Australia, reminding them to only claim the deductions they are entitled to, for the periods the holiday home was rented out or was genuinely available for rent.

TIP: Holiday home investors should be aware that the ATO appears to be taking a broad approach in monitoring rental deductions. Where relevant, it may be prudent for holiday home investors to take this opportunity to review the rules surrounding holiday home tax deductions to ensure that any risks or issues are addressed in a timely manner. It may also be a good idea to review records now so that you are prepared should the taxman come knocking. If you have any questions about this issue, please contact our office.

Foreign property investors – reduced penalty period ending

The ATO has reminded foreign investors that the reduced penalty period for possible breaches of Australia’s foreign investment rules for purchases of Australian real estate will close soon. The reduced penalty period is only available until 30 November 2015. From 1 December 2015, new criminal and civil penalties will apply. The ATO said if foreign investors disclose a breach of the rules for residential real estate purchases during the reduced penalty period, depending upon their circumstances, they may:

• be given a concessional period of 12 months to divest themselves of the property, rather than a shorter period;
• not be referred for criminal prosecution.

Payroll tax grouping – know the rules

For payroll tax purposes, businesses may be grouped with other businesses if there is a link between the companies. Businesses may be deemed linked in several ways. One of the most common ways is where two or more businesses are controlled by the same person or persons. However, there are specific exclusions under the payroll tax grouping rules which could apply for a business depending on the circumstances. This will require making an application to the relevant state or territory revenue authority.

When a group exists, only a single tax-free threshold will apply to the whole group. That is, the separate businesses themselves will not each have the benefit of the tax-free thresholds. Each member of the group will be liable for any outstanding payroll tax of the other group members. Therefore, it is important for businesses to identify whether they could be grouped for payroll tax purposes.

TIP: The potential eligibility for exclusion from the payroll tax grouping rules should be assessed. Furthermore, as business conditions may change and as part of the overall management of a business, it may be prudent to regularly examine your business’s payroll tax obligations.

No GST credits for mining accommodation

The Full Federal Court has dismissed a taxpayer’s appeal from an earlier decision which held it was not entitled to input tax credits for acquisitions relating to providing accommodation to employees and contractors working in the Pilbara.

The taxpayer, Rio Tinto Services Ltd, was the representative member of the Rio Tinto Ltd GST group, which carried on a large-scale mining enterprise in outback Australia. The group provided and maintained residential accommodation for its workforce in various locations, comprising some 2,300 houses and apartments. This was operated at a considerable loss, for example, in 2010 the taxpayer received $6.1 million in rent but the associated costs exceeded $38.8 million.

The case was conducted as a test case for GST paid in October 2010 on expenditure including construction and purchase of new housing, repairs, cleaning and landscaping. The taxpayer claimed it was entitled to input tax credits of nearly $600,000 for acquisitions made in providing and maintaining residential accommodation for the group’s workforce in the Pilbara region. It argued the housing for its workers were a necessary part of its mining operations.

The Full Federal Court said it was clear from the facts that all of the acquisitions related wholly to making supplies of rental residential accommodation. Although the supplies of accommodation were for the broader business purpose of carrying on the taxpayer’s mining operations, it said this did not alter the fact that the acquisitions all related to supplying premises by way of lease, which were input taxed supplies.

ATO’s proportionate compliance approach to SMSFs

From 1 July 2014 the ATO has three new regulatory compliance powers to deter and address contraventions of the superannuation law by trustees of self-managed super funds (SMSFs). These three new powers include the ability of the ATO to issue education directions, rectification directions and administrative penalties. The new laws were introduced to give the ATO more flexible and proportionate powers to deal with the various levels of noncompliant behaviour by trustees.

It is important for trustees to understand the ATO’s compliance approach to administrating the SMSF sector. A key message that the ATO has been communicating to all trustees is for them to rectify a breach as soon as it is identified. According to ATO Assistant Commissioner, SMSF Segment, Superannuation, Kasey Macfarlane, in these circumstances, the ATO would be “unlikely to apply further sanctions unless other factors are identified, such as if the same or similar contraventions frequently arose”.

Ms Macfarlane said the ATO uses “the new powers and penalties to drive compliance, not to increase revenue”. “So while you can expect to see us actively using the directions powers, in a large percentage of cases our application of SMSF administrative penalties will be more judicious, via favourable remission requests, for first offences,” she said.

