For victims affected by the Tasmanian bushfires of January 2013, the ATO announced that it will make arrangements to defer lodgment and payment of certain monthly and quarterly activity statements. The arrangements are automatic, which means taxpayers who reside in certain identified postcodes will not have to apply for a deferral.

Taxpayers who are located outside of the identified postcodes and who have been affected by a natural disaster are encouraged to contact the ATO for further assistance.

The TasmanianState Revenue Office has also announced an extension of the time to pay land tax bills for persons affected by the bushfires.

The ATO has warned trustees of self managed superannuation funds (SMSFs) to exercise care in ensuring that arrangements entered into to invest in property are properly implemented, particularly those involving limited recourse loans.

The ATO is concerned about arrangements that do not comply with the superannuation law. It warned that such arrangements may not be simple to rectify. Further, it added that unwinding an arrangement may involve a force sale of the asset, which could cause a substantial loss to the fund.

The ATO has announced data-matching programs to identify instances where taxpayers may not be meeting their tax obligations. The ATO says it will collect data from various banks and credit card companies relating to credit and debit cards sales of entities for the period 1 July 2011 to 30 June 2012. This will assist in identifying circumstances requiring ATO administrative action.

Records relating to approximately 900,000 merchants will be matched. The ATO says it will also collect from state revenue offices and other government agencies the names and addresses of individuals and entities transacting with real property in order to identify non-compliance with the tax law. Records relating to over 10 million individuals will be matched.

In a recent decision, the Administrative Appeals Tribunal (AAT) allowed a taxpayer’s claim for rental deductions in respect of two properties for the 2008 income year.

The taxpayer owned the properties with her two sons as joint tenants and for part of the year, the properties were rented to her ex-husband and one of her sons. The taxpayer, in her 2008 tax return, declared a 50 per cent share of the rental income. She also claimed a 50 per cent share of the rental deductions.

The Tax Commissioner argued the tenancies were not commercial and therefore the deductions claimed were not allowable. However, the AAT found that there was no evidence that the taxpayer was assisting her ex-husband or her son. Further, the AAT noted the rent charged by the taxpayer did not differ greatly from the figures presented by the Commissioner. In conclusion, the AAT held the rental income was assessable and the expenses incurred were deductible.

The AAT has found that a taxpayer was a resident of Australia and therefore affirmed the Tax Commissioner’s decision to assess the taxpayer’s foreign income earned for the 2006 to 2008 income years.

The taxpayer migrated to Australia in 2005 with his family on a business migration permanent visa. He worked as a pilot, which required him to be away from Australia for extended periods of time.

The taxpayer argued that he was a foreign resident and should not be taxed on the income. However, the AAT said this was a case where the taxpayer was “clearly an Australian resident for tax purposes”. Among other things, the AAT took into account the taxpayer’s desire to live in Australia as stated in his permanent resident visa application, that his family lived in Australia and that he stayed in hotels when working overseas.

The AAT also noted that the taxpayer held an Australian driver’s licence, retained private health insurance in Australia, had Australian bank accounts and owned an investment property in Australia.

A taxpayer has been unsuccessful before the AAT in arguing that her “mistaken belief” as to the timing of a superannuation contribution was a “special circumstance” that warranted reallocating excess superannuation contributions to an earlier financial year.

The taxpayer had started salary sacrificing in 2005 to build up her superannuation balance, which was relatively low due to her work patterns being affected by child care responsibilities over her working life. The taxpayer exceeded her $25,000 concessional contributions cap for 2009–2010 by $3,398 and was issued with an excess contributions tax assessment of $1,070.The issue in dispute centred around an employer contribution that was made on 3 July 2009, but which was attributed to the 2009–2010 financial year.

The taxpayer was under the mistaken belief that an employer contribution made before 28 July would be treated as a concessional contribution for June 2009 and therefore allocated to the 2008–2009 year. The taxpayer argued that the timing of the contribution was beyond her control. She also claimed that the superannuation law could not have been intended to adversely affect women in her situation who have had child caring responsibilities.

