Individual Bulletin - Chartered Accountants and Business advisors

Individual Tax – September 2022

What’ new? – Income tax thresholds

Various income tax threshold amounts, and rates increased for the 2022–23 income year. These are listed below.

Item	Threshold/rate for 2022–23
CGT improvements	$162,899
Div 7A benchmark interest rate	4.77%
Car limit (depreciation)	$64,741
Car expenses – cents per kilometre method	78 cents/km
Reasonable meal expenses – employee truck drivers	Breakfast – $26.80
	Lunch – $30.60
	Dinner – $52.75
Reasonable meal expenses – other employees	See Taxation Determination TD 2022/10
Overtime meal allowance – reasonable amount	$33.25
Invalid and invalid carer offset (IICTO)	$2,943
Maximum adjusted taxable income where IICTO cuts out	$12,054

Low and Middle Income tax offset

Don’t forget that the Low- and Middle-Income tax offset (LMITO) is no longer available from the current income year (2022–23). The income year just ended (2021–22) was the last year for which LMITO was available, and the maximum amount was increased by $420 to $1,500. The maximum amount is available where the individual’s taxable income ranges between $48,001 and $90,000 (inclusive). Above $90,000, the LMITO phases out at the rate of 3 cents in the dollar until taxable income reaches $125,000.

There is no need to claim this offset in your income tax return. The ATO applies is automatically to eligible taxpayers. Note that the LMITO is available only to reduce the amount of an individual’s income tax liability. It is not a refundable amount and cannot be used to reduce any Medicare levy payable.

Medicare levy surcharge and private health insurance tax offset

The income thresholds for Medicare levy surcharge and private health insurance (PHI) tax offset purposes (which have been frozen until 30 June 2023) are set out in the table below.

	No surcharge & maximum PHI tax offset	Tier 1	Tier 2	Tier 3
Singles	$90,000 or less	$90,001 – $105,000	$105,001 – $140,000	$140,000 or more
Families*	$180,000 or less	$180,001 – $210,000	$210,001 – $280,000	$280,001 or more

* The family income threshold is increased by $1,500 for each dependent child after the first child.

The Medicare levy surcharge is 1% for Tier 1 taxpayers, 1.25% for Tier 2 taxpayers and 1.5% for Tier 3 taxpayers.

The PHI tax offset percentage is highest for Tier 1 taxpayers and lowest for Tier 3 taxpayers. The percentage also varies depending on the ages of the persons covered by the relevant health insurance policy. There are 3 age brackets – under 65, 65 to 69 and 70 or above.

HELP debt

The 2022–23 repayment rates and thresholds if you have a study or training loan, such as a Higher Education Loan Program (HELP), VET Student Loan (VSL) or Trade Support Loan (TSL) debt, are set out in the table below.

Repayment income	Repayment rate
Below $48,361	Nil
$48,361 – $55,836	1.00%
$55,837 – $59,186	2.00%
$59,187 – $62,738	2.50%
$62,739 – $66,502	3.00%
$66,503 – $70,492	3.50%
$70,493 – $74,722	4.00%
$74,723 – $79,206	4.50%
$79,207 – $83,958	5.00%
$83,959 – $88,996	5.50%
$88,997 – $94,336	6.00%
$94,337 – $99,996	6.50%
$99,997 – $105,996	7.00%
$105,997 – $112,355	7.50%
$112,356 – $119,097	8.00%
$119,098 – $126,243	8.50%
$126,244 – $133,818	9.00%
$133,819 – $141,847	9.50%
$141,848 and above	10%

GDP adjustment for 2022–23

The GST and PAYG instalment amounts are usually adjusted every year by the ‘GDP adjustment factor’. This is either calculated on the basis of changes in the GDP (gross domestic product) over a 2-year period or is a percentage set by law.

For 2020–21 and 2021–22, the GDP adjustment factor was reduced by legislative amendment to nil. For 2022–23, the GDP adjustment factor has been reduced by legislative amendment to 2% (instead of the usual 10% uplift).

Employee share schemes

The cessation of employment as a taxing point for ESS interests that are subject to deferred taxation has been removed with effect from 1 July 2022.

Super and ETP thresholds

The superannuation and ETP (employment termination payment) thresholds for the 2022–23 income year are listed below.

	2022–23
Concessional contributions cap for individuals aged under 75 years*	$27,500
Concessional contributions cap for individuals aged 75+ years	Only mandated employer contributions including superannuation guarantee contributions
Non-concessional contributions cap*	$110,000
CGT cap amount	$1,650,000
Low rate cap amount/ETP cap amount	$230,000
Untaxed plan cap amount	$1,650,000
ETP life benefit cap amount	$230,000
ETP life benefit whole of income cap amount	$180,000
ETP death benefit cap amount	$230,000
Genuine redundancy/early retirement scheme payment
– tax-free base limit	$11,591
– each completed year of service	$5,797
Co-contribution lower income threshold	$42,016
Co-contribution upper income threshold	$57,016

* The work test for salary sacrificed contributions and non-concessional contributions by persons aged under 75 years was abolished from 1 July 2022.

Pensions and annuities – minimum drawdown amounts

The 50% reduction in the minimum drawdown amounts has been extended to the 2022–23 financial year. These are the minimum annual payments required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities.

Age	Minimum drawdown (indicative only)
Under 65	2%
65–74	2.5%
75–79	3%
80–84	3.5%
85–89	4.5%
90–94	5.5%
95+	7%

If you receive more than the minimum drawdown amount, you can recontribute these amounts if you are eligible to make superannuation contributions (subject to other rules or limits such as contributions caps).

Superannuation changes from 1 July 2022

A number of superannuation changes took effect on 1 July 2022, including:

employees earning less than $450 a month are now entitled to superannuation guarantee support from their employers;
the rate of superannuation guarantee increased from 10% to 10.5%;
the work test for non-concessional and salary sacrificed super contributions for persons aged 67–74 years has been removed (the work test still applies for those aged 67–74 years claiming a deduction for personal super contributions);
the bring forward rule for non-concessional contributions has been extended to persons aged 67–74 years;
the eligibility age for making downsizer contributions has been reduced from 65 to 60 years;
the maximum amount of voluntary superannuation contributions that can be released under the First Home Super Saver Scheme has been increased from $30,000 to $50,000.

COVID-19 early release of superannuation

If you accessed your superannuation early in response to the COVID-19 pandemic, you can choose to re-contribute those amounts by 30 June 2030 without them counting towards your non-concessional contributions cap. The choice must be made in the approved form and given to your superannuation fund before you make the re-contribution.

Superannuation accessed early is tax-free (treated as non-assessable non-exempt income).

Tip! Speak to your financial adviser before making any decisions affecting your superannuation.

Tax time again!

The due date for lodging your income tax return for the 2021–22 income year is 31 October. However, if you use a registered tax agent to lodge your return, the due date for lodgment is likely to be later than 31 October, possibly even as late as May next year.

If you don’t use a registered tax agent, you risk delays to your tax refund (if any) if you lodge your tax return before your income statement is marked as ‘Tax ready’, i.e. pre-filled with pertinent information from employers, banks, government agencies and health funds.

The ATO has said that waiting for it to upload information ‘means people don’t have to roll the dice when they lodge, and it’s less likely an amendment will need to be made later, which could result in a tax debt’. If necessary, errors or omissions in your tax return can be fixed through the ATO online amendment process through myGov.

Lodging a tax return

Are you a sole trader?

Even if your taxable income is below the tax-free threshold ($18,200), you still need to lodge a tax return.
Do you pay PAYG instalments? Lodge your activity statements and pay all your PAYG instalments before you lodge your tax return so your income tax assessment takes into account the instalments you’ve paid throughout the year.

Are you a partnership?

If you operate your business in a partnership:

the partnership lodges the partnership tax return, reporting the partnership’s net income or loss (assessable income less allowable deductions).

As an individual partner, you report on your individual tax return:

your share of any partnership net income or loss
any other assessable income, such as salary and wages, dividends and rental income.

The partnership doesn’t pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

Are you a trust?

If you operate your business through a trust, the trust reports its net income or loss (this is the trust’s assessable income less allowable deductions).
The trustee is required to lodge a trust tax return.
As a trust beneficiary, you report on your individual tax return your share of the trust’s net income based on your share of the income of the trust to which you are presently entitled from the trust.

Tip! Registered tax and BAS agents can help you with your tax.

Tax losses

A tax loss is when the total deductions you can claim, excluding gifts, donations and personal superannuation contributions, exceed your total income for an income year.

If you make a tax loss, you may be able to:

offset the loss in the same income year against other assessable income; or
carry forward the loss and claim it as a business deduction in a later year (note that only companies can carry a loss back to offset against profits of an earlier income year – sole traders cannot do that).

The rules for record-keeping still apply in relation to business losses. You need to keep records for 5 years for most transactions. However, if you fully deduct a tax loss in a single income year, you need to keep records only for 4 years from that income year.

Tip! Talk to your tax adviser about the best way to utilise tax losses.

Non-commercial loss rules

If you’re a sole trader or in a partnership and want to utilise a tax loss, first check if the business activity meets at least one of the tests under the non-commercial loss rules. (Those rules do not apply to losses made by primary producers and professional artists whose income from other sources is less than $40,000.)

The tests are in general terms:

the assessable income test – this is satisfied if the business activity generates at least $20,000 a year (or would reasonably be estimated to generate at least $20,000 if the activity were carried on for the whole year);
the profits test – this is satisfied if the business activity has made a profit in at least 3 of the last 5 tax years, including the current year (in the case of a partnership, the test looks at the individual partner’s share of partnership income and deductions);
the real property test – this is satisfied if the total value of real property used on a continuing basis in carrying on the business activity is at least $500,000;
the other assets test – this is satisfied if the total value of other assets (e.g. depreciating assets, trading stock and intellectual property) used on a continuing basis in carrying on the business activity is at least $100,000.

If you meet one of the tests, then you can offset the loss against your other assessable income (such as salary or investment income) in the same income year.

If you don’t meet the tests, you can carry the loss forward to future years. For example, you can offset it when you next make a profit. You may also be entitled to an exercise of the Commissioner’s discretion to use the loss, depending on your circumstances.

Non-commercial losses made by an individual with an adjusted taxable income exceeding $250,000 are quarantined.

Tip! The non-commercial loss rules are complicated. Talk to your tax adviser if you have any doubts about whether a business activity satisfies any of the tests.

Personal services income

If you operate your business through a company or a trust, income earned by the company or trust from the provision of your personal services (personal services income or PSI) will be attributed to you unless:

the company or trust is conducting a personal services business (PSB); or
the PSI was promptly paid to you as salary or wages.

The company or trust will be conducting a PSB if at least one of four tests are satisfied. These are:

the results test (the most important test) – this is based on common law criteria for characterising an independent contractor (in contrast to an employee/employer relationship);
the unrelated clients test – this requires the PSI to be earned from at least two unrelated clients who contract your services as a direct result of an advertisement or other public offer of your services;
the employment test – this requires at least 20% (by market value) of your work to be performed by employees;
the business premises test – this requires you to use business premises that meet certain conditions (e.g. you have exclusive use of the premises and the premises must be physically separate from any premises you use for private purposes).

If 80% or more of your PSI (with certain exceptions) is income from one client (or the client and their associate(s)) and the results test is not met, the company or trust will only be able to be treated as conducting a PSB if it obtains a PSB determination from the ATO.

If a company or trust is not conducting a PSB and the PSI was not promptly paid to you as salary or wages, the PSI is attributed to you, the company or trust has PAYG withholding obligations and there are limitations on certain deductions. The company or trust cannot deduct amounts that relate to gaining or producing your PSI, unless you could have deducted the amount as an individual or the company or trust received the PSI in the course of conducting a PSB.

Even if you don’t use a company or trust to derive your PSI, there are limitations on the deductions that you may claim against your PSI. For example, you may not be able to deduct certain home office expenses, for example, occupancy expenses such as mortgage interest or rent.

Tip! The PSI rules are complicated, especially if you provide your services through a company or trust. Talk to your tax adviser if you have any questions.

Home office

A lot more people are working from home because of the COVID-19 pandemic. If you operate your business from a home office, you may be able to deduct the expenses of running that office. A home office is a room in your home that is used exclusively (or almost exclusively) for business activities.

Expenses you can claim a deduction for include:

occupancy expenses – these include rent, mortgage interest, water rates, land taxes and house insurance premiums. Occupancy expenses are usually calculated by apportioning the expenses between the home office and the rest of the property on a floor area basis;
running expenses – these are the increased costs from using your home for your business, including electricity or gas charges for heating, cooling and lighting, cleaning costs and the decline in value and the cost of repairs of deprecating assets such as furniture, furnishings and equipment; and
work related phone and internet expenses, including the decline in value of the handset – an apportionment will be required if the phone or computer is not used exclusively for work.

If you are entitled to claim occupancy expenses in relation to your home, you may have a capital gains tax (CGT) liability when you sell your home, due to the possible partial loss of the main residence exemption. The CGT issue arises when you are entitled to claim occupancy expenses, not whether you actually do claim them.

If you work from home but don’t have a home office as such, you can still claim deductions for ‘running expenses’. To simplify matters, the ATO allowed a rate of 80 cents per hour for running expenses incurred in the 2021–22 income year. Of course, you can still make a claim based on your actual running expenses if it produces a larger deduction. But remember that those expenses will need to be apportioned between work and private use and substantiation of the expenses you have incurred will be required.

Tip! If you have a home office, talk to your tax adviser about how to calculate your deduction and the records you must keep.

Small business tax offset

If you are a sole trader, an individual who is a partner in a business partnership or an individual who is a beneficiary of a trust that carries on a business, you may qualify for the small business tax offset if the business’ aggregated turnover is less than $5 million (yes, $5 million and not the general $10 million small business aggregated turnover threshold). The offset is not available to an individual acting as a trustee.

The offset for the 2021–22 income year (and also for the 2022–23 income year) is equal to 16% of the income tax payable on the sole trader’s or other individual’s taxable income that qualifies as their net small business income.

The offset is capped at $1,000.

COVID-19 payments

If you received a COVID-19 disaster payment during 2021–22, because state or territory health orders prevented you from working in your usual employment:

that payment is exempt from income tax; and
you do not include the payment in your tax return.

If you received a pandemic leave disaster payment during 2021–22, you must include it in your tax return as income. These payments were made to eligible individuals who were unable to earn income because either:

they had to self-isolate or quarantine at home; or
they were caring for someone with COVID-19.

Deductions for work-related quarantining

Expenses for accommodation, food and drink are normally private in nature and not deductible. However, you can claim a deduction for accommodation, food, drink and incidental expenses you incur if you are ‘travelling on work’ during COVID-19 and must quarantine.

You cannot claim a deduction for quarantine expenses you incur when you:

travel to or from a work location and need to quarantine; or
need to quarantine for another purpose (for example, returning from a private holiday), even if you can work from the quarantine location.

The fact you were working or are able to work from a quarantine location doesn’t mean you meet the definition of ‘travelling on work’.

If you incur expenses for both work purposes and private purposes, you will need to apportion your expenses. You can only claim the expenses that relate to your work activities.

Deductions for COVID-19 tests

You can claim a deduction for costs you incurred for COVID-19 test expenses provided the test was undertaken for a work-related purpose, and the purpose of the test was to determine whether you could attend or remain at a place of work. The test can be any test in the Australian Register of Therapeutic Goods, such as a polymerase chain reaction (PCR) test or rapid antigen test (RAT).

To claim a deduction, you must have records to prove that:

you incurred the cost (usually a receipt); and
the cost of the test was incurred in gaining or producing your assessable income
the purpose of the test was to determine whether you could attend or remain at a place of work.

You can also claim a deduction for the cost of a COVID-19 test if you required the test to undertake travel away from your home overnight for work purposes.

You should claim only the work-related portion of your expense on COVID-19 tests. For example, if you buy a multipack of 5 COVID-19 tests and you use 2 for work purposes and the other 3 for non-work purposes – such as for other family members or for leisure activities – you may claim only ²/₅ (40%) of the expense.

You can’t claim a deduction for the cost of a COVID-19 test if:

you used the test for private purposes, for example to test your children before they returned to school;
you worked from home and did not intend to attend your workplace; or
your employer provided the test or you were reimbursed for the cost of the test.

You can’t claim the cost of travelling, or of parking, to get a COVID-19 test.

Tip! Talk to your tax adviser to make sure you claim all deductions that you or your business are entitled to claim.

From the ATO

SMSF – appointing an auditor

If you have a self-managed superannuation fund (SMSF), you need to appoint an approved SMSF auditor at least 45 days before the due date for lodging the 2021–22 SMSF annual return. The lodgment dates are:

31 October 2022 – new registrant SMSFs and SMSFs with one or more annual returns overdue on 30 June 2022 (unless they have been granted a deferral);
15 January 2023 – SMSFs that were taxable large or medium entities in 2021–22;
28 February 2023 – all other self-preparing SMSFs (unless the ATO has directed the SMSF to lodge on a different date).

The role of an approved SMSF auditor is to review the SMSF’s financial statements and accounts, and to assess its compliance with superannuation laws.

The auditor must be registered with ASIC and independent of the SMSF. You can find a list of approved SMSF auditors on the ASIC website.