Find your small lost superannuation accounts

A Bill has been introduced into Parliament which contains legislative amendments to increase the account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner of Taxation, ie from $2,000 to $4,000 from 31 December 2015, and from $4,000 to $6,000 from 31 December 2016.

TIPS:

Moving all your super from multiple accounts into one account (known as “consolidating your super”) might help you to save on fees and make managing your super easier.

There may be sound reasons for maintaining a separate small superannuation account. It may be prudent to assess those reasons and, if those reasons are still valid, to take steps to ensure that you remain an active fund member.

Individuals are able to claim back their superannuation from the Commissioner at any time. Interest, calculated in accordance with the Consumer Price Index (CPI), has been payable on unclaimed superannuation money repaid since 1 July 2013.

Please contact us for further information.

Small business tax discount on the way

In a surprise – but welcome – move in the 2015 Federal Budget, the Government announced a small business tax discount. The Government said that, with effect from 1 July 2015, individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset through the individual’s end-of-year tax return.

Example: A person running a business as a sole trader has an annual turnover of $300,000 and taxable income of $75,000. Under the current law, the business would pay tax, at the owner’s marginal tax rate, of around $16,000 in total. Under the proposed new law, the $16,000 tax bill on the business income would be reduced by 5%, or $800. While there is no change in the owner’s tax rate, under the new law the owner would pay only $15,200 tax.

Legislation to implement the small business tax discount is currently awaiting formal enactment.

Ride-sharing provider challenges ATO’s GST view

Uber BV has lodged an application in the Federal Court to challenge the ATO’s view on GST in relation to ride-sharing drivers.

In May 2015, the ATO released information on its website providing its view of the tax obligations of people providing services in the sharing economy. The ATO was of the view that people who provide ride-sourcing (or ride-sharing) services were providing “taxi travel” under the GST law, and were therefore required to register for GST regardless of turnover, charge GST on full fare amounts, lodge BASs and report income in their tax returns. The ATO had given ride-sourcing drivers until 1 August 2015 to obtain their ABN and be registered for GST.

However, in a company statement, Uber argued that the ATO’s position unfairly targets Uber’s driver-partners. In the meantime, the ATO has maintained its view that people who provide ride-sourcing services are providing “taxi travel” under the GST law, and that it expects all ride-sourcing drivers to be registered for GST.

TIP: According to the ATO, although ride-sourcing drivers need to account for the GST on full fare amounts, they can also claim GST credits for relevant business expenses. The ATO says drivers must report income earned from providing ride-sourcing services; however, they can also claim deductible business costs. Please contact our office for assistance.

Crowdfunding for small proprietary companies: consultation

Crowd-sourced equity funding (or equity crowdfunding) is an innovative form of fundraising that allows a large number of individuals to make small equity investments in a company.

The Government is looking at ways to facilitate equity crowdfunding and has released details of its proposed regulatory framework for public companies. However, a key part of the Government’s public consultation is to also examine whether its proposed regulatory framework for public companies should be extended to proprietary companies.

The Government notes that proprietary companies are subject to limitations under the Corporations law on the way they can raise funds. These limitations make it difficult for proprietary companies to effectively use equity crowdfunding to raise funds from a large number of small shareholders. Accordingly, the Government is seeking views on way it could amend the law to make capital raisings by small proprietary companies more flexible. Public consultation closes on 31 August 2015.

SMSFs in pension phase need to exercise care

The ATO is of the view that most trustees of self managed super funds (SMSFs) do the right thing. However, it has identified a number of issues concerning SMSFs in pension phase, noting the growing number of people expected to receive a pension in the next 10 years.

The following gives a snapshot of some key issues identified by the ATO:

• Setting up and starting a pension: In the pension establishment phase, a fundamental and critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that the legislated rise in the preservation age came into effect from 1 July 2015 – this affects people born after 30 June 1960.
• Paying a pension: One of the most common reasons for an SMSF in the pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee has failed to pay the required annual minimum pension amount to a member.
• Ceasing a pension: The ATO is starting to see a range of issues related to what happens in the unexpected event of a pensioner’s death. For example, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF’s deed and the law?