Although the AAT was sympathetic, it nevertheless upheld the Tax Commissioner’s decision not to reallocate the contribution because it found that the taxpayer’s “mistaken belief” as to the timing of concessional contributions did not, in its view, constitute the “special circumstances” that are required under the superannuation law in order to reallocate a contribution.

The Government has proposed to establish what it calls a fairer administrative penalty regime for trustees of SMSFs for certain contraventions of the superannuation law. Administrative penalties would range from $850 to $10,200. Broadly, the new regime will give the Tax Commissioner another way to encourage recalcitrant SMSF trustees to remedy defects quickly, rather than rely purely on existing heavy-handed enforcement powers.

The changes also propose to give the Tax Commissioner a new power to issue SMSF trustees with “rectification directions” and “education directions” for superannuation law contraventions. A rectification direction may require the person to take a specified action to “rectify” the contravention and to provide the ATO with evidence of the person’s compliance with the direction. An education direction may require a person to undertake a specified approved course of education within a specified time frame and to provide the ATO with evidence of completion of the course.

If implemented, the new regime will apply from 1 July 2013.

The Government’s mid-year budget update was handed down in late October 2012. The Treasurer revised down the expected Budget underlying cash surplus to $1.1 billion for 2012–2013 – down from $1.5 billion estimated in the May 2012 Budget.

The Government did not announce anticipated changes to claw-back superannuation tax concessions (much to the relief of many superannuation investors). However, the update did contain a host of small, but not insignificant, tax proposals.

In the mini-budget update the Government announced the removal of the concessional treatment for in-house fringe benefits that are accessed through a salary sacrifice arrangement. The proposal will apply from 22 October 2012 to salary sacrifice arrangements entered into on or after 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into prior to 22 October 2012.

Changes to the Private Health Insurance Rebate were also announced. From April 2014, the premium to which the rebate is applied will move in line with the CPI or commercial premium increase, whichever is lower.

The Government is also widening the circumstances for which monies in “lost” or “inactive” superannuation accounts are to be transferred to the ATO. However, the Government said that from 1 July 2013, interest at a rate equivalent to CPI inflation will be paid on lost superannuation monies reclaimed from the ATO.

The ATO is collecting details of individuals and businesses who have purchased or acquired a vehicle with a transaction value of $10,000 or greater in the 2011–2012 or 2012–2013 financial years. The information will be collected from state and territory motor vehicle registries and matched electronically with the ATO’s records. The ATO is seeking to address potential non-compliance in the following areas:

• income tax;
• superannuation;
• goods and services tax;
• fringe benefits tax; and
• luxury car tax.

AUSTRAC has recently highlighted the growing role of financial intelligence in tackling crime, including tax evasion. In 2011–2012, AUSTRAC reported that information sharing with the ATO assisted with over 3,500 cases that resulted in $252 million in additional tax assessments being raised. The year before, AUSTRAC reported that its information directly contributed to some 1,600 ATO investigations, leading to tax assessments of around $241 million.

A taxpayer has been, in most part, successful before the Administrative Appeals Tribunal (AAT) in relation to a matter concerning loans from a private company. These loans were made to him, over various years, as a shareholder and director of the private company. The ATO had treated the loans, which were made in the 2005, 2006 and 2007 income years, as assessable dividends.

The AAT sided with the ATO in relation to the 2005 loans. However, the AAT decided differently in respect of the 2006 and 2007 loans. It found that a discretion under the tax law should be exercised to disregard the deemed dividends because it found that there was an “honest mistake” in failing to properly document the loans.

A recent case before the AAT has highlighted the need for businesses to maintain appropriate records of plant and equipment used in business.

The taxpayer, who was a partner of a box manufacturing business, was partially successful before the AAT in relation to claims for depreciation for certain items of plant and equipment used in the business. The AAT found that there was sufficient evidence that some items of plant and equipment were used in the business for the purpose of deriving assessable income. However, the AAT found it was not possible to allow the depreciation claimed for a number of other items. A key problem noted by the AAT “was the fact that the partnership did not keep basic business records”.