The ATO recommends that you start the process of appointing an auditor early as approved SMSF auditors can be busy.

Tip! If you use a registered tax agent to prepare your SMSF’s annual return, talk to them as soon as possible.

Foreign owners of residential property

If you are a foreign owner of residential property in Australia, you are required to pay an annual vacancy fee if your property is not residentially occupied or rented out for 183 or more days (6 months) in a year. A year for these purposes (a vacancy year) is each successive period of 12 months starting on the occupation day for the property during which you have continuously held an interest in the dwelling. A vacancy year is not a calendar year or a financial year.

The vacancy fee return must be lodged if you:

made a foreign investment application for residential property after 7:30pm AEST on 9 May 2017;
purchased under a New Dwelling Exemption Certificate that a developer applied for after 7:30pm AEST on 9 May 2017.

The vacancy fee may also apply if you failed to submit a foreign investment application but purchased a residential property before 9 May 2017.

You do not have to lodge a vacancy fee return until a dwelling has been constructed on the land. When multiple dwellings are constructed on the land, a vacancy fee return must be lodged for each new dwelling constructed.

You must lodge a return even when the dwelling has been occupied or made available for rent. If it is owned by 2 or more people as joint tenants, only one return has to be lodged. However, if it is owned by 2 or more people as tenants in common, each foreign owner must lodge a vacancy fee return.

A vacancy fee return must be lodged with the ATO within 30 days after the end of each vacancy year.

If any of the following occur during a vacancy year, you will not have to lodge a vacancy fee return:

you sold the property or it was otherwise legally transferred (including on the death of the owner);
you are no longer a foreign person.

The latest scam

The ATO is concerned about a high volume of SMS scams pretending to be from the ATO.

These scams tell you that you’re owed an income tax repayment and ask you to click a hyperlink and complete a form.

Clicking the link takes you to a fake ATO webpage that asks for your personal identifying information, including your credit card details.

The real ATO will never send you an SMS with a link to log in to their online services and will never ask for your credit card details.

If you’re ever unsure whether an SMS or email is really from the ATO, don’t reply. Phone the ATO on 1800 008 540 to check.

Tip! Check out the ACCC’s Scamwatch website for helpful tips and resources.

Fraudulent GST refunds halted

The ATO has reported that the Serious Financial Crime Taskforce has undertaken further enforcement action in respect of 40,000 individuals suspected of being involved in a major GST fraud involving fake businesses to claim false refunds. Search warrants were executed in relation to 5 suspected offenders located in Sydney as part of Operation Protego. This follows earlier action where raids were executed against 19 individuals.

The ATO wants anyone who has given their myGov details to a criminal to contact the ATO so it can assist to protect the individual’s identity from being used to commit further crimes in their name. Any individual who believes their identity has been compromised should contact the ATO on 1800 467 033.

The ATO noted that social media has played a key role in promoting this type of GST fraud, with reports of people offering to buy and sell myGov details in order to access these refunds. Since investigations were commenced in May 2022, the ATO said it has stopped over $1 billion in fraudulent refunds from issuing.

Property owner digs himself into a hole

A South Australian taxpayer has received a criminal conviction and been fined $1,500 with orders to pay $699.30 in reparation after providing false documents to an ATO auditor about deductions for his rental property.

The ATO commenced an audit into the taxpayer’s 2018 tax return after noticing deductions for gardening repairs and maintenance for his rental property were unusually high. When the ATO asked him to supply details about the expenses, the taxpayer provided photos of some tax invoices relating to hire of a skip bin and the removal of some dead trees.

But when the ATO contacted the business that provided those services, it found some discrepancies – the cost of hiring the skip bin was $210 and not $1,090 as claimed by the taxpayer.

The taxpayer was charged with two counts of incorrectly keeping records with the intention of deceiving or misleading a Commonwealth public official.

Taxation statistics 2019–20

The ATO has published on its website various taxation statistics for 2019–20. We have picked out some of the more interesting ones.

The top 10 occupations (by average taxable income) are (in order): surgeon, anaesthetist, internal medicine specialist, financial dealer, psychiatrist, other medical practitioner, judicial or other legal professional, mining engineer, engineering manager and financial investment advisor or manager.

The top postcode (by average taxable income) for individuals is in Perth – 6011. The rest of the top 10 is dominated by Sydney postcodes: 2027, 2023, 2030, 2088, 2110, 2025, 2063, 2028. The one remaining postcode in the top 10 is in Melbourne (number 5 in the list) – 3142.

Taxable income and tax

Average taxable income – $63,882 (male $74,559, female $52,798)
Average net tax – $19,790 (male $23,938, female $15,079).
Median taxable income for 2019–20 was $48,381 (male $56,746, female $41,724).
Median net tax – $11,330 (male $14,185, female $8,697).

Deductions

Deduction item	2019–2020
Deduction item	Individuals (no.)	Average ($)	Median ($)
Work-related expenses	9,395,149	2,303	1,092
Other expenses included in managing your tax affairs	5,911,137	333	180
Gifts or donations	4,337,321	887	130

When it comes to gifts or donations, WA had the highest average claim – approximately $1,800 per person. NSW is next in the list at just under $1,000 per person, followed by the ACT, Victoria, Tasmania, Queensland, South Australia and the Northern Territory.

Rental properties

*Property interests (no)**	2019–20
*Property interests (no)**	Net rent loss (no)	Net rent neutral/ profit (no)	Total individuals (no)
1	856,436	736,447	1,592,883
2	227,742	190,895	418,637
3	67,753	61,637	129,390
4	23,709	23,056	46,765
5	9,647	9,624	19,271
6 or more	9,858	10,037	19,895
Total	1,195,145	1,031,696	2,226,841

*Property interests implies solely or jointly owned properties, including those bought or sold during the year.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

September 24th, 2022|

Flood support

Disaster recovery payments

If you or your business was affected by the recent floods in NSW and Queensland, you may receive a recovery payment from a local, state or federal government agency. The ATO website advises that the income tax treatment of these support payments is as follows:

Australian Government Disaster Recovery Payment (one off payment of $1,000 per adult and $400 for each child younger than 16) and Australian Government Disaster Recovery Payment – Special Supplement (a total of $2,000 per adult and $800 for each child under 16, paid in 2 instalments) — you don’t pay income tax on these payments. To claim the payments online, you need a myGov account linked to Centrelink.
Disaster Recovery Allowance (a short-term allowance for up to 13 weeks – the amount varies) — this payment is generally taxable.
Natural Disaster Relief and Recovery Arrangements — payments under this scheme are generally taxable.
Ex gratia recovery payments — whether you pay tax on these payments depends on the specific circumstances of the payments and whether the Commonwealth Government has determined to exempt such payments from tax.

If you receive assistance from a charitable organisation, the payment you receive is not taxable. These payments have no GST implications.

Emergency assistance from your employer — for example, a one-off emergency relief payment — is also not taxable.

Even if a disaster relief payment is not taxable, you may have to include it in your tax return.

If you receive emergency help in the form of gifts from family and friends, you don’t need to declare them or pay tax on them.

Tip! Talk to your tax adviser if you are uncertain whether a disaster recovery payment is taxable and whether you need to disclose it in your tax return.

ATO help

The ATO can help businesses affected by the recent floods, including businesses not directly impacted.

Activity statements and instalment notices

Small businesses in affected local government areas (LGAs) in Queensland and NSW who need to lodge business activity statements and instalment notices with an original due date of 28 February 2022 or 21 March 2022 can lodge relevant returns up until 28 March 2022. They do not need to request a lodgment deferral if they are able to lodge by that date.

Lists of affected LGAs in Queensland and NSW can be found on the Services Australia website.

Be aware that:

ATO systems will still reflect the original lodgment due date of these documents until they are lodged. The due date will only update after the lodgment has been received.
You may see a penalty on your account until the ATO can complete the process of remitting associated penalties.
The payment due date for these lodgments will not change. However the ATO will take an empathetic approach to your situation. General interest charge (GIC) will still apply if payment is not made by the original payment due date. If you are not able to pay by the due date, you should contact the ATO to discuss payment options and request a remission of GIC.

If you were not able to lodge by 28 March 2022, you can apply for a deferral on a case-by-case basis. If you already have a deferral, it will remain in place.

Other ATO assistance

If you are affected by the floods, the ATO may:

give you extra time to pay your debt;
set up a payment plan tailored to your individual circumstances, including an interest-free period;
help you find your lost tax file number (TFN) after verifying your identity;
re-issue tax returns, activity statements and notices of assessment;
help you re-construct lost or damaged tax records; and
remit penalties or interest charged during the time you have been affected.

In addition, the ATO will fast track any GST refunds you are owed.

You can also vary your PAYG instalments, as well as claim a credit at label 5B on your activity statement for previous instalments paid. The ATO has said that it will not apply penalties or charge interest on variations for the 2021–22 income year if you have taken reasonable care to estimate your end of year income tax liability.

Tip! Your tax adviser can liaise with the ATO on your behalf.

What is new?

Pre-Budget announcements

The Treasurer announced that the following measures will form part of the Federal Budget 2022–23:

the GDP uplift rate that applies to PAYG instalments and GST instalments will be set at 2% for the 2022–23 income year;
new measures will leverage technology to automate tax reporting requirements and align instalment payment obligations with financial performance (the implementation date is 1 January 2024);
the Government will facilitate sharing of Single Touch Payroll data with the State and Territory Governments on an ongoing basis to cater for pre-filling payroll tax returns;
eligible businesses will have the option of reporting taxable payments via software at the same time as activity statements (the implementation date is 1 January 2024) — this will remove the requirement to lodge a yearly Taxable Payments Annual Report (TPAR); and
the Government will develop systems to ensure all trusts will have the option to lodge income tax returns electronically (the implementation date is 1 July 2024).

If the Federal Budget 2022–23 provides more detail, we will report on these measures in the special Federal Budget edition of TaxWise® News due out on Tuesday 5^th April 2022.

Changes that are now law

The extension of temporary full expensing (for depreciating assets) by 12 months to 30 June 2023 is now law. So if you are a sole trader, you will be able to claim an outright deduction for the cost of depreciating assets you acquire (and install ready for use) before 1 July 2023 (this includes second hand assets if your business has an aggregated turnover of less than $50 million).

Superannuation changes that have been passed by Parliament include:

removing the Superannuation Guarantee $450 monthly income threshold;
increasing the maximum releasable amount under the First Home Super Saver Scheme from $30,000 to $50,000;
reducing the eligibility age for downsizer contributions from 65 to 60;
removing the work test for non-concessional and salary sacrificed superannuation contributions for individuals aged 67–75 (they will still need to satisfy the work test to make personal deductible contributions).

All these measures apply from 1 July 2022.

Changes in the pipeline

Bills currently before Parliament will:

allow a small business, such as a sole trader, to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) for an order staying, or otherwise affecting, the operation of an ATO decision being reviewed by the AAT. For example, the AAT may direct the ATO not to take steps to collect a disputed debt that is being reviewed;
make disaster recovery grants paid to small businesses and farmers in relation to Cyclone Seroja tax-free;
allow the ATO to require a taxpayer to complete an approved record-keeping course where the ATO reasonably believes the taxpayer has failed to comply with laws governing tax records — this will be an alternative to paying an administrative penalty; and
allow a business to self-assess, for depreciation purposes, the effective life of most intangible assets, e.g. copyright (other than copyright in a film), patents and in-house software, but not for assets held before 1 July 2023.

Of course, these measures may not be passed by the Parliament before the next Federal election (which will be held in May). If that happens, it is reasonable to assume that the measures will be re-introduced in the next Parliament since they are uncontroversial and should receive bi-partisan support regardless of which party forms government.

Deduction for COVID-19 tests

The Government has announced that legislation will be introduced to make it clear that work-related COVID-19 test expenses incurred by individuals will be tax deductible. This will include Polymerase Chain Reaction (‘PCR’) tests and Rapid Antigen Tests (‘RATs’).

If you provide COVID-19 tests for your employees, FBT will not be payable.

From the ATO

Tax losses

Before you claim a tax loss, make sure you have correctly claimed expenses that you are entitled to. Overclaiming expenses can put you in an incorrect tax loss situation.

It’s also important to remember to apportion your expenses correctly, so that only the business portion of the expense is claimed, and not any personal component of the expense.

If your business makes a tax loss in the current year, you can generally carry forward that loss and claim a deduction for your business in a future year (subject to satisfying either the continuity of ownership or business ownership test).

You may be able to offset current year losses if you’re a sole trader or an individual partner in a partnership and meet certain conditions.

If your business is carried on through a company or an entity that is taxed as a company (e.g. a corporate limited partnership), you may be able to claim the loss carry back tax offset. You can carry back losses made in the 2019–20, 2020–21, 2021–22 and 2022–-23 income years to an earlier income year (but no further back than 2018–19) and claim an income tax offset in the company’s 2021, 2022 or 2023 income tax return.

Keeping accurate and complete records will help you keep track of your tax losses. It can help you avoid incorrectly carrying back or carrying forward a tax loss.

If you’re carrying on a non-commercial business activity as an individual, either alone or in a partnership, and your business makes a loss, you must check to see how the non-commercial loss rules apply to you.

Tip! Talk to your tax adviser about how to best utilise a tax loss.

Using business money for private purposes

There may be tax consequences if you take or use money or assets from your company or trust for private purposes.

For example, it is quite common for the company or trust to make a loan to a shareholder or an associate of a shareholder (e.g. the shareholder’s spouse or child). When a company lends money or assets to a shareholder, the shareholder may be taken to have received a Division 7A deemed dividend if certain conditions are not met.

If this happens, the shareholder will need to report an unfranked dividend in their individual tax return. A deemed dividend has no impact on the company’s balance sheet or income tax return.

To avoid a Division 7A deemed dividend, before the company tax return is due or lodged (whichever comes first), the loan must:

be repaid in full; or
put on Division 7A complying terms.

To put a loan on Division 7A complying terms, the loan must:

be in a written agreement and signed and dated by the lender;
have an interest rate for each year of the loan that at least equals the benchmark interest rate (4.52% for 2021–22);
not exceed the maximum term of 7 years, or 25 years in certain circumstances when the loan is secured by a registered mortgage over real property.

You (the shareholder or associate of the shareholder):

must make the minimum yearly repayment each year (the ATO publishes a Division 7A calculator to work this out);
cannot borrow money from the company to make the minimum yearly repayment;
can make payments on the loan using a dividend declared by the company. This dividend must still be reported in your individual tax return as assessable income.

It is important to keep accurate records of any such transactions and ensure they are reported correctly for tax purposes. This may require a transaction to be reported in both the company’s or trust’s tax return and your individual tax return.

Unpaid present entitlement

An unpaid present entitlement (UPE) arises where a beneficiary of a trust is presently entitled to a share of trust income but it remains unpaid. If the beneficiary is a private company and the trust is a shareholder in the company or an associate of a shareholder in the company, the ATO considers that the unpaid amount is a loan and therefore subject to the operation of Division 7A.

The ATO has recently issued a draft taxation determination, revising its views on the application of Division 7A where there is a UPE for arrangements arising on or after 1 July 2022. For example, the ATO now considers that Division 7A may apply where a private company beneficiary has knowledge of a UPE and does not demand payment of that amount.

Tip! Division 7A is very complex – particularly the UPE rules – so talk to your tax adviser to make sure you don’t take steps that result in a Division 7A deemed dividend.

Check your PAYG instalments

If you are a sole trader, now is a good time to check that your PAYG instalments still reflect your expected end of year income tax liability.

If your business’ circumstances have changed and you think you will pay too much (or too little) in instalments for the year, the instalments can be varied on the next activity statement. Instalments can be varied multiple times throughout the year. The varied amount or rate will apply for the remaining instalments for the tax year or until another variation is made.

If your business is affected by COVID-19 or a natural disaster, the ATO has said it will not apply penalties or charge interest to varied instalments if you have made your best attempt to estimate your end of year income tax liability.

If an amount or rate is varied online, paper activity statements and instalment notices will no longer be issued. These will be issued electronically. You will need to consider this when deciding how to lodge, revise and vary future activity statements and instalment amounts.

Tip! Your tax adviser or BAS agent can help you with your activity statements and tax returns.

Digital record keeping

The ATO has highlighted the advantages of keeping your records digitally. If, for example, you use a commercially-available software package, it may help you:

keep track of business income, expenses and assets as well as calculate depreciation;
streamline your accounting practices and save time so you can focus on your business;
automatically calculate wages, tax, superannuation and other amounts for activity statement and other purposes;
meet your Single Touch Payroll (STP) reporting obligations;
back up records using cloud storage to keep your records safe from flood, fire or theft.

Digital storage of paper records

You can store and keep paper records (or hard copies) digitally. The ATO accepts images of business paper records saved on a digital storage medium, provided the digital copies are true and clear reproductions of the original paper records and meet its five rules for record-keeping.

Once you have saved an image of your original paper records, you don’t have to keep the paper records unless a particular law or regulation requires you to.

However, if you enter information (for example, supplier information, date, amount and GST) from digital or paper records into your accounting software, you still need to keep a copy of the actual record, either digitally or on paper. Some accounting software packages may do both your accounting as well as your record keeping.

The ATO website gives tips on how to choose suitable record-keeping software.