TIP: The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). As the income of the SMSF is diverted to meeting the loan obligations of the fund, the ATO has found there can be insufficient funds remaining to make the required pension payments. There is also an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm’s-length rules in an effort to try to overcome their liquidity issues. If you have any concerns, please contact our office for further information.

ATO data-matching: immigration visa holders

The ATO has announced that it will acquire names, addresses and other details of visa holders, their sponsors and migration agents for the 2013–2014, 2014–2015, 2015–2016 and 2016–2017 financial years from the Department of Immigration and Border Protection (DIBP). The purpose of the data-matching program is to ensure that taxpayers are correctly meeting their taxation obligations. It is estimated that records relating to one million individuals will be obtained.

The ATO has been data-matching visa data from the DIBP (and its predecessors) against ATO data holdings for a number of years. The ATO said this electronic data-matching has been very effective in assisting to mitigate compliance risks. According to the ATO, empirical evidence from earlier data-matching programs has confirmed an elevated level of risk within the subset of taxpayers who are first-time lodgers with DIBP links.

Work-related and rental property claims on ATO’s watch list

Tax time is in full swing and the ATO has highlighted areas of concern for individuals ahead of tax return lodgment time. High on the ATO’s watch list is work-related expense claims that are significantly higher than expected. In particular, the ATO will be paying particular attention to claims that have already been reimbursed by employers and expenses that are, in fact, private. These items are not deductible.

TIP: You are entitled to claim deductions for some expenses that are directly related to earning your income. The expenses must not be private, domestic or capital in nature. If the expense is both private and work-related, you can claim a deduction for the work-related portion.

The ATO will also keep a keen eye on rental property deductions. The ATO will be playing close attention to:

• excessive deductions claimed for holiday homes;
• husbands and wives splitting rental income and deductions inappropriately for jointly owned properties;
• claims for repairs and maintenance shortly after the property was purchased; and
• interest deductions claimed for the private proportion of loans.

TIP: You can claim expenses relating to your rental property but only for the period your property was rented or available for rent (eg advertised for rent). If part of your property is used to earn rent, you can claim expenses relating to that part of the property. You will need to work out a reasonable basis to apportion the claim. Please contact our office for assistance.

Share-economy service providers need to assess tax implications

New internet and mobile technologies have allowed people to consider enterprises such as letting a spare room, letting a car space, doing odd jobs or other activities for payment, or driving passengers in a car for a fare. However, the ATO has warned that individuals providing such share-economy services may have tax obligations, which may include declaring income and registering for GST.

TIP: It may be prudent for all share-economy service providers to assess whether they are meeting their tax obligations. Please contact our office for assistance.

The ATO has also confirmed that people who provide ride-sharing services are providing “taxi travel” under the GST law. It said the existing tax law applies and therefore drivers are required to register for GST regardless of their turnover. Affected drivers must also charge GST on the full fare, lodge BASs and report the income in their tax returns.

TIP: Recognising that some taxpayers may need to take corrective actions, the ATO is allowing drivers until 1 August 2015 to obtain an ABN and register for GST. The ATO said it does not intend to apply compliance resources regarding GST obligations for drivers prior to 1 August 2015 – except if there is evidence of fraud, or other significant matters.

Franked distributions funded by capital-raising under scrutiny

The ATO has cautioned companies about raising capital to fund franked distributions. The ATO is reviewing arrangements where companies raise new capital to fund franked distributions and release accumulated franking credits to shareholders.

In a typical case, the ATO is seeing companies issue rights to shareholders and use funds raised to make franked distributions via special dividends or an off-market share buy-back. The ATO said these arrangements are distinct from ordinary dividend reinvestment plans involving regular dividends.

ATO Deputy Commissioner Tim Dyce said the distributions are unusually large compared to ordinary dividends and occur at a similar time, and in a similar amount, to the capital raised. “So, a potentially large amount of franking credits is released with minimal net changes to the company’s economic position. There is also minimal impact on the shareholders, except in some cases they may receive refunds of franking credits and in the case of buy-backs they may also get improved capital gains tax outcomes,” he added.

The ATO considers that the arrangements may not be compliant with the tax law. In particular, the ATO has warned of the potential application of the general anti-avoidance rules. It has also warned that penalties may apply to participants.