A taxpayer has successfully argued before the AAT that there were special circumstances in his situation to allow for the exercise of the Commissioner’s discretion under the law to reallocate superannuation contributions. Accordingly, monies paid into his superannuation account in late July 2009 could be attributed to the 2008–2009 financial year, and this meant that the taxpayer would not exceed the (then) $50,000 contributions cap.

The taxpayer had a salary sacrifice arrangement with his employer, whereby funds were paid on his behalf to his super fund. The taxpayer had the intention of contributing super each month and staying below the relevant cap.

However, the AAT heard that the disputed payments occurred because salary sacrifice amounts for the months of April, May and June 2009 were not transferred by the taxpayer’s employer to the fund until July 2009.

The taxpayer claimed that he had been unaware of the delay because he believed the sums were transferred to the fund, based on his monthly payslips. The AAT found that, in this case, there were “special circumstances” that allowed the reallocation of the monies to the previous year.

The Inspector-General of Taxation’s report into the ATO’s use of performance benchmarks to target small businesses who may not be reporting all their income has been released by the Government and it says that improvements can be made.

The report was sparked by concerns raised by tax practitioners and their clients concerning the ATO’s use of the benchmarks. The ATO uses the benchmarks to compare the performance of businesses with similar businesses in the same industry. One purpose of the benchmarking is to help identify potential cases for audits, with a particular focus on unreported cash transactions.

The report made 11 recommendations for the ATO to improve its use of the benchmarks, which the ATO has largely accepted. According to the Government, the recommendations should improve the ATO’s risk identification and audit selection processes to further exclude compliant businesses from audits, thereby minimising unnecessary compliance costs in relation to the cash economy and GST obligations.

The Government has made a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. The changes started on 1 October 2012, although there are grandfathering provisions to preserve tax concessions for a limited time for some arrangements that were in place prior to Budget night (8 May 2012).

A recent High Court case has highlighted a need to take a closer look at contracts for the provision of services or goods. The majority of the High Court recently allowed the Tax Commissioner’s appeal in relation to a case concerning whether an airline, Qantas, was liable for GST on purchased airfares where the passenger does not turn up for the flight.

Qantas had argued that no GST was payable on unused fares and that the GST that had been paid should be refunded by the Commissioner. The majority held that Qantas was liable for GST and that the taxable supply for which the consideration, being the fare, was received was something less than the actual air travel – namely, Qantas’ contractual promise to use “best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline”.

The ATO has recently released details of a data-matching program focusing on contractor payments. Under the program, the ATO intends to collect information in relation to payments made to contractors for the 2009–2010 to the 2011–2012 income years by businesses audited by the ATO’s employer obligations area. The program will also cover this financial year. According to the ATO, records relating to around 75,000 individuals and entities who have received contract payments from the employers or businesses will be matched.

The ATO has advised that it intends to increase its focus this financial year on property developers who have a history of non-compliance with GST obligations. The ATO has observed that some developers have claimed input tax credits throughout the life of a development, but then avoided paying the GST when they sell. The ATO says it has adopted a new approach of identifying and engaging with these developers prior to the sale of a development.

The ATO has issued a warning for individuals to be aware of arrangements that promote deductions for the purchase of offshore “emission units” that do not exist at the time of the arrangement.

“These arrangements, entered into with an offshore entity which may be incorporated in a tax haven, claim to allow participants to deduct the entire purchase price of the offshore ‘emission units’, while making only a small initial payment,” the Commissioner of Taxation Michael D’Ascenzo said. The ATO warns these arrangements may not be legitimate and that those involved could face a large tax bill, substantial penalties or even prosecution.

The ATO has started offering refunds to some individuals who have exceeded their annual superannuation concessional contributions cap. From the 2011–2012 year, there is a once-only opportunity to have excess concessional contributions refunded. The offer will only be made once. If individuals decide to accept the offer, they will pay marginal tax rates on the amount above the cap, instead of paying excess contributions tax.