Providing the ATO with copies of records

If the ATO asks to see copies of records you keep digitally, you can provide either digital or printed copies. The ATO may also request documentation from your computer about your record-keeping system (for example, information about your regular back-up and record destruction procedures) or ask you to provide paper copies.

Cloud storage

If you use cloud storage, either through your accounting software or through a separate service provider, for example, Google Drive, Microsoft OneDrive or Dropbox, you should ensure:

the record storage meets the record-keeping requirements;
you download a complete copy of any records stored in the cloud before you change software provider and lose access to them.

eInvoicing storage

Regardless of your eInvoicing software or system, you are responsible for determining the best option for storing business transaction data. You should:

ensure that your process meets the record-keeping requirements
discuss your options with your software provider
talk to your business adviser, if necessary.

Don’t get burned by a phoenix

The ATO has warned small businesses about phoenixing. That happens when (to quote the ATO) a ‘dodgy’ business shuts down to avoid paying its debts, but then pops up under a different company name without any debt.

The ATO is working, through the Phoenix Taskforce, with other federal, state and territory agencies to detect, deter and disrupt illegal phoenix businesses.

Here are 5 red flags to look out for when working with a company:

unusually low quotes or tenders can suggest that the company isn’t taking superannuation or PAYG instalments into account;
the company directors have previously been involved with liquidated entities;
the company’s name and directors have changed, but the manager and staff remain the same;
the company is requesting payments to a new company;
you’re told that your last contract won’t be paid unless you sign a new contract, often with a different company name from the one you first dealt with.

If you suspect illegal phoenix activity, you can contact the ATO by phoning 1800 060 062 or by emailing phoenixreferrals@ato.gov.au.

Re-contributing superannuation amounts

Individuals can now re-contribute amounts they withdrew under the COVID-19 early release of superannuation program without the contributions counting towards their non-concessional contributions cap. These contributions can be made between 1 July 2021 and 30 June 2030.

The individual must use the approved form and give it to the superannuation fund by the time the contribution is made. Individuals can make COVID-19 re-contribution amounts to any fund of their choice where the fund rules allow.

A fund cannot accept a COVID-19 re-contribution amount if it exceeds $20,000 (the maximum amount that could be withdrawn under the COVID-19 early release program). If the amount re-contributed exceeds the amount withdrawn, the difference will be treated as a non-concessional contribution.

A COVID-19 re-contribution may qualify as an eligible personal superannuation contribution that attracts the government co-contribution.

SMSF statistics

The ATO’s Self-managed super fund quarterly statistical report – December 2021 (contains some interesting statistics on the self-managed superannuation fund (SMSF) sector.

Highlights include:

there are 601,906 SMSFs;
there are 1,129,321 members of SMSFs;
the total estimated assets of SMSFs are $876.7 billion;
the top asset types held by SMSFs (by value) are listed shares (28% of total estimated SMSF assets) and cash and term deposits (17%);
53% of SMSF members are male and 47% are female;
86% of SMSF members are 45 years or older.

Employee or independent contractor?

It is an age old question. Are you an employee or an independent contractor?

The High Court recently considered this issue in two separate cases and agreed in both that it is the ‘totality of the relationship between the parties’ that should be considered. However, instead of adopting a ‘multifactorial’ approach, considering factors such as the degree of control, who bears the commercial risk and who provides the equipment, the High Court focused on the contractual relationship between the parties.

This is not the place to analyse the High Court’s decisions in detail. However, it is worth noting that the High Court observed that where the terms of the parties’ relationship are comprehensively committed to a written contract (that is not a sham), the terms of the contract should determine the character of the relationship. On that basis, the High Court held that the relevant individuals were employees in one case (CFMEU v Personnel Contracting), but not in the other (ZG Operations v Jamsek).

These cases are relevant for tax (e.g. PAYG withholding obligations) and the Superannuation Guarantee (SG) scheme. Of course, the SG picture is complicated by rules treating certain individuals as employees for SG purposes, even if they are not employees at common law.

Tip! Talk to your tax adviser if you have any concerns about the status of your relationship with entities to which you provide services.

Disclaimer

April 14th, 2022|

Budget overview

On Tuesday 11 May, the Treasurer, the Hon Josh Frydenberg MP, delivered the Federal Budget 2021–22, his third Budget.

Two years ago, in his first Budget speech, the Treasurer announced that the Budget “is back in the black”. One pandemic later, there is only red.

So far, the Government has committed $291 billion (or 14.7% of GDP) in direct economic support for individuals, households and businesses. The Budget deficit for 2020–21 is forecast to be $161 billion, although that is almost $53 billion less than what was forecasted in last year’s Budget. The Treasurer has not produced an austerity Budget – net debt as a share of GDP is predicted to peak at just over 40% in 2024–25. “Debt and deficit” are seemingly no longer bad.

As emergency COVID-19 support concludes, the Government says it will focus on the transition to sustainable private sector-led growth to create jobs. The unemployment rate is forecast to fall to 4.75% by mid-2023 (lower than pre-pandemic levels).

The Government acknowledges that the continued economic recovery will rely on the effective containment of COVID-19 outbreaks both in Australia and abroad and will be a key factor in the timing of the reopening of international borders, which could weigh on the outlook for the tourism and education sectors.

Further, ongoing global trade tensions and the potential for further trade actions continue to pose risks to the outlook for Australian exports. More broadly, downside risks to the outlook for the global economy from ongoing outbreaks of the virus in major economies, including India, could have implications for Australia’s domestic economy.

If you want to read the Budget papers, you can find them at budget.gov.au.

Big picture highlights of this year’s Budget

Spending measures

Some of the key spending measures are:

Child care

An additional $1.7 billion over 5 years, by increasing the maximum child care subsidies for second and subsequent children aged 5 and under from 85% to 95% (from 11 July 2022) and removing the $10,560 cap for families with combined incomes above $189,390 (from 1 July 2022).
The Government estimates that a family with 2 children earning $110,000 a year will be $95 per week better off for 4 days of care and a family with 3 children on $80,000 will be $108 per week better off for 4 days of care.

Aged care

An additional $17.7 billion over 5 years in response to the Royal Commission into Aged Care Quality and Safety, including:

$7.8 billion to implement a new funding model and increase the Government’s Basic Daily Fee supplement by $10 per resident per day;
$6.5 billion for the release of 80,000 additional Home Care Packages over the next 2 years, $798.3 million to support informal carers of older Australians (e.g. increased access to respite services and more targeted assistance for carers of people with dementia);
$630.2 million to improve access to high-quality aged care services for those in regional, rural and remote areas, Aboriginal and Torres Strait Islander people, and special needs groups;
$942 million to support older Australians to access safe and quality care and $652 million to skill the aged care workforce for the future.

National Disability Insurance Scheme (NDIS)

An additional $13.2 billion over 4 years for the NDIS.

Home ownership

An additional 10,000 places in 2021–22 under the New Home Guarantee (allowing first home buyers to build a new home or purchase a newly built home with a deposit of as little as 5%);
10,000 single parents with dependants will be able to purchase a home with a deposit of as little as 2% (the Family Home Guarantee scheme);
Increasing the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme to $50,000 (see below);
Extending the deadline for construction to be started under the HomeBuilder program from 6 months to 18 months for existing applicants.

Women’s Economic Security

$120.7 million on programs designed to improve women’s workforce participation and economic security (in addition to the $1.7 billion child care package).

Women’s health

$148 million over 5 years for health care services for women and girls

Mental health

$2 billion over 4 years (from 2021–22) for the National Mental Health and Suicide Prevention Plan

Health (general)

A further $1.9 billion in Australia’s COVID-19 Vaccination Strategy; $879 million over 2 years to continue the health response to the COVID-19 pandemic, to support access to health care services and reduce the risk of community transmission of COVID-19;
$487 million over 2 years to expand quarantine services in the Northern Territory; $115.2 million over 4 years (from 2021-22) to expand and improve dental health services; $80.9 million over 5 years for initiatives to support the delivery of primary care and the health workforce in rural and remote Australia.

Domestic violence:

$998.1 million over 4 years for initiatives to reduce, and support the victims of, Family, Domestic and Sexual Violence (FDSV) against women and children; $123.8 million over 4 years to support the reform of the family law system and improve access and safety for children and families.

Workplace

$9.3 million over 4 years to support the implementation of the Government’s response to the Respect@Work: Sexual Harassment National Inquiry Report

Training and skills

Scrapping the JobMaker hiring credit, but providing an extra 163,000 places on subsidised training courses by extending the JobTrainer scheme (subject to matched funding by State and Territory governments); an additional $2.7 billion on extending and expanding the Boosting Apprenticeship Commencements wage subsidy; 2,700 places in Indigenous girls’ academies; and 5,000 gateway and in-training support services for women starting in non-traditional trades

Jobs and wages

Wage subsidies available through Jobactive, Transition to Work (the Government’s specialist youth employment service) and ParentsNext will be increased to $10,000; the Local Jobs Program will be expanded and extended to 51 employment regions; Transition to Work will receive an additional $481.2 million over the forward estimates; a more efficient employment services program (the New Employment Services Model) will replace Jobactive from 1 July 2022 at a cost of $860.4 million over 4 years

Tourism

An additional $1.2 billion targeted support package to the aviation and tourism sectors

Education

$2 billion in ongoing funding for preschools through a 4-year Strategic Reform Agreement (funding will be contingent on the states and territories agreeing to a robust reform timeline focused on increasing participation and school readiness); $53.6 million to support Australian education providers most reliant on international students

Infrastructure (general)

An additional $1 billion to extend the Local Roads and Community Infrastructure Program; extending the Road Safety Program to 2022–23, with additional funding of $1 billion; an additional $250 million for the Building Better Regions Fund; $189.6 million over 5 years to create jobs and support sustainable economic growth in Northern Australia; $84.8 million to improve internet and mobile access in regional Australia; $1.3 billion in off-farm irrigation infrastructure

Infrastructure (specific projects):

$2 billion for the Melbourne Intermodal Terminal; $2.6 billion for the North-South Corridor-Darlington to Anzac Highway in South Australia; $2 billion for the Great Western Highway Upgrade (Katoomba to Lithgow) in NSW; $400 million in additional funding for the Bruce Highway in Queensland; $380 million for the Pakenham Roads Upgrade in Victoria; $237.5 million for the METRONET to support grade separations and the elevation of stations in Western Australia; $150 million for the Northern Territory National Highway Network; $132.5 million for the Canberra Light Rail – Stage 2A; $113.4 million for the Midland Highway Upgrades in Tasmania

Vaccines

Funding will be provided for the development of an onshore mRNA vaccine manufacturing capability in Australia.

Agriculture

$850.4 million over 5 years for a package of measures to back-in the farm sector’s ambition of a $100 billion industry by 2030 and support Australia’s soils and biodiversity stewardship; $172.5 million over 4 years to support the long-term drought resilience and preparedness of primary producers, rural and regional communities; $14.7 million to waive farm business income reconciliation debts incurred by Farm Household Allowance recipients up to the end of 2019–20.

Deregulation

$134.6 million over 4 years to progress the Commonwealth’s deregulation agenda.

Natural disasters

$1.2 billion over 5 years to improve Australia’s capability to better prepare for, respond to, and recover from natural disasters.

Defence

An additional $747 million for defence training facilities in the Northern Territory.

Veterans

$460.4 million to ensure the Department of Veterans’ Affairs has adequate capacity to meet veteran support needs and enhance its capacity to address veteran suicide, including through faster processing of compensation claims; $145.3 million over 2 years for the Royal Commission into Defence and Veteran Suicides.

Not-for-profits

$1.9 million in 2022–23 for the ATO to build an online system to enhance the transparency of income tax exemptions claimed by not-for-profit entities.

Budget measures for individuals

Tax and superannuation highlights

Low and middle income offset retained (again)

As widely predicted, the low and middle income tax offset (LMITO) will be retained for 2021-22, thus avoiding an effective tax increase for many taxpayers. This is how the LMITO (also called the Lamington) is calculated. The benefit will depend on a taxpayer’s taxable income.

Taxable income	Amount of LMITO
$0–$37,000	$255
$37,001 – $48,000	$255, plus 7.5% of the excess
$48,001 – $90,000	$1,080
$90,001 – 126,000	$1,080, less 3% of the excess
$126,001 +	Nil

The low income offset (LITO) has not been touched. The maximum amount of the LITO is $700, payable for taxable incomes up to $37,500. No LITO is payable once taxable income reaches $66,667.

Taxable income	Amount of LITO
$0–$37,500	$700
$37,501–$45,000	$700, less 5% of the excess
$45,001–$66,667	$325, less 1.5% of the excess

Medicare levy thresholds

The Medicare levy low-income threshold for singles for 2020–21 is $23,226 (compared to $22,801 for 2019–20). The family income threshold is $39,167 (compared to $38,474 for 2019-20), increasing by $3,597 for each dependent child or student (compared to $3,533 for 2019-20).

For single seniors and pensioners eligible for the senior Australians and pensioners tax offset (SAPTO), the Medicare levy low-income threshold for 2020–21 is $36,705 (compared to $36,056 for 2019–20). The family threshold for seniors and pensioners eligible for SAPTO is $51,094 (compared to $50,191 for 2019-20). The threshold increases by $3,597 for each dependent child or student.

No changes to tax rates

There were no changes to the income tax rates. As a reminder, the rates in the table below are legislated to apply for the 2020–21, 2021–22, 2022–23 and 2023–24 income years.

Income tax rates 2020-21 to 2023-24 — residents

Taxable income	Tax rate
Up to $18,200	Nil
$18,201–$45,000	19%
$45,001–$120,000	32.5%
$120,001–$180,000	37%
$180,001 and over	45%

The rates legislated to apply from 2024–25 are also unchanged. From 2024–25, a 30% rate will apply to the $45,001–$200,000 bracket, doing away with the 32.5% and 37% rates.

Simplified residency test

The individual tax residency rules will be replaced with a new, modernised framework. The primary test will be straightforward – a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.

The new framework is based on recommendations made by the Board of Taxation in its 2019 report on the residency rules. It will apply from the first income year after the enabling legislation receives assent.

Working holiday makers who stay in Australia for more than 6 months will become residents under the simplified test. Will the so-called “backpacker tax” be scrapped as a consequence? The Budget papers are silent.

Self-education expenses

The first $250 of a prescribed course of education expense is currently not deductible. The Government will remove that limitation, with effect from the first income year after the enabling legislation receives assent.

Pension Loans Scheme

The flexibility of the Pension Loans Scheme will be improved by providing access to advance payments through allowing participants to access up to 26 fortnights’ worth of top-up payments as a lump sum and introducing a No Negative Equity Guarantee.

New deductible donations

The Government announced 3 new organisations (DGRs) eligible to receive tax deductible donations:

Australian Associated Press Ltd – from 1 July 2021 to 30 June 2026;
Virtual War Memorial Limited – from 1 July 2021 to 30 June 2026;
Scripture Union Queensland – from 1 July 2021 to 30 June 2023.

In addition, the DGR status of Cambridge Australia Scholarships Limited and Foundation 1901 Limited has been extended for 5 years (to 30 June 2026 and 31 August 2026 respectively).

ADF personnel

A full income tax exemption will be available for the pay and allowances of Australian Defence Force (ADF) personnel deployed to Operation Paladin from 1 July 2020. Under Operation Paladin, ADF personnel are deployed in Israel, Jordan, Syria, Lebanon and Egypt.

Members of NZ sporting teams

The Government will ensure that New Zealand maintains its primary taxing right over members of its sporting teams and support staff in respect of Australian income tax and FBT liabilities that arise from exceeding the 183-day test in the Australia-NZ double tax agreement, as a result of being located in Australia for league competitions because of COVID-19.

The measure will apply to the 2020–21 and 2021–22 income and FBT years.

Budget measures for business

Temporary full expensing extended

The temporary full expensing incentive will be extended for 12 months until 30 June 2023. Temporary full expensing allows businesses with an annual aggregated turnover under $5 billion to deduct the full cost of eligible depreciating assets, as well as the full amount of the second element of cost (e.g. improvement costs and transport costs).

Temporary full expensing only applies to new assets located and principally used in Australia. Taxpayers can choose not to apply temporary full expensing to a depreciating asset (the choice cannot be revoked).

Loss carry-back extended

The loss-carry back available to companies with an annual aggregated turnover of less than $5 billion will be extended by 12 months. This will allow eligible companies to carry back (utilise) tax losses from the 2022–23 income year to offset previously taxed profits as far back as the 2018-19 income year.

The amount carried back cannot be more than the earlier taxed profits and the carry-back cannot generate a franking account deficit.

Companies that do not elect to carry back losses can still carry losses forward as normal.

Pausing ATO debt recovery actions

The Government will allow small businesses to apply to the AAT (the Small Business Taxation Division) to pause or modify ATO debt recovery actions where the debt is being disputed in the AAT. A small business is one with annual aggregated turnover less than $10 million.

When considering applications, the AAT will be required to consider the potential effect on the integrity of the tax system and ensure that there is a genuine dispute with the ATO.

This measure will apply in respect of proceedings commenced on or after the date the enabling legislation receives assent. It could save small businesses several thousands of dollars in court and legal fees.

Employee share schemes

The Government will remove the cessation of employment taxing point for tax- deferred employee share schemes (ESS). This change will apply to ESS interests issued from the first income year after the enabling legislation receives assent.