“Contrived” dividend arrangements used by SMSFs flagged by ATO

The ATO is investigating arrangements where a private company with accumulated profits channels franked dividends to a self-managed super fund (SMSF) instead of to the company’s original shareholders. As a result, the original shareholders escape tax on the dividends and the original shareholders (or individuals associated with the original shareholders) benefit as members of the SMSF from franking credit refunds to the SMSF.

The ATO was concerned that contrived arrangements are being entered into by individuals (typically SMSF members approaching retirement) so that dividends subsequently flow to, and are purportedly treated as exempt from income tax, in the SMSF because the relevant shares are supporting pensions. The ATO also warned the arrangement has features of dividend stripping which could lead the ATO to cancel any tax benefit for the transferring shareholder and/or deny the SMSF the franking credit tax offset.

Lump sum finalisation payment taxable

An individual has been unsuccessful before the Administrative Appeals Tribunal (AAT) in a matter concerning the tax treatment of a lump sum finalisation payment. The Tax Commissioner considered the payment was assessable as ordinary income. The taxpayer disagreed.

In 1995, the individual was diagnosed with a number of illnesses and was deemed unfit for work. She was paid monthly benefits under her employer’s salary continuance policy, which she declared as assessable income. When that scheme discontinued, she commenced participation in a government scheme which continued the monthly payments. In 2008, she was informed that the Commonwealth intended to finalise its obligations and pay a final lump sum in July 2008. Under a deed of release, the scheme made a final payment of just over $2 million to the taxpayer, less an amount of $931,119.40 (being tax withheld and remitted to the ATO).

The AAT concluded the final payment was “income according to ordinary concepts” under the tax law. It was therefore assessable income to be taken into account in assessing the taxpayer’s taxation liabilities for the year ended 30 June 2009.

“Nomad” had continuity of association with Australia

An individual has been unsuccessful before the AAT in arguing that he had “let go” of Australia in 1999 to pursue his “nomadic” working life abroad and that his base of operations was in the United Kingdom.

The taxpayer was born in the United Kingdom, and worked as a diver and diving supervisor for overseas companies at many places around the world.

However, the AAT held he was a resident of Australia for the 2006 to 2011 income years for tax purposes. The AAT noted that the taxpayer’s physical, emotional and financial ties to Australia in those years were very strong. In particular, he jointly owned a home in Australia with his wife of over 23 years and his emotional ties to her were “clearly the most significant in his life”.

The AAT also held the taxpayer did not satisfy the rules to have his foreign sourced income treated as exempt income, nor was he entitled to any foreign tax offset as he had not produce evidence of any foreign tax paid on his overseas earnings.

The AAT therefore affirmed amended tax assessments which increased the taxpayer’s tax liability by around $300,000 for the relevant income years.

The taxpayer has appealed to the Federal Court against the decision.

Small business company tax rate cut

Parliament has passed legislation which will implement a 2015 Budget measure to reduce the company tax rate from 30% to 28.5% for companies that are small business entities with an aggregated turnover of less than $2 million. The company tax rate for corporate unit trusts and public trading trusts that are small business entities will also be reduced to 28.5%. For all other companies that are not small business entities, the corporate tax rate will remain at 30%.

Importantly, and also announced in the Budget, the maximum franking credit that can be allocated to a frankable distribution will be unchanged, so the same rate of 30% will continue to apply to all companies.

The amendments will apply for the first income year beginning on or after 1 July 2015 and for subsequent income years.

Accelerated depreciation write-off for SMEs

Legislative amendments to implement a 2015 Budget measure to support small businesses have made their way through Parliament. The legislative amendments will allow a short-term accelerated depreciation write-off up to $20,000 (up from the $1,000 threshold) for assets acquired by small businesses. The increased threshold of $20,000 will apply only to assets first acquired at or after 7.30 pm, legal time in the ACT on 12 May 2015, and first used or installed ready for use on or before 30 June 2017. From 1 July 2017, the threshold will revert to the $1,000 threshold.

The rules around asset eligibility do not change. That is, if an asset was eligible for immediate deductibility under the $1,000 threshold it will continue to be deductible under the new $20,000 threshold.

The ATO has confirmed that both new and old/second-hand assets remain eligible.

If the entity is registered for GST, then the GST exclusive amount is taken to be the cost of the asset. Where the entity is not registered for GST, the GST inclusive amount is taken to be the cost of the asset.