An individual’s choice as to whether to accept the one time only offer, or not, is a final decision and cannot be revoked. Once a taxpayer has received an offer, regardless of whether or not they accept it, they will not be eligible for an offer in future years. The ATO says the offers will be sent directly to the taxpayer’s postal address. Election to accept the offer must be returned to the ATO within 28 days of the issue date of the offer.

The ATO has determined for the 2011–2012 year the amounts the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by businesses in certain specified industries. The amounts (which exclude GST) are as follows:

The Inspector-General of Taxation’s report into the ATO’s use of performance benchmarks to target small businesses who may not be reporting all their income has been released by the Government and it says that improvements can be made.

The report was sparked by concerns raised by tax practitioners and their clients concerning the ATO’s use of the benchmarks. The ATO uses the benchmarks to compare the performance of businesses with similar businesses in the same industry. One purpose of the benchmarking is to help identify potential cases for audits, with a particular focus on unreported cash transactions.

The report made 11 recommendations for the ATO to improve its use of the benchmarks, which the ATO has largely accepted. According to the Government, the recommendations should improve the ATO’s risk identification and audit selection processes to further exclude compliant businesses from audits, thereby minimising unnecessary compliance costs in relation to the cash economy and GST obligations.

The Government has made a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. The changes started on 1 October 2012, although there are grandfathering provisions to preserve tax concessions for a limited time for some arrangements that were in place prior to Budget night (8 May 2012).

A recent High Court case has highlighted a need to take a closer look at contracts for the provision of services or goods. The majority of the High Court recently allowed the Tax Commissioner’s appeal in relation to a case concerning whether an airline, Qantas, was liable for GST on purchased airfares where the passenger does not turn up for the flight.

Qantas had argued that no GST was payable on unused fares and that the GST that had been paid should be refunded by the Commissioner. The majority held that Qantas was liable for GST and that the taxable supply for which the consideration, being the fare, was received was something less than the actual air travel – namely, Qantas’ contractual promise to use “best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline”.

The ATO has recently released details of a data-matching program focusing on contractor payments. Under the program, the ATO intends to collect information in relation to payments made to contractors for the 2009–2010 to the 2011–2012 income years by businesses audited by the ATO’s employer obligations area. The program will also cover this financial year. According to the ATO, records relating to around 75,000 individuals and entities who have received contract payments from the employers or businesses will be matched.

The ATO has advised that it intends to increase its focus this financial year on property developers who have a history of non-compliance with GST obligations. The ATO has observed that some developers have claimed input tax credits throughout the life of a development, but then avoided paying the GST when they sell. The ATO says it has adopted a new approach of identifying and engaging with these developers prior to the sale of a development.

The ATO has issued a warning for individuals to be aware of arrangements that promote deductions for the purchase of offshore “emission units” that do not exist at the time of the arrangement.

“These arrangements, entered into with an offshore entity which may be incorporated in a tax haven, claim to allow participants to deduct the entire purchase price of the offshore ‘emission units’, while making only a small initial payment,” the Commissioner of Taxation Michael D’Ascenzo said. The ATO warns these arrangements may not be legitimate and that those involved could face a large tax bill, substantial penalties or even prosecution.

The ATO has started offering refunds to some individuals who have exceeded their annual superannuation concessional contributions cap. From the 2011–2012 year, there is a once-only opportunity to have excess concessional contributions refunded. The offer will only be made once. If individuals decide to accept the offer, they will pay marginal tax rates on the amount above the cap, instead of paying excess contributions tax.

An individual’s choice as to whether to accept the one time only offer, or not, is a final decision and cannot be revoked. Once a taxpayer has received an offer, regardless of whether or not they accept it, they will not be eligible for an offer in future years. The ATO says the offers will be sent directly to the taxpayer’s postal address. Election to accept the offer must be returned to the ATO within 28 days of the issue date of the offer.

The ATO has determined for the 2011–2012 year the amounts the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by businesses in certain specified industries. The amounts (which exclude GST) are as follows:

The Government’s Business Tax Working Group has recently released a discussion paper highlighting a number of possible ways in which a company tax rate cut could be funded from within the business tax system.