As a result, tax will be deferred until the earliest of the remaining taxing points:

in the case of shares, when there is no risk of forfeiture and no restrictions on disposal;
in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal; or
the maximum period of deferral of 15 years.

In addition, the Government will reduce red tape for ESS by:

removing regulatory requirements, where employers do not charge or lend to the employees to whom they offer ESS; and
where employers do charge or lend, streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.

Depreciation – intangible assets

Taxpayers will be allowed to self-assess, for depreciation purposes, the effective life of intangible assets such as patents, registered designs, copyrights and in-house software. This will apply to assets acquired on or after 1 July 2023 (after the temporary full expensing regime has concluded).

Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.

A similar measure was first proposed in December 2015 but was dropped when the relevant legislation (a 2017 Bill) was before the Senate.

Storm and flood grants exempt

The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia (the grants will be non-assessable non-exempt income).

Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.

Tax relief for small brewers and distillers

The excise refund cap for small brewers and distillers will increase from $100,000 to $350,000 per year from 1 July 2021.

From that date, eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.

Digital games offset

As part of its Digital Economy Strategy (see below), the Government will provide a refundable digital games tax offset to eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. Games with gambling elements, or that cannot obtain a classification rating, will not be eligible.

The digital games offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia.

Medical and biotechnology incentive

The Government will introduce a patent box tax regime to further encourage innovation in Australia, by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%. The patent box will apply to income derived from Australian medical and biotechnology patents.

The concession will apply from income years starting on or after 1 July 2022.

The Government will also consult on whether a patent box would be an effective way of supporting the clean energy sector.

Corporate tax residency rules

The Government announced in the 2020–21 Budget that the law would be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”.

The Government has now announced that it will consult on broadening this amendment to trusts and corporate limited partnerships.

Other measures

Other measures that affect business include:

technical amendments to the Taxation of Financial Arrangements (TOFA) rules, including facilitating access to hedging rules on a portfolio hedging basis, reducing compliance costs and making sure taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless this is elected – applicable to relevant transactions entered into on or after 1 July 2022;
extending the Junior Minerals Exploration Incentive (JMEI) program for another 4 years to 30 June 2025 (funding of $19.4 million each year);
revising the start date for the corporate collective investment vehicle (CCIV) regime to 1 July 2022. The CCIV is an investment vehicle with a corporate structure that provides flow-through tax treatment;
removing the concessional 10% effective tax rate that applies to income derived by offshore banking units from eligible offshore banking activities – legislation to implement this measure is presently before Parliament;
a temporary levy on offshore petroleum production to recover costs of decommissioning the Laminaria-Corallina oil fields and associated infrastructure. The levy will terminate on 30 June of the year in which all costs associated with the decommissioning have been recovered.

Digital Economy Strategy – tax and other measures

The Government released its Digital Economy Strategy on 6 May, but as part of the 2021-22 Budget. The Strategy is intended to target investments that will underpin improvements in jobs and productivity and make Australia’s economy more resilient. There is a dedicated website at https://digitaleconomy.pmc.gov.au.

Measures announced by the Government include:

spending $12.7 million to provide independent advice to Australian small businesses to help them build their digital capabilities through the Digital Solutions – Australian Small Business Advisory Services program;
spending $15.3 million to enhance the value of electronic invoicing to help businesses reduce costs and increase productivity;
as reported above, providing a refundable digital games tax offset to eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure – games with gambling elements, or that cannot obtain a classification rating, will not be eligible;
as reported earlier allowing taxpayers to self-assess the effective life of certain intangible assets from 1 July 2023;
undertaking a review of the venture capital tax concessions to ensure they are achieving their intended objectives;
spending just over $100 million over 6 years improving Australians’ digital skills within the education and training ecosystem, as well as creating more immediate learning options for reskilling and upskilling for in-demand jobs;
investing $53.8 million over 4 years to create the National Artificial Intelligence Centre to coordinate Australia’s AI expertise and capabilities;
spending $200.1 million to enhance myGov and $301.8 million to enhance the My Health Record system;
delivering Australia’s first Data Strategy setting out how the Government will enhance effective, safe and secure data use over the period 2021 to 2025; and
strengthening Australia’s data security settings through the development of a National Data Security Action Plan.

Superannuation measures

First Home Super Saver Scheme

As noted above, the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme (FHSSS) will be increased from $30,000 to $50,000 (anticipated to start in 2022–23).

Other changes (to apply retrospectively from 1 July 2018) will assist FHSSS applicants who make errors on their FHSSS release applications, for example, by allowing individuals to withdraw or amend their applications prior to receiving a FHSSS amount.

In addition, the ATO will be allowed to return to a super fund any released FHSSS money that has not been paid to the individual. The money will be treated as the fund’s non-assessable non-exempt income and will not count towards the individual’s contribution caps.

SMSFs – residency requirements

The Government will relax residency requirements for self-managed super funds (SMSFs) and small APRA-regulated funds, by extending the central control and management test safe harbour from 2 to 5 years for SMSFs and removing the active member test for both fund types. The measure is anticipated to apply from 1 July 2022.

Legacy retirement products

There will be a 2-year period for individuals to convert a specified range of legacy retirement products, together with any associated reserves, to newer, more flexible products (currently, these products can only be converted into another like product). Products covered will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution.

This measure will apply from the first financial year after the enabling legislation receives assent.

Other superannuation measures

Other superannuation measures announced as part of the Budget include:

reducing the eligibility age for the downsizer scheme from 65 to 60 (anticipated to apply from 1 July 2022). This means that Australians aged 60 or over will be able to make an additional non-concessional super contribution of up to $300,000 from the proceeds of the sale of their home;
scrapping the work test for those aged 67 to 74 (anticipated to apply from 1 July 2022). At present, individuals in that age bracket are required to be employed for at least 40 hours in a maximum period of 30 consecutive days in the financial year before they can make super contributions (concessional or non-concessional); and
scrapping the requirement for workers to earn at least $450 a month before their employers are obliged to pay super (anticipated to apply from 1 July 2022).

The Government will not proceed with a measure to extend early release of super to victims of family and domestic violence.

No changes to superannuation guarantee

There had been speculation that the Government might defer the legislated increases in the super guarantee (SG) rate, but that did not happen in the Budget. Accordingly, the SG rate is still due to increase from 9.5% to 10% from 1 July 2021, and by 0.5% per year from 1 July 2022 until it reaches 12% from 1 July 2025.

Note that the SG opt-out income threshold will increase to $275,000 from 1 July 2021 (it is currently $263,157).

Disclaimer

May 20th, 2021|

COVID-19 measures: How you might be affected

JobKeeper scheme

The JobKeeper scheme ended on 28 March 2021. You do not have to do anything, but you will need to complete your final March monthly business declaration by 14 April 2021. The final payment will be processed in April.

You must keep all relevant records for five years in case the ATO decides to look at your JobKeeper claims in detail.

The JobKeeper data matching program was extended until 28 March 2021. This will assist Services Australia in identifying the overlapping populations of people who may be registered for both the JobKeeper program and social security payments.

Note! Don’t forget that JobKeeper payments are assessable and should be included in your tax return (or business’ tax return) as income. If you employ someone and their wages were effectively subsidised by JobKeeper payments, the full wages are still deductible.

JobMaker hiring credit scheme

Under the JobMaker hiring credit scheme, the Government may pay you up to $200 per week if you hire a new employee aged 16 to 29 and up to $100 a week if you hire a new employee aged 30 to 35. The new employee must commence employment between 7 October 2020 and 6 October 2021.

What it means for sole traders

Sole traders who operate a business in Australia are potentially eligible for JobMaker. There are a number of conditions to be satisfied, for example you must hold an active ABN and be registered for PAYG withholding. You also need to register with the ATO to claim JobMaker. You must register by 30 April 2021 if you want to make a claim for the first JobMaker period (1 February to 30 April 2021).

To qualify, your employee headcount and payroll must genuinely increase. You cannot claim JobMaker if you merely replace an employee aged over 35 with one aged between 16 and 35.

You cannot claim JobMaker for certain individuals you employ, including:

relatives;
partners if your business is operated through a partnership;
directors and shareholders if your business is operated through a company; and
certain contractors and subcontractor you engaged at any time between 6 April 2020 and 6 October 2020.

Tip! The JobMaker scheme is complicated. Contact your tax adviser if you think you may qualify for JobMaker or if you are thinking of hiring a new employee.

Stimulus vouchers: How to report this in your tax

Most States and Territories are providing assistance to help boost local economies affected by COVID-19. Many governments are doing this by issuing vouchers to eligible customers to pay towards purchases from eligible businesses for dining out, entertainment or accommodation.

If your business accepts stimulus vouchers from customers, you may be wondering how to deal with this in your tax.

When you accept a voucher, you need to:

treat the amount the voucher covers and your customer’s payment as income;
report GST on the total of payments received.

Investment incentives: What’s changed?

There are two temporary measures to encourage business investment:

full expensing for the cost of new depreciating assets acquired from 7:30pm (AEDT) on 6 October 2020 (i.e. 2020–21 Budget night) and first used or installed by 30 June 2022; and
an accelerated rate of depreciation for new depreciating assets first held on or after 12 March 2020 and first used or installed ready for use on or after 12 March 2020 and before 1 July 2021.

Note! The law has changed so that you can now choose not to apply full expensing or accelerated depreciation to particular depreciating assets if you want. But once the choice is made, you are locked in (i.e. the choice cannot be reversed).

Tip! Talk to your tax adviser if you are contemplating buying new business assets.

Victorian business support

Just before Christmas, the Federal Government declared that various COVID-19 related business grants provided by the Victorian Government are not taxable (technically, they are non-assessable non-exempt income). These are:

Alpine Business Fund;
Business Support Fund 3;
Licensed Hospitality Venue Fund;
Melbourne City Recovery Fund – Small business reactivation grants;
Outdoor Eating and Entertainment Package; and
Sole Trader Support Fund.

Do you use trading stock for private purposes?

It is common for certain business owners (e.g. sole traders, individuals and partnerships, etc.) to use trading stock for private purposes. If you do this, you are treated as having sold it for its cost just before you use it and as having bought it back for the same amount.

Because it is difficult in many cases to keep accurate records of transactions involving goods taken from stock for private use, the ATO publishes each year standard values (excluding GST) that can be used by proprietors of certain businesses. The latest amounts (for the current tax year ending on 30 June 2021) were published in early January (in Taxation Determination TD 2021/1).

TYPE OF BUSINESS	AMOUNT (EXCLUDING GST) FOR ADULT/CHILD OVER 16 YEARS	AMOUNT (EXCLUDING GST) FOR CHILD 4 to16 YEARS OLD
Bakery	$1,350	$675
Butcher	$900	$450
Restaurant/café (licensed)	$4,640	$1,810
Restaurant/café (unlicensed)	$3,620	$1,810
Caterer	$3,830	$1,915
Delicatessen	$3,620	$1,810
Fruiterer/greengrocer	$930	$465
Takeaway food shop	$3,670	$1,835
Mixed business (includes milk bar, general store and convenience store)	$4,460	$2,230

Do you operate your business through a company or trust?

It is fairly common for professionals, such as IT specialists, engineers and business consultants, to operate their business through a company or a trust. If you are in this position, you need to be aware of the rules that will treat the income earned by the company or trust from the provision of your own services (personal services income or PSI) as your personal income. These rules (the PSI rules) also deny a deduction for certain types of expenditure.

We discussed the PSI rules in the September 2020 Individual edition of TaxWise® News. Since then, the ATO has issued a draft ruling (TR 2021/D2) providing general guidance on the operation of the rules. The draft ruling considers a number of issues including:

the meaning of PSI and income that does not qualify as PSI;
determining whose PSI it is;
the effect of the PSI rules; and
the various tests to determine if a PSB is being carried on (the results, unrelated clients, employment and business premises tests).

Even if the PSI rules do not apply where your services are hired out through a company or trust, the ATO points out that the general anti-avoidance rules may still apply to the arrangement.

Tip! The PSI rules (and the general anti-avoidance rules) are complicated. Talk to your tax adviser if you provide your services through a company or trust or are thinking of doing it.

Working from home or running a business from home? Here’s what you can deduct

A lot more people have been working from home because of the COVID-19 crisis.

To make it easier for people to claim deductions for working from home due to COVID-19 (even if not operating a business), the ATO will allow a rate of 80 cents per hour for running expenses and work-related phone and internet expenses incurred up to 30 June 2021.

If you do operate your business from a home office, you can deduct the expenses of running that office. A home office is a room in your home that is used exclusively (or almost exclusively) for business activities.

If you don’t have a home office, you can still claim “working from home” expenses, including:

running expenses – these are the increased costs from using your home for your business, including electricity or gas charges for heating, cooling and lighting, cleaning costs and the decline in value and the cost of repairs of deprecating assets such as furniture, furnishings and equipment; and
work-related phone and internet expenses, including the decline in value of a relevant device (e.g. handset, computer or laptop) – an apportionment will be required if the device is not used exclusively for work.

Tip! If you are working from home, talk to your tax adviser in order to maximise the tax deduction you can claim.

From the ATO

Have you been affected by floods?

If you’re facing problems meeting your tax obligations due to flooding, the ATO will work with you to get things back on track, including:

give you extra time to pay your debt or lodge tax forms such as activity statements;
help you reconstruct lost or damaged tax records;
prioritise any refunds you are owed;
set up a payment plan tailored to your circumstances, including an interest-free period; and
remit penalties or interest charged during the time you have been affected.

If you are an employer, you still need to meet super guarantee obligations for your employees. The ATO cannot vary the contribution due date or waive the super guarantee charge on late super guarantee payments.

Tip! Ask your tax adviser to contact the ATO to see what help is available.

Vehicle registrations: Data-matching

The ATO will acquire motor vehicle registry data from State and Territory motor vehicle registry authorities through to 2021–22. The collected data may include identification details (e.g. names, addresses and ABNs) and transaction details (e.g. date and type of transaction, sale price of the vehicle and market value of the vehicle).

The ATO estimates that records relating to approximately 1.5 million individuals will be obtained each financial year.

The data may be used to identify taxpayers buying, selling or acquiring motor vehicles who are at risk of not complying with their tax obligations.

Don’t forget that if you are contemplating buying a new car for your business (e.g. to take advantage of full expensing), your deduction cannot exceed the car limit ($59,136 for the 2020–21 tax year).

Tip! Buying a car for your business can have various tax implications, e.g. depreciation, GST and FBT. Talk to your tax adviser if you are contemplating buying a car.

Easier to pay your tax bill

The ATO has improved how you can use and manage your credit or debit card details in Online services for business, making it easier to pay your tax or super bill.

The new payment features allow you to:

add and manage up to 3 credit or debit cards in your account profile;
set up a payment plan with automatic direct debits from a card;
make one-off payments using a card.

Online services for business offers a simplified process to make it easier for you to create a payment plan if you owe less than $100,000.

The fight against tax crime

The ATO is asking for help from the general community in the fight against tax crime. You can complete a tip-off form (available in the Contact us section of the ATO app) or call 1800 060 062 to tell the ATO about suspicious activity, including:

cash in hand transactions;
not reporting income;
underpayment of wages;
identity fraud;
ABN, GST and duty fraud;
sham contracting – presenting an employment relationship as a contracting arrangement;
illegal phoenixing – deliberately liquidating and re-forming a business to avoid obligations;
schemes that involve deliberate steps to avoid the tax and super systems;
illegal purchase of Australian property by a non-resident; and
money laundering.

The ATO says it will safeguard your identity.

There are also protections for certain tax whistleblowers who report breaches or suspected breaches of tax law and misconduct relating to an entity’s tax affairs.

Are you a victim of tax crime?

The ATO can help you if fall victim to fraud. For example, the ATO may:

cancel a tax return or activity statement lodged without your knowledge (you will then need to lodge a valid return or activity statement);
grant you an extension of time to lodge a replacement return or activity;
remit (reduce or cancel) interest charged on unpaid tax debts or shortfall amounts that occur as a consequence of fraud;
allow you to pay a tax debt by instalments over an agreed period of time, if an outstanding debt causes financial difficulties;
provide assistance during the course of audits or investigations to correct your tax accounts after fraud has occurred.

Tip! If you think you are the victim of fraud, contact the ATO and the police as soon as possible. You should also talk to your tax adviser.

Are you being targeted by an illegal scheme?

The ATO has identified a new scheme where SMSF trustees were informed that they can set up a new SMSF to roll-over the fund balance from the old SMSF and then liquidate their old SMSF in an attempt to avoid paying potential tax liabilities.

The ATO warns that taking part in this arrangement and others like it can result in civil and criminal actions and could ultimately put your retirement savings at risk.

If you believe you have been approached by a promoter of a retirement planning scheme, you should seek a second opinion from a registered tax agent or appropriately qualified financial adviser. You should also report the promoter to the ATO.

Other matters to consider…

Check your PAYG instalments

Now is a good time to check your pay as you go (PAYG) instalments still reflect your expected end of year tax liability.

If your circumstances have changed and you think you will pay too much (or too little) in instalments for the year, you can vary the instalments on the next activity statement.