An eligible small business can claim an immediate deduction for any software costing less than $20,000, purchased off the shelf, that is used exclusively in the business. An eligible small business can also claim an immediate deduction for the cost of developing software for use exclusively in its business, where that cost is less than $20,000. An exception applies if the entity has previously chosen to claim deductions for in-house software under the software development pool rules. In this case the costs need to continue to be allocated to that pool.

TIP: Remember to keep records of purchases to substantiate claims. The ATO will monitor the use of the accelerated depreciation. In this regard, the ATO has said, if “small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction from the ATO”.

The legislative amendments also allow primary producers to claim an immediate deduction for capital expenditure on water facilities and fencing assets, and to deduct capital expenditure on fodder storage assets over three years. The accelerated depreciation write-off for primary producers will apply to assets that an entity starts to hold, or to expenditure an entity incurs, at or after 7:30 pm, by legal time in the ACT, on 12 May 2015.

TIP: The ATO has confirmed that eligible farmers will be able to choose whichever rules benefit them the most, and that this can be decided on an asset-by-asset basis.

R&D tax incentive rate reduction back in spotlight

In the 2015 Budget, the Government reiterated its intention to change the rates of assistance under the R&D tax incentive to 43.5% (down from 45%) for eligible entities with a turnover under $20 million per annum and not controlled by a tax exempt entity, and to 38.5% (down from 40%) for all other eligible entities. This would apply from 1 July 2014. The Government has introduced legislation proposing to make the necessary changes.

Registration is a critical first step in accessing the R&D tax incentive. The deadline for lodging an application for registration is 10 months after the end of a company’s income year.

With effect from 1 July 2014, a $100 million threshold applies to the R&D expenditure for which companies can claim a concessional tax offset under the R&D Tax Incentive. For any R&D expenditure amounts above $100 million, companies will still be able to claim a tax offset at the company tax rate.

TIP: The ATO is working closely with AusIndustry to identify taxpayers who may be involved in aggressive R&D tax arrangements. Taxpayers should make sure their claims are attributed to activities consistent with their AusIndustry registrations, and expenses (eg labour costs) were actually incurred on R&D activities.

Dependent spouse tax offset to be abolished

The Government has proposed legislative amendments to abolish the dependent spouse tax offset (DSTO) and expand the dependent (invalid and carer) tax offset (DICTO). Under the changes:

• a taxpayer who has a spouse who is genuinely unable to work due to invalidity or carer obligations is eligible for DICTO (worth up to $2,471 (indexed)) if the taxpayer contributes to the maintenance of their spouse and meets certain income tests and other eligibility criteria; and
• taxpayers eligible for the zone tax offset (ZTO), overseas forces tax offset (OFTO) or overseas civilians tax offset (OCTO) can receive a further entitlement of 50% or 20% of their DICTO entitlement as a component of ZTO, OFTO or OCTO, depending on where they reside.

The amendments are proposed to generally apply to the 2014–2015 income year and to all later income years.

Age Pension changes on the way

The Government has proposed legislation to give effect to several changes affecting the Age Pension. The assets test free areas will be increased to $250,000 for a single homeowner and $375,000 for a homeowner couple. The assets test threshold for non-homeowners will be increased to $200,000 more than homeowner pensioners, ie $450,000 (single) and $575,000 (couple). However, the assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. Those whose pension is cancelled will automatically be issued with a Commonwealth Seniors Health Card (CSHC) or a Health Care Card. The changes are proposed to take effect from 1 January 2017.

Commissioner’s statutory remedial power on the way

Even though the Commissioner of Taxation endeavours to interpret the law to give effect to its purpose or object, there are instances where this is not possible. To address this, the Government has announced that it will provide the Commissioner with a statutory remedial power to allow for a more timely resolution of certain unforeseen or unintended outcomes in taxation and superannuation law.

In announcing the Government’s plan, the Assistant Treasurer Josh Frydenberg said the power will be appropriately limited in its application and will apply to the extent that it has a beneficial outcome for taxpayers. It will only be available where the modification is not inconsistent with the purpose or object of the law and has no more than a negligible revenue impact. The Commissioner will consult publicly prior to any exercise of the power.