According to the Working Group, a comprehensive tax base that contains minimal special exemptions and deductions for certain investments can result in a more productive mix of different investment options and a broader tax base that will generate greater revenue to fund a lower company tax rate. Public consultation closes on 21 September 2012.

The ATO has highlighted a number of areas that it will focus on in its compliance activities this year. This includes:

• incorrect claims for work-related expenses. In particular, the ATO says it will focus on claims made by plumbers, IT managers and defence force personnel. Taxpayers must keep written records for all their work-related expenses if their claims total more than $300;
• unrecorded and unreported cash transactions in the café and plastering industries. Note, the ATO is stepping up its use of third party information, such as information from suppliers, to identify under-reporting of income;
• incorrectly treating employees as contractors, particularly in the construction industry. In addition, the ATO notes that from 1 July 2012, businesses that make payments to contractors in the building and construction industry are required to report the payments to the ATO each year;
• treatment of private company profits, particularly in relation to loan arrangements; and
• superannuation obligations of employers, with a focus on cafés and restaurants, real estate businesses and carpentry businesses in home building or construction.

The ATO has been publishing small business benchmarks since 2009 as part of its strategy to help small businesses to compare their performances against similar businesses. The benchmarks are also used by the ATO to identify taxpayers who may be under-declaring income.

The Commissioner of Taxation, Michael D’Ascenzo, recently said that approximately 90% of small businesses in benchmarked industries fall within a benchmark ratio. However, he said around 76,000 businesses have reported income that is significantly below those benchmarks. To address this issue, Mr D’Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010–2011. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO.

The ATO has warned taxpayers about arrangements where accumulated profits of a private company are distributed substantially tax-free to an entity associated with the ordinary shareholders of the private company.

The ATO says the dividends are generally distributed on a new class of shares that the private company has created and issued to the associated entity for nominal consideration. In addition, it says the dividends will often be fully franked such that the associated entity will bear little or no additional income tax. 

The Commissioner said the ATO is concerned the arrangements are set up with the dominant purpose of avoiding tax. “While some arrangements may be claimed to be done for commercial and other non-tax purposes, we will be closely examining whether the way these arrangements have been set up would show a tax avoidance purpose,” said Mr D’Ascenzo.

The Commissioner has been successful before the Federal Court in overturning an earlier decision that had held that around $4.7 million deposited into a taxpayer’s bank account from an overseas bank were loans and that payments made in respect of the loans were deductible interest.

The taxpayer’s financial statements for the 1997 to 2008 income years recorded a loan liability to an overseas bank and substantial related interest expenses. The Commissioner argued that the asserted loan liability related to funds that the taxpayer received as assessable, and that none of the asserted interest payments were deductible.

In allowing the Commissioner’s appeal, the Federal Court held that the Administrative Appeals Tribunal (AAT) had made an error in finding that the taxpayer had discharged the onus of proving that the amounts were not income. The taxpayer is seeking to appeal to the Full Federal Court against the decision.

In a recent decision, the AAT found a taxpayer was at all relevant times a beneficiary of a trust estate and that an amended assessment issued in April 2010 for the 2005 tax year was issued within time – that is, the Commissioner was allowed, in this instance, up to four years to issue an amended assessment. The amended assessment included an additional amount of $2.1 million.

The taxpayer lodged his 2005 tax return in April 2006, disclosing nil distributions from a family trust. He argued that as he had received no distributions in relation to the 2005 tax year, he was not a beneficiary of the trust estate at any time in that year and that the Commissioner therefore only had the standard two years to issue an amended assessment. However, the AAT disagreed and found that the amended assessment made within four years was within time.

The Government has announced that it will introduce penalties to deter promoters of illegal early release superannuation schemes. These schemes usually involve a promoter offering to assist individuals to gain early access to their super before they retire.

The Minister of Superannuation, Bill Shorten, said promoters of such schemes have in the past targeted vulnerable people, including those from non-English speaking backgrounds. He said promoters have taken fees of up to 50% of the members’ superannuation balances.

Mr Shorten said legislation to give effect to this measure is being progressed and will commence on formal enactment.