Instalments can be varied multiple times throughout the year. The varied amount or rate will apply for the remaining instalments for the tax year or until another variation is made.

If you are affected by COVID-19, the ATO has said it will not apply penalties or charge interest to varied instalments relating to the current tax year (2020–21). This applies when you have made your best attempt to estimate your end of year tax liability.

If you vary an amount or rate, you will no longer receive paper activity statements and instalment notices. These will be issued electronically. You will need to consider this when deciding how to lodge, revise and vary future activity statements and instalment amounts.

Tip! Talk to your tax adviser if you think you may need to vary your PAYG instalments or if you have made a mistake working out your instalments.

Small business tax offset

A sole trader, an individual who is a partner in a partnership and an individual who is a beneficiary of a trust may qualify for the small business tax offset if the sole trader, partnership or trust qualifies as a small business (total annual turnover under $10m). The offset is not available to an individual acting as a trustee.

The offset for the current tax year (2020–21) is equal to 13% of the income tax payable on the person’s taxable income that qualifies as their net small business income (the rate will increase to 16% from the 2021–22 tax year, i.e. the tax year beginning on 1 July this year). The offset is capped at $1,000.

STP reporting

Employers should be reporting through Single Touch Payroll (STP) unless they only have closely held payees, or they are covered by a deferral or exemption.

There are some changes to STP reporting from 1 July 2021:

small employers (less than 20 employees) with closely held payees must report their closely held payees through STP. You can choose to report these payees each pay day, monthly or quarterly;
the STP quarterly reporting concessions for micro employers (less than 5 employees) will only be available to employers who meet certain eligibility requirements, including the need for exceptional circumstances to exist. Employers can apply for this concession through the online deferral tool from 1 July 2021.

A closely held payee is an individual directly related to the entity from which they receive payments, e.g.:

family members of a family business;
directors or shareholders of a company;
beneficiaries of a trust.

Further changes will start on 1 January 2022. We will advise you of those nearer the date.

Tip! Talk to your tax adviser if you are an employer and you have not started reporting through STP but you do not have a deferral or exemption. You need to start reporting now.

Low and middle income offset

The low and middle income offset (LMITO) is due to be scrapped from 1 July 2021, so it will not be available as from the 2021–22 tax year. LMITO is available for all taxpayers whose taxable income is below $126,000. The maximum amount is $1,080. Taxpayers whose taxable income is in the $48,001-$90,000 range are eligible for the maximum.

Taxable income	Amount of LMITO
$0 – $37,000	$255
$37,001 – $48,000	$255, plus 7.5% of the excess
$48,001 – $90,000	$1,080
$90,001 – 126,000	$1,080, less 3% of the excess
$126,001 +	Nil

If you will receive LMITO for the current tax year, you will lose it (and thus pay more tax) next year. If the Federal government decides to extend LMITO in the Federal Budget for the next tax year (i.e. 2021–22), we will let you know in the special Budget edition of TaxWise® News. The Budget will be handed down on 11 May.

Insolvency reforms

Important changes to Australia’s insolvency laws commenced on 1 January 2021. The Assistant Treasurer has said that they are the most important changes to Australia’s insolvency framework in 30 years.

The changes introduce a new, simplified debt restructuring process for eligible small businesses. The process allows financially distressed small businesses to access a single, streamlined process to restructure their debts, while allowing the owners to remain in control of their business. The Government has said that this will support more small businesses to survive, meaning better outcomes for businesses, creditors, employees and the economy.

Disclaimer

April 12th, 2021|

Coronavirus stimulus measures

This edition of TaxWise is dominated by the Federal government and ATO measures in response to the Coronavirus (COVID-19) pandemic.

The main tax and super measures are:

enhancing the instant asset write-off;
an accelerated depreciation rate;
boosting cash flow for employers;
early release of super; and
reducing the minimum drawdown amounts.

Other measures include:

stimulus payments to households;
additional support for income support recipients; and
guarantee of lending to SMEs.

We will look at these measures in more detail, but contact your tax agent if you have any questions.

The States and Territories have also announced various measures to help people and businesses during the COVID-19 pandemic. Contact your tax agent for advice.

Instant asset write-off

The instant asset write-off threshold has been increased from $30,000 to $150,000 for the period from 12 March to 30 June 2020.

This means a small business (aggregated turnover less than $10 million) – which uses the simplified depreciation rules – can claim the instant asset write-off for a depreciating asset costing less than $150,000 if the asset is first used or installed ready for use in your business on or after 12 March 2020 and before 1 July 2020.

The increased threshold also applies to assets you acquired before 12 March, but you had not used, or installed ready for use, by that date.

Remember that if you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581.

You cannot claim the instant asset write-off for an asset costing between $30,000 and $150,000 if you had used it, or installed it ready for use, before 12 March. For example, if you sell an asset you are already using and buy it back (for between $30,000 and $150,000) you won’t be able to claim the instant asset write-off for the re-purchase.

Small business entities can also claim a deduction for an amount included in the second element of the cost of depreciating assets that are first used or installed ready for use in a previous income year. The amount of the cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.

As a result of the increase in the threshold to $150,000, only assets costing $150,000 or more, and costs of $150,000 or more relating to depreciating assets, need be allocated to the general small business pool. If the balance of the pool falls below $150,000 at the end of the current income year, the entire balance of the pool can be deducted.

Another measure – which does not affect small business – is an increase in the eligibility range for the instant asset write-off from $50 million to $500 million.

Tip! If you are planning to buy a depreciating asset for use in your business, talk to your tax agent first. There is only a 3-month window of opportunity – to 30 June this year.

https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/

Accelerated depreciation

Another Coronavirus measure is an accelerated rate of depreciation for businesses with an aggregated turnover less than $500m. To be eligible for the accelerated depreciation, the depreciating asset must:

be new and not previously held by another entity (other than as trading stock);
be first held on or after 12 March 2020; and
be first used or first installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021 (yes – 2021 – it is not a typo!).

A depreciating asset will not qualify for the accelerated depreciation if:

depreciation deductions have already been applied to the asset or the asset is written off immediately under the instant asset write-off rules;
it will not be used principally in a business in Australia or located in Australia;
it is used in a primary production business (e.g. fencing, fodder storage assets or horticultural plants); or
you were committed before 12 March to acquiring or constructing the asset – you cannot restructure existing contracts to try to get around this rule.

You cannot split an asset or merge assets to try to qualify for the accelerated depreciation.

The rules for working out the accelerated depreciation vary depending on whether or not you use the simplified depreciation rules.

In all cases, you cannot deduct more than what you pay for the asset.

If you are a small business and you use the simplified depreciation rules, those assets over the instant asset threshold which are eligible for the accelerated depreciation are added to the general small business pool. You can deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool. In later years the asset will be depreciated as part of the general small business pool rules.

If you are a small business that does not use the simplified depreciation rules, you will be able to deduct in the income year the asset is first used or installed ready for use:

50% of the cost (or adjustable value where applicable) of the depreciating asset; plus
the amount of the usual depreciation deduction that would otherwise apply but calculated after first offsetting a decline in value of 50%.

Tip! The rules for working out the accelerated depreciation are fairly complicated so speak to your tax agent before investing in new depreciating assets.

https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Backing-business-investment—accelerated-depreciation/

Boosting cash flow for employers

The ATO will provide temporary cash flow support (called the cash flow boost) to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19.

Cash flow boosts are tax free and not subject to GST. You will still be entitled to a deduction for PAYG withholding paid.

Cash flow boosts will not have to be repaid once times improve (although if you are overpaid, the excess will have to be repaid).

How does the cash flow boost work?

Eligibility requirements

You will be eligible to receive the cash flow boost if you are a small or medium business (whether a sole trader, company, partnership or trust) that:

held an ABN on 12 March 2020 and continues to be active;
has an aggregated annual turnover under $50 million – this is generally based on the most recent prior year income tax assessment, but if you do not have any prior year assessments, you may still be eligible if the ATO is satisfied that you are in business and would have an aggregated annual turnover under $50 million; and
made eligible payments you are required to withhold from (even if the amount you need to withhold is zero).

Eligible payments include:

salary and wages;
director fees;
eligible retirement or termination payments;
compensation payments;
voluntary withholding from payments to contractors.

In addition, you must also have either:

derived business income in the 2018-19 income year and lodged your 2019 tax return on or before 12 March 2020; or
made GST taxable, GST-free or input-taxed sales in a previous tax period (since 1 July 2018) and lodged the relevant activity statement on or before 12 March 2020.

The eligibility requirements for not-for-profit organisations are similar.

Initial cash flow boost

You will receive a credit equal to 100% of the amount withheld, up to a maximum of $50,000. The minimum credit will be $10,000, even if the amount required to be withheld is zero. However, you will not be eligible to receive any more cash flow boosts until your PAYG withholding exceeds $10,000 over the relevant periods.

The total of all initial cash flow boosts across all of the relevant periods cannot exceed $50,000.

The initial cash flow boost will be delivered as a credit in the activity statement system from 28 April 2020. If you lodge early (i.e. before 28 April 2020), you will not receive the cash flow boost before that date.

If you lodge quarterly, you will be eligible to receive the credit for:

quarter 3, March 2020 (lodgment due date 28 April 2020); and
quarter 4, June 2020 (lodgment due date 28 July 2020).

Additional cash flow boosts

If you receive an initial cash flow boost, you will receive additional cash flow boosts, for the periods June to September 2020. The amount received will be equal to the total amount of the initial cash flow boost.

If you report quarterly the additional cash flow boosts will be delivered in 2 instalments. So, you will receive 50% of the initial cash flow boost for each BAS.

Delivery of the cash flow boost

You do not need to apply for the cash flow boosts. If you are eligible, the cash flow boosts will be automatically applied to your account when you lodge your BAS for the relevant period. The cash flow boosts will be applied to reduce liabilities arising from the same BAS. This will result in eligible entities being required to pay less to the ATO.

The ATO has said that if you do not need to lodge a BAS in respect of your PAYG withholding, it is working through a solution and will update its website with more information on what you need to do.

Where a credit exceeds your other tax liabilities, the excess amount will be refunded.

You may also receive a refund if you overpay because your system was unable to take the cash flow boost into consideration when working out how much was payable.

The ATO has said that it will generally deliver any refund within 14 days.

Warning

You will not be eligible for cash flow boosts if you (or a representative) take steps to make you eligible for cash flow boosts, or to increase the amount of your cash flow boosts.

This may include restructuring your business or the way you usually pay your workers, as well as increasing wages paid in a particular month to maximise the cash flow boost amount.

Tip! Talk to your tax agent before restructuring your business. There will be other tax issues you need to know about, such as capital gains tax.

https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers/

JobKeeper payment

If your business has been significantly impacted by the Coronavirus you will be able to access a wages subsidy to continue paying your employees. Under the JobKeeper program, you will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum of 6 months.

Employers will be eligible for the subsidy if:

their turnover is less than $1 billion and it will be reduced by more than 30%; or
their turnover is $1 billion or more and it will be reduced by more than 50%.

The reduction in turnover is relative to a comparable period a year ago (of at least a month).

Not-for-profit organisations are eligible for the JobKeeper payment, but not the major banks.

You will have to apply to the ATO to participate in the scheme. You will need to demonstrate the appropriate downturn and you will have to report the number of eligible employees on a monthly basis.

If you are an eligible employer, you will receive the payment for each eligible employee that was on your books on 1 March 2020 and you continue to employ. Part-time employees, stood down employees and long-term casuals are all eligible, as well as full-time employees.

A long-term casual is one employed on a regular basis for at least the previous 12 months as at 1 March 2020.

An employee must be an Australian citizen or the holder of a specified class of visa. Working holiday makers are not covered.

https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet_supporting_businesses_4.pdf

Superannuation measures

Early release of super

Individuals may be able to access their super if adversely affected by COVID-19.

From mid-April, eligible members can apply for a release of up to $10,000 of their super before 1 July 2020. They will also be able to access a further $10,000 from 1 July 2020 until 24 September 2020.

To apply for early release, the member must:

be unemployed;
be eligible to receive a jobseeker payment (previously called Newstart allowance), youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
on or after 1 January 2020, have been made redundant or had their working hours reduced by 20% or more or, if a sole trader, have had their business suspended or suffered a reduction in turnover of at least 20%.

If you are a member of an SMSF, you can apply through myGov from mid-April. If eligible, the ATO will issue a determination advising of your eligibility which you must pass on to the SMSF.

Tip! Use this measure as a last resort. Money taken from your super fund now will reduce the amount available once you retire.

Don’t forget SMSF trustees are responsible for the members’ retirement savings. If you are an SMSF trustee, please make sure the member is eligible for early release of super before you release any funds.

Reducing the minimum drawdown amounts

To assist retirees, the government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities. The minimum amounts have been reduced by 50% for the 2019-20 and 2020-21 financial years.

If the minimum drawdown amount has already been paid, payments can be stopped for the remainder of the year. If you have received more than the minimum drawdown amount, you can recontribute these amounts if you are eligible to make superannuation contributions (subject to other rules or limits such as contributions caps).

Tip! Speak to your financial adviser before making any decisions affecting your super.

https://www.ato.gov.au/Super/Sup/Government-s-COVID-19-economic-response-assists-SMSFs-and-their-members/

Social security measures

The government has also announced a number of temporary social security measures as part of its Coronavirus stimulus strategy. These are:

a Coronavirus supplement to be paid at a rate of $550 per fortnight for 6 months. This will be paid to both existing and new recipients of jobseeker payment (formerly Newstart allowance), youth allowance jobseeker, parenting payment, farm household allowance and special benefit;
for 6 months permanent employees who are stood down or lose their employment, sole traders, the self-employed, casual workers and contract workers who meet the income tests as a result of the economic downturn due to COVID-19 will be able to access jobseeker payment and youth allowance jobseeker (this could also include a person required to care for someone who is affected by COVID-19);
asset testing for jobseeker payment, youth allowance jobseeker and parenting payment will be waived for the period of COVID-19 supplement, although income testing will still apply to the person’s other payments, consistent with current arrangements;
the one-week Ordinary Waiting Period has been waived; and
2 separate $750 payments to social security, veteran and other income support recipients and eligible concession card holders. The first payment will be made from 31 March 2020 and the second payment will be made from 13 July 2020. The second payment will not be made to those eligible for COVID-19 supplement.

Go to the Services Australia website for more information about claiming these additional benefits.

https://www.servicesaustralia.gov.au/individuals/subjects/affected-coronavirus-covid-19

Social security deeming rates

The Government has announced a 0.75 percentage point reduction in both the upper and lower social security deeming rates.

As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%.

Other Federal government measures

Other government measures to assist financially distressed individuals and businesses include:

temporarily increasing from $5,000 to $20,000 in the minimum amount of debt required to be owed before a creditor can initiate involuntary bankruptcy proceedings against a debtor;
temporarily extending the time for a debtor to respond to a bankruptcy notice from 21 days to 6 months; and
temporarily extending from 21 days to 6 months the timeframe in which a debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition.

The government will also enter into risk-sharing agreements with financial institutions to ensure that credit continues to flow to small and medium enterprises so they can continue to meet their immediate financing needs during the uncertain economic conditions caused by COVID-19.

What is the ATO doing?

PAYG instalment variations

The ATO will allow businesses impacted by COVID-19 to vary PAYG instalment amounts as from the March 2020 quarter.

A quarterly PAYG instalments payer can vary their PAYG instalments on their BAS for the March 2020 quarter. This can be done by lodging a revised BAS before an instalment is due, and before the business lodges its income tax return for the year.

Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.

Changing to monthly reporting

The ATO will allow businesses on a quarterly reporting cycle to opt into monthly GST reporting to get quicker access to any GST refunds. Changing the GST reporting cycle to monthly doesn’t mean that a business has to change its PAYG withholding reporting cycle. Rather, business can manage this by specifying the roles it is changing.

Once a business chooses to report and pay GST monthly, the ATO says it must keep reporting monthly for 12 months before it can elect to revert to quarterly reporting.

Other measures

Other ATO administrative measures to assist businesses impacted by COVID-19 are:

deferring by up to 4 months the payment of BAS amounts (including PAYG instalments), income tax, FBT and excise;
remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities; and
allowing affected businesses to enter into low-interest payment plans for their existing and ongoing tax liabilities.

These assistance measures will not be implemented automatically by the ATO (unlike the relief measures for the 2019-20 bushfires – see below). Therefore, if you are an individual, sole trader, small or medium business and you need further assistance managing your tax and super obligations, contact the ATO Emergency Support Infoline (tel: 1800 806 218) or talk to your tax agent. Once you or your agent contacts the ATO, a support plan will be tailored for you.

The ATO has set up a “one stop shop” on its website for essential tax and super info on Coronavirus stimulus measures.

Here is the link to the COVID-19 page.

https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/COVID-19/

ATO bushfire support

The media may have moved on from the terrible bushfires of last year and early this year to another crisis, but many living in bushfire affected areas are still severely impacted.

The ATO has implemented a number of administrative measures for those who live in one of the identified impacted postcodes listed on the ATO website.