ATO ramps up face-to-face contact with wealthy individuals

The ATO has released details of its new approach to wealthy individuals and their private groups. The ATO is focusing on a “prevention-before-correction” approach and is ramping up its face-to-face interaction with key taxpayers.

According to the ATO, about 30% of wealthy individuals and their private groups are considered “high risk”. Acting Second Commissioner Michael Cranston said that if taxpayers are open and transparent with the ATO, they can expect better services and faster turnaround of key decisions.

Mr Cranston also noted the ATO “will sign-off on the previous year’s tax returns of taxpayers who have been open and transparent” about their affairs, have good compliance records and are considered low-risk. He said this will provide certainty for about 30,000 privately owned and wealthy groups that they will not be subject to an audit for specific income years.

TIP: Some of the risk areas that attract the ATO’s attention include individuals with unreported foreign income or assets; certain types of remuneration arrangements used by members of professional firms; the egregious use of trusts; and mixing personal and company expenditure.

Sale of business earn-out arrangements – tax changes on the way

The Government is looking to provide clarity in relation to the capital gains tax (CGT) treatment of earn-out arrangements in connection with a sale or purchase of a business.

An earn-out arrangement is an arrangement whereby, as part of the sale of a business, the buyer and seller agree that subsequent financial benefits may be provided based on the future performance of the business. For example, two parties are negotiating the sale of the business where a significant part of the value of the business is tied to its customer base – that is its goodwill. There is considerable uncertainty about how the sale and other factors may impact upon this goodwill. The parties could agree to an earn-out arrangement under which part of the consideration for the sale is linked to the future economic performance of the business.

The proposed rules aim to provide “look-through” CGT treatment to earn-out arrangements. That is, under the changes, taxpayers may disregard capital gains or losses that arise in relation to the qualifying right to financial benefits. Instead, taxpayers must include financial benefits provided or received under or in relation to such rights in determining the capital proceeds of the disposal of the underlying asset (for the seller) or the cost base and reduced cost base of the underlying asset for the buyer.

It is proposed that the changes would apply from the exposure draft legislation release date (ie 23 April 2015).

ATO data-matching eBay sellers

The ATO is collecting data from eBay Australia & New Zealand Pty Ltd of sellers who had sold more than $10,000 worth of goods and services on the eBay online trading website during the 2013–2014 financial year.

The ATO said the data will be electronically matched with its records to identify possible non-compliance with the tax law.

The data-matching program is designed to enable the ATO to address the compliance behaviour of individuals and businesses selling goods and services via the online-selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgment and reporting for GST.

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

TIP: If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business. The ATO said the ongoing collection of online-selling data enables it to review online sellers who are transitioning from hobby status to potentially being “in business”. When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.

Aggressive R&D claims under scrutiny

The ATO and AusIndustry are working closely with each other to identify taxpayers who may be involved in aggressive research and development (R&D) arrangements. In particular, the ATO and AusIndustry are seeking arrangements that are inconsistent with the requirements of the law, may have features of tax avoidance, and may be fraudulent.

In this regard, the ATO and AusIndustry have asked taxpayers to ensure that their claims for R&D expenditure are attributed to activities that are consistent with their AusIndustry registration – and, importantly, that expenses (eg labour costs) were actually incurred on R&D activities.

TIP: Companies should consider whether they have undertaken research and development (R&D) activities that may be eligible for the Government’s R&D Tax Incentive. Eligible R&D activities are experimental activities that are conducted in a scientific way for the purpose of generating new knowledge or information. To potentially claim the R&D Tax Incentive, the company’s R&D activities need to be registered with AusIndustry within 10 months of the end of the income year. Companies are required to maintain records to demonstrate, not only to AusIndustry, but also to the ATO, that the activities carried out are eligible R&D activities and that they incurred expenditure related to the activities.

No jab, no pay for child benefits – Government immunisation requirement

The Government will end the conscientious objector exemption on children’s vaccination for access to taxpayer-funded Child Care Benefits, the Child Care Rebate and the Family Tax Benefit Part A end-of-year supplement from 1 January 2016.

Immunisation requirements for the payment of the FTB Part A end-of-year supplement will also be extended to include children of all ages. Currently, vaccination status is only checked at 1, 2 and 5 years of age. The Government will also end the exemption on religious grounds, leaving only the existing exemption on medical grounds.