Here is the link to the postcodes: https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/Bushfires-2019-20/?anchor=Ifyourpostcodeisnotinthislist#Ifyourpostcodeisnotinthislist

These administrative measures include:

automatic deferrals for lodgment of income tax, SMSF, FBT and excise returns and activity statements, and their associated payments, until 28 May 2020 (so there is no need to apply for a deferral) – although you can lodge sooner if you want;
automatic priority for any refunds due – the ATO can give you a refund when you lodge, which it would normally use to reduce or pay down a debt;
the remission of interest and penalties applied to tax debts since the commencement of the bushfires;
the suspension of debt recovery action – for taxpayers with a tax debt or outstanding obligation, the ATO will not institute recovery action until at least 28 May 2020; and
the temporary suspension of current audit activity.

The ATO can also:

give you extra time to pay a tax debt;
help you find your lost tax file number (TFN);
re-issue income tax returns, activity statements and notices of assessment;
help you re-construct tax records lost or damaged in the bushfire;
set up a payment plan tailored to your circumstances including an interest-free period;
give you more time to meet SMSF lodgments and payment obligations.

https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/Bushfires-2019-20/

PAYG instalments

If you pay PAYG instalments quarterly, you can vary your PAYG instalments to nil on your activity statement for the December 2019 quarter. You can do this by lodging a revised activity statement before you lodge your income tax return for the year.

You can also vary your PAYG instalments in future periods. The ATO won’t apply penalties or charge interest to varied instalments for taxpayers within the impacted postcodes in the 2019–20 financial year.

If you’ve already lodged any quarterly activity statements for 2019-20, you can claim a credit (at item 5B) on your next activity statement for the instalment amount you paid in the previous quarters, to receive a refund of the amount paid.

You can also revise your latest lodged activity statement to nil and claim a credit for amounts previously paid.

If you realise you’ve made a mistake working out your PAYG instalment, you can correct it by lodging a revised activity statement or varying a subsequent instalment.

Of course, you may also be eligible for COVID-19 PAYG instalment concessions mentioned above.

Not in an affected postcode?

If you are impacted by the bushfires but you are not in an affected postcode (as included in the list on the ATO website), you can call the ATO’s Emergency Support Infoline on 1800 806 218 for assistance. The Commissioner of Taxation, Mr Chris Jordan, has said that he expects ATO staff to be “flexible, reasonable and pragmatic” when considering each request for assistance.

Super guarantee amnesty

The super guarantee (SG) amnesty is now official. Under the amnesty, employers have a 6-month window until 7 September this year to disclose, lodge and pay unpaid SG amounts for their employees.

To be eligible for the amnesty, you must declare and pay your SG shortfalls and interest charges. Payments made during the amnesty can be claimed as tax deductions.

SG shortfalls for any quarter between 1 July 1992 and 31 March 2018 may be eligible for the amnesty if they haven’t been disclosed previously or aren’t subject to a current or previous audit.

Applications for the amnesty close at 11.59pm on 7 September 2020. The closing date cannot be changed, even if you are impacted by bushfires or COVID-19.

After the amnesty ends, the ATO’s ability to remit penalties applied as a result of an audit is limited by law. This means shortfalls will have a minimum penalty of 100% applied but can be as much as 200%.

The ATO has also said that its audit program will continue during the amnesty period.

How to apply for the amnesty

To apply for the amnesty, you must lodge one approved SG amnesty form (XLS 613KB) per quarter. Do not use the SGC calculator in the Business Portal. The ATO website contains detailed instructions.

https://www.ato.gov.au/Business/Super-for-employers/Superannuation-guarantee-amnesty/

If you previously disclosed unpaid SG to the ATO in anticipation of the SG amnesty, you don’t need to lodge again or apply on the SG amnesty form. The ATO will review all disclosures received between 24 May 2018 and 6 March 2020 and advise you of your eligibility. The $20 per employee per quarter administration charge will be refunded if you meet the amnesty criteria.

Payment plan

The ATO has said that it will work with employers to establish a payment plan that is flexible to help them to continue making payments. These arrangements include:

flexible payment terms and amounts which the ATO will adjust if circumstances change;
the ability to extend the payment plan to beyond 7 September 2020, the end of the amnesty period – only payments made by 7 September 2020 will be deductible.

It is important to note that if you agree a payment plan with the ATO, but you are unable to maintain payments, you will be disqualified from the amnesty and the amnesty benefits will be removed. The disqualification will only apply to any unpaid quarters – the administration component of $20 per employee will be re-applied. The ATO will take your circumstances into account when deciding whether a Part 7 penalty should be applied.

Tip! Your tax agent can provide further advice on participating in the amnesty, based upon your particular circumstances

Disclaimer

April 5th, 2020|

HEADING

It’s Tax Time again!

It’s that time of year again – time to pull out all your tax records and do your tax return.

This edition of TaxWise outlines some tax changes for 2018-19 that should be considered by individuals when they are preparing their tax returns for 2018-19. There are also some tax tips and lodgment dates that taxpayers may find helpful when preparing their returns.

There have been some tax changes for individuals for 2018-19 in relation to:

Low and middle income tax offset (LMITO);
Downsizer contributions to superannuation;
First Home Super Saver scheme (FHSS); and
PAYG summaries (Group Certificates).

Low and middle income tax offset

In the 2019-20 Federal Budget, the Government announced it would increase the LMITO for the 2018-19 income year by increasing the base amount from $200 to $255 and the maximum amount from $530 to $1,080.

The ATO has indicated that taxpayers do not have to claim this offset. The ATO will work it out for taxpayers when their tax return is lodged.

The LMITO can reduce the amount of tax a taxpayer pays.

Downsizer contribution to superannuation

If you are selling your home, you should consider the superannuation downsizer contribution rules.

Subject to certain eligibility requirements, from 1 July 2018, individuals aged 65 years old or older may choose to make a downsizer contribution of up to $300,000 into superannuation from the proceeds of selling their primary residence.

The contract for the sale of their primary residence must be entered into on or after 1 July 2018.

There are certain reporting requirements that need to be complied with if an individual is making a downsizer contribution to superannuation.

Note! Age and work test restrictions do not apply to downsizer contributions.

First home super saver scheme

If an individual has requested the release of an amount under the FHSS scheme during the 2018-19 income year, the individual must include the following amounts in their 2018-19 tax return:

any assessable FHSS amount; and
the tax withheld amount.

Individuals will receive a payment summary from the ATO showing these amounts.

PAYG Summary (Group Certificates)

Many individuals will no longer receive a Payment Summary (Group Certificate) from their employer due to the introduction of Single Touch Payroll.

Individuals will find they have an ‘Income Statement’ through their myGov account. This is due to employers now reporting in real time through Single Touch Payroll. However, not all employers are reporting through this system yet. It only became compulsory for smaller employers from 1 July 2019. ■

5 tax tips for individuals

A few common areas that can trip individuals up when they are preparing their tax returns are:

including all assessable income;
ensuring expenses claimed are deductible;
determining whether superannuation contributions are deductible;
determining Australian tax residency status; and
keeping the right records to support your claims.

Assessable income

Amounts that are usually characterised as assessable income include:

salary and wages;
bank interest;
dividends;
interest from term deposits; and
rent from investment properties.

If you receive amounts in relation to the following types of activities, you may have to include the amounts in your assessable income:

receipts from Uber;
online selling; and
receipts from Airtasker.

When determining whether an amount you receive is assessable income, it is important to ask the correct questions to ensure that the income is correctly classified. For example, in relation to a hobby, you need to determine if the activity is a hobby or whether it is in fact a business. Questions about the characterisation of receipts from the sharing economy are common.

Assessable income and the sharing economy

More and more people are using and providing services through the sharing economy.

The ATO describes the sharing economy as economic activity through a digital platform (such as a website or an app) where people share assets or services for a fee.

Receipts from services or assets provided through the sharing economy may need to be included in an individual’s assessable income.

Common sharing economy activities include:

ride-sourcing for a fee through platforms such as Uber or GoCatch;
renting out a room, house or unit on a short-term basis, through platforms such as Airbnb and HomeAway;
sharing assets such as cars, car parking spaces or storage space through platforms such as Car Next Door; and
providing personal services such as creating websites or performing odd jobs through platforms such as AirTasker.

The ATO’s position in relation to such receipts is that:

income earned from ride-sourcing, including fares, tips and bonuses from any ride-sourcing platform (such as the Uber ‘driver appreciation reward’ payments), is assessable income;
income earned from renting or sharing assets through a digital platform is assessable; and
income earned from providing your time, labour or skills (services through a digital program for a fee) is assessable income.

Tip! If you are active in the sharing economy, you will need to consider what amounts need to be included in your assessable income. Your tax adviser can explain these issues to you and help you determine what is assessable.

Deductible expenses

Determining whether expenses are deductible can be confusing. Areas where mistakes commonly occur in relation to claiming deductions for expenses include:

Expense	General tax treatment – Note: advice is needed on the specific treatment
Work related deductions: phone, internet and professional subscription costs	These need to be expenses that are actually incurred and can be substantiated. You cannot automatically claim a $300 deduction for work related expenses.
Travel costs to/from work: claiming the cost of travelling between work and home	Generally, not deductible.
Car expenses: for a car used for work (attending meetings/conferences away from your usual work place or delivering/collecting work supplies)	If you use your car for work, you need to keep records to substantiate your claim. You will also need to apportion private and business use of the car.
Reimbursed expenses: claiming for expenses funded or reimbursed by your employer	Generally, not deductible.
Home office expenses: internet, computer, phone, stationary, lighting and heating expenses	These expenses need to be apportioned between personal and business use.
Self-education expenses: textbooks, courses, stationery and computers	These expenses must relate to your current work as an employee, not education to enable a future career change.
Capital expenses: claiming a deduction for expenses that add to the capital value of an asset	Generally, not deductible.
Donations: claiming for donations made to an organisation that is not a Deductible Gift Recipient (DGR)	Generally, not deductible.

There are many deductions that are complex and difficult to determine eligibility. One area where we often see questions being asked is rental property deductions.

Deductions and rental properties: Repairs vs improvements

What constitutes a repair? What constitutes an improvement? And when does a repair become an improvement?

It is clear that the area of deductions in respect of repairs to investment properties continues to be problematic.

In this context, it is critical to distinguish between:

Ongoing repairs, which are deductible;
Initial repairs, which are not deductible; and
Improvements, which are not deductible.

If the amount in question falls into the category of initial repairs or improvements, the amount in question is not deductible. However, it would be considered as expenditure that may qualify for depreciation purposes, capital works purposes, or as part of the cost base for CGT purposes.

An amount of expenditure would constitute initial repairs if the asset was in disrepair at the time of its acquisition, and before letting out the property, the owner carried out the repairs.

What is a repair?

The more problematic issue is the distinction between repairs and improvements.

Repairs generally involve a replacement or renewal only of a worn out or broken part, or relate directly to wear and tear or other damage that occurred as a direct result of renting out the property.

Common repairs would include things like replacing broken windows, repairing electrical appliances or machinery, and replacing worn guttering and fences. It might also extend to work done to prevent deterioration, such as painting a rental property, or cleaning something which is otherwise in good working order.

What is an improvement?

By contrast, improvements go further. They fundamentally change the property that previously existed in some meaningful way rather than maintaining and merely repairing the property.

Extensive landscaping or adding a deck to a property would ordinarily constitute an improvement. To put it another way, if what has occurred is more than merely restoring what previously existed to its original condition, it is likely to be treated as an improvement and therefore not deductible.

In trying to evaluate whether an amount of expenditure is an improvement, consider the following two questions:

Does the expenditure give rise to a material increase in the efficiency in the functioning of the property?
Does the expenditure give rise to a material increase in the value of the asset?

If the answer to either of these is yes, it is likely that there is a capital improvement which is not deductible.

Some important cases where there is an improvement rather than a repair include:

The replacement of a dilapidated ceiling with an entirely new and better ceiling;
The replacement of a rotten wooden floor with a better, longer lasting, and more moisture resistant concrete floor; and
The replacement of cupboards as part of the refurbishment of an entire kitchen.

Clearly, this is an area that causes much confusion and compliance can be problematic. Taxpayers need to be careful to ask the right questions and ensure their answers are properly considered with a reasonable degree of objectivity.

Tip! Your tax adviser can assist you in determining what expenses are in fact deductible.

Residency

With the workforce becoming more and more mobile, there will be more questions about tax residency.

When determining whether an individual needs to file a tax return and pay tax in Australia, you first need to assess whether the individual is a resident for tax purposes. The test for tax residency is not the same for all Government agencies. Some taxpayers may think that they are not Australian residents when in fact they might be!

As a starting point, taxpayers should consider how many days they reside in Australia during the year. Taxpayers tend to rely on the ‘183 day’ test. However, a taxpayer that resides in Australia for less than 183 days during the financial year may still be a resident for tax purposes.

Note! Are you on a working holiday? Then separate rules apply to you. Residency can be complex. Individuals should seek advice if they are unsure of their residency status.

Superannuation contributions / caps

Individuals can add to their super by making their own personal super contributions to their super fund.

Personal super contributions come from your after-tax income (that is, from your take-home pay).

You cannot claim a deduction for superannuation contributions:

paid by your employer;
the compulsory superannuation guarantee; or
salary sacrifice amounts.

However, certain personal superannuation contributions may be deductible.

From 1 July 2017, employees can generally claim a deduction for personal super contributions they make to their super until they turn 75.

Individuals who are aged between 65 and 74 will need to meet the work test to be eligible to claim the deduction. For the 2019-20 income tax year, there will be a one-year work test exemption. If you are over 65 and not working, you should ask your tax adviser about this exemption if you are considering making a super contribution.

Personal super contributions count towards concessional contributions caps. Your employers’ contributions plus any amount salary sacrificed to super will also count towards concessional contributions caps. This is an extremely complex area of the tax law. Basically, the contribution caps limit the amount that can be contributed to super each financial year.

The concessional contributions cap is $25,000 for the 2018-19 income tax year. If your contributions are greater than the cap you may have to pay more tax.

There are also caps on your non-concessional contributions cap. Your non-concessional contributions include super contributions for which you are not entitled to a deduction. For 2018-19, the annual non-concessional contributions cap is $100,000 for individuals with super balances of less than $1.6 million on 30 June 2018. If you exceed your non-concessional contributions cap you may have to pay more tax.

Tax records

To prepare your tax return, you need to keep careful records.

Your tax records should include (but are not limited to) records to show:

Your assessable income – ie, payments you have received;
Your deductions – ie, expenses related to payments you have received;
Acquisitions or disposals – such as shares, rental property, your main residence; and
Tax-deductible gifts and donations. ■

Mistakes happen!

It is a reality of life that mistakes happen. It is especially true in the world of tax. The Australian tax system is complex and as a result mistakes can and do happen.

So, what should you do if you have made a mistake?

The first step is to contact your tax practitioner. Your tax practitioner will be able to advise you on the best course of action to rectify a mistake.

You can make a voluntary disclosure to the ATO about the mistakes. You may also be able to amend your return.

Tip! Tax is an extremely complex area – even tax practitioners find it complex. The best way to help ensure that your tax return is correct is to contact your tax agent.

Ask questions, get advice and get it right the first time!

Key dates for lodgment and payment

Here are some key dates for you to keep in mind when lodging and paying tax in relation to individual returns. You should talk to your tax adviser to determine which date is relevant to you.

The lodgment due dates as set out on the ATO website are:

Lodgment due date	Entity description
31 October 2019	Tax return for all individuals and trusts where one or more prior year tax returns were outstanding as at 30 June 2019.
31 March 2020	Tax return for individuals and trusts whose latest return resulted in a tax liability of $20,000 or more (excluding large/medium trusts).
15 May 2020	Tax returns for all remaining individuals and trusts not required earlier and not eligible for the 5 June concession (including new registrations).
5 June 2020	Subject to certain requirements, there is a concession that allows certain individual tax returns to be lodged by 5 June without penalty, provided that any payment required is also made by this date.

The ATO website sets out the payment dates for individual and trust tax returns with a due date other than 15 May 2020 as follows:

Due dates for payment of individual and trust income tax assessments when tax returns must be lodged by any date other than 15 May 2020
If…	then…
the tax return is lodged on or before the lodgment due date	payment will be due on the later of 21 days after the: relevant lodgment due date, or notice of assessment is deemed received (which is three days after issue).
the tax return is lodged late	any tax is payable 21 days after the due date for lodgment.
the tax return is not lodged at all and a default assessment is issued	any tax is payable 21 days after the due date for lodgment.

Note! In relation to individual tax returns due 15 May 2020, staggered payment date arrangements exist. You should consult your tax practitioner for details.

Disclaimer

September 4th, 2019|

Investing in Bitcoin? Know the tax implications

A bit confused about Bitcoin? What is it and what does tax have to do with it?

Here, we share a few key facts and the tax consequences that may arise if you are thinking about investing (or have already invested) in Bitcoin.

Note! Any reference to Bitcoin in this article refers to cryptocurrency, or other crypto or digital currencies that have the same characteristics as Bitcoin.

Cryptocurrency (and Bitcoin) explained

Bitcoin was the first cryptocurrency but now, it is just one of many types of cryptocurrencies. As at 2017, there were around 1,100 different cryptocurrencies in existence.

Cryptocurrencies are a type of global digital currency that uses encryption techniques to buy or sell items. Where traditional currencies are regulated by a central bank, Bitcoin is an unregulated currency. Each transaction is registered on a shared public ledger called a ‘blockchain’.

Tip!

Be aware of tax scammers impersonating the ATO and demanding Bitcoin or other cryptocurrency as a form of payment for fake tax debts. Cryptocurrency operates in a virtual world, and once the scammers receive payment, it is virtually impossible to get it back.

Is Bitcoin money or an asset?

The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is treated as an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes.

Capital gains tax implications

CGT ‘events’ are the different types of transactions that may result in a capital gain or capital loss. A CGT event happens when you dispose of your cryptocurrency.

Disposing of your cryptocurrency means:

selling, trading or exchanging your cryptocurrency;
converting it to Australian dollars; or
using it to obtain goods or services.

If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

What if you acquire Bitcoin as a personal use asset?

Personal use of cryptocurrency is not subject to income tax or GST in Australia.

Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Note!

Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
All capital losses you make on personal use assets are disregarded.

What if you acquire Bitcoin as an investment?

If you acquire Bitcoin as an investment, it means you have kept or used your cryptocurrency in a profit-making scheme or in the course of carrying on a business.

The tax consequences are:

you may have to pay tax on any capital gain you make on disposal of the cryptocurrency;
you will not be entitled to the personal use asset exemption;
if you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.

Tip! You must keep records of:

the date of transactions
the value of the cryptocurrency in Australian dollars at the time of the transaction
what the transaction was for and who the other party was.

Claiming deductions if you’re carrying on a business?

Examples of businesses that involve cryptocurrency include:

cryptocurrency traders
cryptocurrency mining businesses
cryptocurrency exchange businesses (including ATMs).

In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you receive money or property in the ordinary course of your business.

If these gains or profits are ordinary income, you may be able to claim deductions. Any capital gains you make are reduced to the extent that they are also ordinary income.

Note! Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income.

A reminder to SMSF trustees investing in Bitcoin

While self-managed superannuation funds (SMSFs) are not prohibited from investing in Bitcoin and other cryptocurrencies, trustees are reminded that the investment must:

be allowed for under the fund’s trust deed
be in accordance with the fund’s investment strategy

comply with regulatory requirements concerning investment restrictions.

ATO cracking down on your work-related expenses!

Did you know that the ATO scrutinises every tax return?

This year, the ATO is cracking down on taxpayers claiming incorrect ‘other’ work-related expenses. It’s important to make sure you don’t claim more than you are entitled to!

The ATO uses real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.

4 quick points to remember when claiming work-related expenses

To claim work-related expenses, keep in mind these 4 points:

You must have spent the money yourself.
You were not reimbursed for the money spent.
The expense must be directly related to earning your income.
You must have a record to prove it.

Work expenses reimbursed to you by your employer are not deductible in your personal income tax return. The ATO can seek information from your employer if it suspects you have claimed as a deduction an expense for which you have already been reimbursed.

Tip!

If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

11 deductions you (probably) can’t claim

Trips between home and work. Generally, you can’t claim a deduction for these because they’re considered private travel.
Car expenses for transporting bulky tools or equipment, unless:
1. you need to use your bulky tools to do your job
2. your employer requires you to transport this equipment
3. there is no secure area to store the equipment at work.

Car expenses that have been salary sacrificed.
Meal expenses for travel, unless you were required to work away from home overnight.
Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.
Everyday clothes you bought to wear to work (e.g. a suit), even if your employer requires you to wear them.
A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.
Higher education contributions charged through the HELP scheme.
Self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count.
Private use of phone or internet expenses – only the work-related portion counts.
Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years, which is called depreciation.

Claiming the cost of repairs on a rental property? What you can and can’t claim

Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.

The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.

Repairs vs maintenance

Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).

Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).

Tip!

If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.

Expenses that you can immediately deduct

You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.

If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.

Expenses for which you may be entitled to claim an immediate deduction include:

advertising for tenants
body corporate fees and charges
council rates
water charges
land tax
cleaning
gardening and lawn mowing
pest control
insurance (building, contents, public liability)
interest expenses
property agent’s fees and commission
repairs and maintenance
some legal expenses
travel undertaken to inspect the property, to collect the rent or for maintenance.

Expenses that you can’t immediately deduct

You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).

These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

Note!

Improvement means work that:

provides something new
furthers the income-producing ability or expected life of the property
changes the character of the item you have improved
goes beyond just restoring the efficient functioning of the property.

How this works!

Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.

Are you risking your retirement savings?

If you’re planning for your retirement, don’t risk your nest egg by getting involved in arrangements that are at odds with tax and superannuation laws!

The ATO has identified a range of new arrangements that are directed towards minimising or avoiding tax. They are designed to help individuals and other related entities to minimise their tax bill by channelling money inappropriately through SMSFs.

If you are involved in an illegal arrangement, you can face severe penalties under tax and super laws. You could lose your retirement savings or your rights, as a trustee, to manage your own super fund.

Often these arrangements are structured in a way so that they appear to satisfy regulatory rules while minimising tax or even providing a tax refund. You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting.

Tip! Seek independent advice from a trusted SMSF tax adviser before entering into ‘too good to be true’ arrangements!

Disclaimer

April 13th, 2018|

It’s TaxTime 2017! What you need to know about the key changes

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time.

Claiming work-related expenses?

The ATO is paying attention to people who are over-claiming work-related expenses.

To get your deductions right, you need to satisfy the following rules:

you must have spent the money and were not reimbursed;
it must be directly related to earning your income, and not of a private nature;
you must have a record to prove it.

To do!

Talk to your tax agent about any claims you would like to make in your tax return. They will be able to assist you to ensure you get them right!

myDeductions - a record keeping tool

If you are a sole trader and have simple tax affairs, the ATO’s myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

To learn more, visit the ATO website.

Tip!

While the online tools for lodging tax returns are improving for individuals, your tax agent is most experienced in preparing and lodging tax returns.

For specialist advice and to ensure you claim the right deductions for you, please see your tax agent. Getting your tax return wrong could be costly for you.

Housing tax deductions

Disallowing travel deductions and limiting depreciation deductions

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

To do!

If you own a rental property, talk to your tax agent about whether these changes affect you in any way.

ATO warning on holiday rental properties

The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.

Claiming deductions for your holiday home?

Make sure it is genuinely available for rent by answering these four questions:

How do you advertise your rental property?
What location and condition is your rental property in?
Do you have reasonable conditions for renting the property and charge market rate?
Do you accept interested tenants, unless you have a good reason not to?

Changes to capital gains withholding rules for foreign and Australian residents

The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

for real property disposals where the contract price is $750,000 and above (previously $2 million);
the FRCGW withholding tax rate is now 12.5% (previously 10%).

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.

Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Main residence exemption

From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017, the Government will 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, the principal asset test will apply on an associate inclusive basis.

Housing-related superannuation measures

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing” contribution into superannuation.

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

Superannuation - Key rates and thresholds

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions.

For the 2017-18 income year, the:

concessional contribution cap is $25,000
non-concessional contribution cap is $100,000 (conditions apply)
CGT cap amount is $1,445,000
Div 293 tax threshold amount is $250,000
low rate cap amount is $200,000
ETP cap for life benefit termination payments is $200,000
ETP cap for death benefit termination payments is $200,00.

The full list of rates and thresholds can be found on the ATO website.

Do the super changes affect you?

Most of the changes to the superannuation system commenced on 1 July 2017.

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

Superannuation changes to be aware of

i) Change to personal super contributions deductions

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition.

From 1 July 2017, the 10% work test for claiming a deduction for personal super contributions will be removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

ii) Changes to concessional contributions – constitutionally protected and unfunded defined benefit funds

From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap.

The ATO has released information on the following topics, which can be accessed on the ATO website.

What are CPFs and unfunded defined benefit funds?
What are the changes?
New rules for accumulation interests
New rules for defined benefit interests
Excess concessional contributions.

iii) Removal of election to treat super income streams as lump sums

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes.

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change.

iv) New transfer balance cap – child death benefit recipients

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams.

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18).

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests.

v) New transfer balance cap – death benefit income streams

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams.

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary:

reversionary – the income stream reverts to you automatically upon the member’s death
non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these).

vi) Transfer balance account – credits and debits

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

Note!

There have been a lot of changes to the superannuation rules recently. It is worth sitting down with your tax adviser or tax agent to discuss how these changes might affect you.

Tax incentives for early stage investors

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

non-refundable carry forward tax offsetequal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

Stop! Scammer time!

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time.

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year.

For tips on how to avoid tax time traps, visit the ATO website.

Claiming the HECS-HELP benefit

If you have graduated from studies in early childhood education, maths, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit.

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments.

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

Notice of an update to ATO data matching program

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611.

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program.

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years

Changes to Medicare Levy and Medicare Levy Surcharge

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 to increase:

the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
the Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
the Medicare levy surcharge low-income threshold in line with movements in the CPI.

In addition:

The singles threshold will increase from $21,335 to $21,655.
The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
The single seniors and pensioners threshold will increase from $33,738 to $34,244.

The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

GST on low value imported goods – Summary of reforms

The Government has passed the Treasury Laws Amendment (GST Low Value goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018.

Businesses that meet the registration threshold of A$75,000 will need to take action now to review their business systems to ensure that they are able to comply.

The existing processes to collect GST on imports above $1,000 at the border are unchanged.

In summary, the reforms:

make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier;
treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator;
treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer;
allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and
prevent double taxation.

More information on the new GST on low value imported goods can be found on the ATO website.

Certainty for stakeholders who rely on ATO systems

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking.

Disclaimer

September 6th, 2017|

FBT changes: salary packaged meal and other entertainment benefits

As the current FBT year ends on 31 March 2016 and a new one begins on 1 April 2016, there are a number of upcoming changes to salary packaged meal and other entertainment benefits that employees need to be aware of, including:

i) Changes for employees
From 1 April 2016, there are changes to the FBT treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits (meal and other entertainment benefits). Some of the changes will affect all employees, while others will affect employees of not-for-profit organisations.

The following applies to all employees:

all salary packaged meal and other entertainment benefits are reportable and will be included on the payment summary where the reporting exclusion threshold is exceeded; and
the 50-50 split method and 12-week register method cannot be used by the employer for valuing salary packaged meal and other entertainment benefits which may affect how much an employee can salary package.

ii) Specific changes for Not-for-profit employees

For employees who work for a not-for-profit employer:

a separate single grossed-up cap of $5,000 will apply for salary packaged meal and other entertainment benefits for employees of not-for-profit organisations able to access a general FBT exemption or rebate ($31,177 or $17,667 exemption; or $31,177 rebate); and
the amount of those benefits exceeding the separate grossed-up cap of $5,000 are included in calculating whether the value of all benefits an employee receives exceeds the general FBT exemption or rebate cap.

This means that from 1 April 2016 employees can receive such benefits worth between $2,329.59 and $2,549.98 (depending on whether the employer is entitled to GST credits) without exceeding the $5,000 cap.

Other FBT updates

1) FBT implications over the festive season

The ATO reminded employers over the festive season that employers who provide entertainment to their employees during the festive season (or at any other time of the year) should remember to think about the following:

when providing food, drink or recreation may be considered ‘entertainment’;
whether the entertainment is subject to fringe benefits tax (FBT); and
the methods available for valuing entertainment fringe benefits.

Depending on the sort of entertainment that your employer provided to you as an employee, there may be different FBT implications which may need to be included in your 2015-16 Payment Summary.

To do!

Talk to your tax adviser about the entertainment you may have received from your employer over the festive season (Did you have a Christmas party? Did you receive a gift from your employer?) if you are concerned with how this might impact your 2015-16 tax return.

2) FBT exemptions for work-related electronic devices

From 1 April 2016, small business employers (with turnover of less than $2 million) will be able to provide employees with multiple electronic devices to use for work without incurring a fringe benefits tax (FBT) liability.

Employers can provide to employees:

mobile phones
tablets
laptops
calculators
GPS navigation receivers.

If you need more than one device for work, talk to your employer about having them provided to you, but note they won’t be able to provide you with multiple devices until 1 April 2016 or they will be subject to FBT

Note that providing these devices may be a benefit in addition to or part of your salary or wages package.

To do!

If you are planning on requesting multiple devices from your employer, talk to your tax adviser first to find out how the FBT rules may impact this.

Car expense substantiation methods simplified

To simplify the car expense deduction rules, from 1 July 2015, the government has abolished the one-third of actual expenses method and 12% of original value method. The cents per kilometre method (with the existing 5,000km cap) and the logbook method (with unlimited kms) remain.

The cents per kilometre method has been simplified to use a standard rate of 66 cents per kilometre for the 2015-16 income year, rather than a rate based on the engine size of the car. The Commissioner will set the rate for future income years.

The ATO has advised employers to be aware that the ATO set the approved PAYG withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015. Employers should withhold from any amount above 66 cents for all future payments of a car allowance. Failure to do so may result in the employee having a tax liability when he or she lodges a tax return.

Employees who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.

See your tax professional if you require more information about this change.

Superannuation rates and thresholds for 2016-17

The ATO has released the key superannuation rates and thresholds for 2016-17. The rates apply to contributions and benefits, employment termination payments, super guarantee and co-contributions and include the following:

i) Concessional contributions cap

The general concessional contributions cap is $30,000 for those aged under 49 years old. A higher cap of $35,000 applies to those aged 49 years or over on 30 June 2015.

ii) Non-concessional contributions cap

The non-concessional contributions cap is $180,000.
People aged under 65 years may be able to make non-concessional contributions of up to 3 times their non-concessional contributions cap for the year, over a three-year period. This is known as the “bring-forward” option.

iii) Maximum superannuation contribution base

The maximum superannuation contribution base for 2016-17 is $51,620 per quarter.

iv) Superannuation co-contributions

If you are an eligible low or middle income earner and make personal (after-tax) contributions to your super during a financial year, the government will match your contribution with a co-contribution up to a certain amount. The maximum superannuation co-contribution entitlement for the 2016-17 year remains at $500. However, the lower income threshold increases to $36,021 and the higher income threshold increases to $51,021.

A summary of the past 5 years’ relevant income thresholds is below:

Financial year   Lower income threshold   Higher income threshold   Maximum entitlement
2016-17   $36,021   $51,021   $500
2015-16   $35,454   $50,454   $500
2014-15   $34,488   $49,488   $500
2013-14   $33,516   $48,516   $500
2012-13   $31,920   $46,920   $500

Lost and unclaimed superannuation

In the 2015-16 Federal Budget, the government announced it will implement a package of
measures to reduce red tape for superannuation funds and individuals by:

removing redundant reporting obligations; and
streamlining lost and unclaimed superannuation administrative arrangements.

The changes are intended to make it easier for individuals to be reunited with their lost and unclaimed superannuation.

The Treasury will work with the ATO and superannuation industry stakeholders to implement these changes, which will be rolled out progressively from 31 December 2015. For a detailed description of the proposed changes please visit the ATO website.

Work-related car expenses, third party reporting and other measures – amendments now law

In previous editions of TaxWise, we noted changes that were going to occur in the following areas:

work-related car expenses;
Zone Tax Offset;
FBT concessions on salary packaged entertainment benefits; and
third party reporting.

The changes have now become law. See earlier editions of TaxWise (and above in relation to the FBT concessions on salary packaged entertainment benefits and work-related car expenses) for details of the changes.

Note!

If you think any of these changes may affect you, speak to your tax adviser who will be able to advise you if these changes impact your personal circumstances.

Accessing business profits through an interposed partnership with a private company partner - TA 2015/4

On 12 November 2015, the ATO issued a Taxpayer Alert about arrangements where a purported partnership with a private company partner is used to enable individuals to access business profits without paying top-up income tax at their marginal rates of tax: TA 2015/4 (12 November 2015).

The ATO is currently reviewing arrangements where profits are claimed to be directed through a purported partnership that has a private company as a partner. Most of the profits are taxed to the private company at the corporate tax rate, but are accessed by one or more individuals without paying additional tax reflecting their higher marginal tax rate.

The ATO is currently undertaking a pilot compliance program reviewing a number of cases involving arrangements of this type and will be engaging with additional taxpayers over the coming months.

To do!

Should you be involved in arrangements of this kind, talk to your tax adviser to see if your arrangement could come under review by the ATO.

Reviewing taxable payments annual reports

Are you a contractor in the building and construction industry? If so, you should be aware that the ATO is contacting businesses in the building and construction industry about information that businesses have provided on their Taxable Payments Annual Report. The ATO will be contacting businesses who have:

provided a report with missing or invalid ABNs;
included amounts paid for GST when the contractor isn’t registered for GST;
not lodged a report, when ATO records indicate they should;
advised the ATO they are not required to report, but the ATO’s records indicate the business should have reported.

The ATO will advise businesses that are reviewed what the review has found and will suggest ways to make it easier for the business to complete their reports more accurately in the future, such as using the ABN Lookup tool or ATO app to check a contractor’s ABN or if they are registered for GST.

This may impact the kind of information businesses ask contractors to provide. It may be best to review your ABN registration to ensure all the details recorded on the Australian Business Register about your registration are accurate (www.abr.gov.au).

Changes to Family Tax Benefits

i) Restriction on the availability of Family Tax Benefit Part B for couple families

From 1 July 2016, Family Tax Benefit Part B will not be available for ‘couple families’ (other than grandparents and great-grandparents) with a youngest child aged 13 or over.
Single parents, grandparents and great-grandparents caring for a youngest child aged 13 to 18 will continue to have access to Family Tax Benefit Part B (subject to satisfying other relevant requirements).
These measures have now become law and was introduced by the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 on 21 October 2015.

ii) Family Tax Benefit portability; large family supplement – amending Bill introduced

On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to introduce two 2015 Budget measures: Social Services Legislation Amendment (Family Measures) Bill 2015.

This Bill will introduce the following 2015 Budget measures:

a) Portability of Family Tax Benefit

From 1 January 2016, the Bill will reduce to six weeks the length of time for which Family Tax Benefit Part A, and additional payments that rely on Family Tax Benefit eligibility, will be paid to recipients who are outside Australia (known as ‘portability’). The ‘portability’ extension, and exemption provisions that allow longer portability under special circumstances, will continue to apply.

This measure will align the portability rules for Family Tax Benefit Part A with those for Family Tax Benefit Part B and most income support payments.

b) Cease the large family supplement

The large family supplement will cease from 1 July 2016. The supplement is a component of Family Tax Benefit Part A, and is currently paid at a rate of $324.85 per year (or $12.46 per fortnight) for the fourth and each subsequent Family Tax Benefit child in the family.

iii) Family Tax Benefit – Other reforms

On 2 December 2015, the Minister for Social Services introduced into the House of Representatives a Bill to make further reforms to Family Tax Benefit Part A and Part B: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No 2) 2015.

a) Reform Family Tax Benefit Part A and at-home under-18 year old youth fortnightly rates

Family Tax Benefit Part A fortnightly rates will be increased by $10.08 for each Family Tax Benefit child in the family aged up to 19. An equivalent rate increase, of around $10.44 per fortnight, will apply to youth allowance and disability support pension recipients aged under 18 and living at home. These increases will apply from 1 July 2018.

b) Reforms to Family Tax Benefit Part B

From 1 July 2016, the Bill will introduce a new rate structure for Family Tax Benefit Part B, and make other amendments to the rules for Part B, to:
increase the standard rate by $1,000.10 per year for families with a youngest child aged under one;
maintain the current standard rate for families with a youngest child;
maintain the current standard rate for families with a youngest child aged between five and 13;
maintain the current standard rate for single parents who are at least 60 years of age, grandparents and great-grandparents with a youngest child aged between 13 and 18; and
introduce a reduced standard rate of $1,000.10 per year for individuals with a youngest child aged 13 to 16 (currently $2,737.50) who are not single parents aged 60 or more or grandparents or great-grandparents.

c) Phase out the Family Tax Benefit Part A and Part B supplements

The Bill will phase out the Family Tax Benefit Part A supplement by reducing it to $602.25 a year from 1 July 2016, and to $302.95 a year from 1 July 2017. It will then be withdrawn from 1 July 2018.
The Family Tax Benefit Part B supplement will also be phased out. It will be reduced to $302.95 a year from 1 July 2016, and to $153.30 a year from 1 July 2017. It will then be withdrawn completely from 1 July 2018.

To do!

Some of these changes have now made their way into law and others are not far away from becoming law. It may be a little confusing to work out exactly how you might be affected by these changes if you are eligible for either Family Tax Benefit Part A or Part B. Therefore, you should seek professional advice from your tax agent or adviser to work out the precise impact on you, if any, of these changes.

‘Certainty’ letters being issued by the ATO

The ATO will be contacting more than 500,000 taxpayers through a pilot program it is running to let them know that their recently submitted 2014-15 tax returns are finalised and will not be subject to any further review.

The ATO says that individuals who receive a ‘certainty’ letter can be assured that the ATO is happy with their tax return, and has closed the books permanently on the return, provided there is no evidence of fraud or deliberate avoidance of tax.

The letter is intended to acknowledge and provide certainty to taxpayers who meet their obligations with their tax. Receiving this letter means the ATO has completed its routine information checks on a recipient’s tax return and is satisfied with the information provided. There will be no further review or audit of that return.

The letter is being trialled with a sample of people who meet certain criteria. These include:
the taxpayer lodged his or her return electronically by myTax, e-tax or via a tax agent;
the taxpayer had taxable income under $180,000;
the taxpayer’s income was only from salary or wages, allowances, Australian government allowances and payments, gross interest and dividends;
deductions claimed were work-related expenses, interest or dividend deductions, gifts and donations or cost of managing tax affairs;
a range of other factors, including good lodgement, compliance and debt history;
the taxpayer had straight-forward tax affairs (such as no links to other entities).

Not everyone who meets the criteria will receive a letter during the pilot. Depending on the success of the pilot, the ATO aims to expand this program to more taxpayers for tax time 2016.

For more information, go to the ATO website.

National Innovation and Science Agenda - tax changes announced

On 7 December 2015, a suite of new tax and business incentive measures was announced under the Commonwealth government’s National Innovation and Science Agenda (NISA): Prime Minister’s media release (7 December 2015); Treasurer’s media release (7 December 2015).

The intention is that the government’s tax and business incentives under the NISA will encourage smart ideas to encourage innovation, risk taking and build an entrepreneurial culture in Australia.

Tax and business incentives

The following tax and business incentive measures have been announced as part of the agenda. The government will:

provide new tax breaks for early stage investors in innovative start-ups. Investors will receive a 20% non-refundable tax offset based on the amount of their investment, as well as a capital gains tax exemption. This scheme is based on the successful Seed Enterprise Investment Scheme in the United Kingdom, which has resulted in over $500 million in funding to almost 2,900 companies in its first two years. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
build on the recent momentum in venture capital investment in Australia including by introducing a 10% non-refundable tax offset for capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLPs), and increasing the cap on committed capital from $100 million to $200 million for new ESVCLPs. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
relax the “same business test” that denies tax losses if a company changes its business activities, and introduce a more flexible “predominantly similar business test”. This will allow a start-up to bring in an equity partner and secure new business opportunities without worrying about tax penalties. Legislation is expected to be introduced in the first half of 2016. The “predominantly similar business test” will apply to losses made in the current and future income years
remove rules that limit depreciation deductions for some intangible assets (like patents) to a statutory life and instead allow them to be depreciated over their economic life as occurs for other assets. The new arrangements will apply to assets acquired from 1 July 2016.

Small businesses and start-ups

The government will:

support incubators which play a crucial role in the innovation ecosystem to ensure start-ups have access to the resources, knowledge and networks necessary to transform their ideas into globally scalable new businesses; and
make existing employee share scheme (ESS) rules more user friendly. The new rules will allow companies to offer shares to their employees without having to reveal commercially sensitive information to their competitors. These changes build on the recent reforms to ESS, which included deferring the taxing point for employees and introducing an additional concession for those working in start-up companies. Legislation is expected to be introduced in the first half of 2016.

The full text of the National Innovation and Science Agenda is available on the NISA website.

Should you have any plans to invest in start-up, or to start your own, it would be worth seeking advice from your tax adviser about these proposed changes,

Paper activity statements to stop for myGov users and electronic lodgers

Individual and sole trader taxpayers who have myGov accounts linked to the ATO will no longer receive paper activity statements or instalment notices.

If you previously received paper statements, all your activity statements or instalment notices will now be delivered electronically.

When an activity statement or instalment notice is ready, the ATO will send a message to your myGov Inbox. To lodge or pay, you should simply click the link in the message to go to the ATO’s online services for individuals and sole traders.

However, before proceeding to lodge, it would be worth asking your tax agent for assistance with this lodgement obligation.

Going overseas to work?

If you are planning on living and working overseas, there are some things you should fix up with the ATO before you go. Your tax adviser will be able to tell you about what you will need to do before leaving Australia. For example, where you have a HELP debt, make sure you update your contact details with the ATO.

You should also note that once you earn a certain amount of income overseas, you will need to make payments towards your HELP debt.

More information about this can be found on the ATO website.
Also, if you work overseas, for 91 days or more, you may or may not need to pay tax on the income you earn overseas. For example you might get a credit for tax you pay overseas. More information about what you need to do can be found on the ATO website.

Data matching programs

The ATO is undertaking a number of data matching programs that may impact you as an individual taxpayer depending on what sort of activities you have been engaged in. Should you have any concerns about these data matching programs or have received correspondence from the ATO about any of them, you should speak with your tax adviser.

1) Real property transactions – Data matching program

The ATO has announced that it will acquire details of real property transactions for the period 20 September 1985 to 30 June 2017 from State and Territory revenue and land titles departments and offices and rental bond authorities in every State and Territory in Australia: Australian Government Gazette No C2015G02019 (8 December 2015).

The objectives of this data matching program are to:

obtain intelligence about the acquisition and disposal of real property and identify risks and trends of non-compliance across the broader compliance program;
identify a range of compliance activities appropriate to address risks with real property transactions by taxpayers;
work with real property intermediaries to obtain an understanding of the risks and issues, as well as trends of non-compliance;
gain support and input into compliance strategies to minimise future risk to revenue;
promote voluntary compliance and strengthen community confidence in the integrity of the tax system by publicising the outcomes of the data matching program; and
ensure compliance with registration, lodgment, correct reporting and payment of taxation and superannuation obligations.

2) Data matching on insurance asset classes

The ATO is currently working with insurance providers to identify policy owners on a wider range of asset classes. These asset classes include:

Marine;
Aviation;
enthusiast motor vehicles;
fine art; and
thoroughbred horses.

The purpose of the ATO obtaining this information is to gain a better understanding of certain taxpayers’ wealth and to help the ATO to provide tailored services to taxpayers to ensure they meet their tax obligations.

During January and February, the ATO will issue formal notices to insurers to provide the ATO with these policy details. The ATO anticipates it will receive 100,000 records where the different asset classes meet certain threshold amounts.

3) Ride sourcing – data matching program

The ATO has given notice of a data matching program pursuant to which it will acquire data to identify individuals that may be engaged in providing ride sourcing services during the 2013-14, 2014-15 and 2015-16 financial years: Commonwealth Gazette C2015G01623 (7 October 2015).

Details of all payments to ride sourcing providers from identified accounts held by ride sourcing facilitators with various financial institutions will be requested for those financial years. Ride sourcing facilitators provide an electronic platform enabling members of the public to engage the services of a ride sourcing provider (eg, a driver).

The data acquired will be electronically matched with certain sections of ATO data holdings to identify taxpayers that can be provided with tailored information to help them meet their tax obligations, or to ensure compliance with taxation law.

The ATO will obtain the following data items from the source entities:

payee account name;
payee BSB;
payee account number;
date of payment to the payee; and
amount of payment to the payee.

4) Online selling – data matching program

The ATO has given notice of a data matching program under which it will acquire online selling data relating to registrants who sold goods and services to a value of $10,000 or more during the period 1 July 2014 to 30 June 2015: Commonwealth Gazette C2015G01628 (8 October 2015).

Data will be sought from eBay Australia and New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au.

The data requested will include information that enables the ATO match online selling accounts to a taxpayer, including name, address and contact information as well as information on the number and value of transactions processed for each online selling account. This acquired data will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with taxation law.

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

5) Visa holders, sponsors and migration agents – data matching program

The ATO has given notice of a data matching program under which the Department of Immigration and Border Protection will provide the ATO with names, addresses and other details of visa holders, their sponsors and migration agents for the 2013-14, 2014-15, 2015-16 and 2016-17 financial years: Commonwealth Gazette C2015G01712 (21 October 2015).

Disclaimer

May 12th, 2016|

MEDICARE LEVY SURCHARGE AND PRIVATE HEALTH INSURANCE REBATE

Income thresholds

Legislation was passed in October 2014 to pause for three years the income thresholds which determine the tiers for the Medicare levy surcharge and government rebate on private health insurance from the 2015-16 financial year. Usually the income amounts would be increased by an indexed amount, but this is not going to happen for the next three years. The tables below set out the income levels for singles and families and confirm the income amounts will remain the same from the 2015 to the 2018 income years:

Singles

Income Year	Base Tier	Tier 1	Tier 2	Tier 3
2013-14	$88,000 or less	$88,001 – $102,000	$102,001 – $136,000	$136,001 or more
2014-15	$90,000 or less	$90,001 – $105,000	$105,001 – $140,000	$140,001 or more
2015-16	$90,000 or less	$90,001 – $105,000	$105,001 – $140,000	$140,001 or more
2016-17	$90,000 or less	$90,001 – $105,000	$105,001 – $140,000	$140,001 or more
2017-18	$90,000 or less	$90,001 – $105,000	$105,001 – $140,000	$140,001 or more

Family

Income Year	Base Tier	Tier 1	Tier 2	Tier 3
2013-14	$176,000 or less	$176,001 – $204,000	$204,001 – $272,000	$272,001 or more
2014-15	$180,000 or less	$180,001 – $210,000	$210,001 – $280,000	$280,001 or more
2015-16	$180,000 or less	$180,001 – $210,000	$210,001 – $280,000	$280,001 or more
2016-17	$180,000 or less	$180,001 – $210,000	$210,001 – $280,000	$280,001 or more
2017-18	$180,000 or less	$180,001 – $210,000	$210,001 – $280,000	$280,001 or more

It is anticipated indexation to increase the income amounts will begin again from the 2018-19 income year.

Private health insurance rebate percentage

From 1 April each year, the private health insurance rebate percentages for premiums paid will be subject to an annual adjustment. The rebate adjustment factor is based on a formula that uses the Consumer Price Index and the average annual increase in premiums. The first annual adjustment occurred on 1 April 2014.

This means there will be two different rebates to enter in your tax return for each tax year:

from 1 July 2014 to 31 March 2015, and
from 1 April 2015 to 30 June 2015.

These different rebates appear on your private health insurance statement as two separate lines. Both must be entered on your tax return.

The rebate amount for the period 1 July 2014 to 31 March 2015 is:

Age range	Base Tier	Tier 1	Tier 2	Tier 3
Under 65 years	29.04%	19.36%	9.68%	0%
65 – 69 years	33.88%	24.20%	14.52%	0%
70 years and over	38.72%	29.04%	19.36%	0%

The rebate amount for the period 1 April 2015 to 30 June 2015 is:

Age range	Base Tier	Tier 1	Tier 2	Tier 3
Under 65 years	27.820%	18.547%	9.273%	0%
65 – 69 years	32.457%	23.184%	13.910%	0%
70 years and over	37.094%	27.820%	18.547%	0%

Please note: These figures became available 9 April 2015.

Private health insurance rebate – reversal of amendments

The ATO has advised that it regularly matches data with health insurers to identify taxpayers who received the private health insurance (PHI) rebate through reduced premiums and have also claimed them in their income tax return. When this double claim occurs, the ATO automatically amends the taxpayer’s assessment to remove the rebate.

The ATO has reviewed amendments to reverse double claims for the PHI rebate and has identified some that have been made outside the taxpayer’s period of review.

The ATO says that in limited circumstances an assessment may be amended at any time to give effect to the provisions that relate to the PHI rebate.

The ATO has advised that if there are taxpayers affected, the ATO will write to the taxpayer’s registered contact (this could be your tax agent) about this decision and tell them a notice of amended assessment will issue soon. If you have been affected by this, you may have already received a notice of amended assessment, in which case, you should talk to your tax agent about it.

Medicare Levy Surcharge amounts

The following Medicare Levy surcharge amounts apply for the 2014-15 Income Year depending on which income tier you fall into (refer to the income tables above):

Income Tier	Base Tier	Tier 1	Tier 2	Tier 3
Surcharge amount	0%	1%	1.25%	1.5%

To do!

Completing your private health insurance rebate information in your tax return has become a little tricky with the introduction of an annual adjustment on 1 April for the private health insurance rebate percentages as now you have double the information to include in your return. See your tax agent for help in completing this part of return.

NET MEDICAL EXPENSES TAX OFFSET

As we’ve noted in previous editions of TaxWise, the phase-out of Net Medical Expenses Tax Offset (NMETO) began on 1 July 2013. To be eligible to claim the NMETO in the 2014-15 income year, you need to have been able to claim the offset and received it in your 2013-14 return. The NMETO is no longer available after 30 June 2015 unless the medical expenses you are claiming relate to specific medical items, such as disability aids, attendant care or aged care. However, only these expenses will be able to be claimed up to the 2018-19 income year.

Note!

The Net Medical Expenses Tax Offset is being phased out. You should check with your tax agent if you are still eligible to claim it.

SUPERANNUATION GUARANTEE RATE

Previous editions of TaxWise have noted the change in the superannuation guarantee rate amounts. The rates have been included again as, if you are an employee, you should make sure your employer is contributing the right amount into your superannuation account:

Year	Superannuation guarantee rate percentage
From 1 July 2013	9.25%
From 1 July 2014	9.5%
From 1 July 2015	9.5%
From 1 July 2016	9.5%
From 1 July 2017	9.5%
From 1 July 2018	9.5%
From 1 July 2019	9.5%
From 1 July 2020	9.5%
From 1 July 2021	10%
From 1 July 2022	10.5%
From 1 July 2023	11%
From 1 July 2024	11.5%
From 1 July 2025	12%

Note!

Check you are getting the right amount of super being paid into your super fund.

SUPER CONTRIBUTIONS CAPS

With the super guarantee rate having changed, it is worth remembering what the contributions caps are as well.

The concessional contributions general cap includes:

employer contributions (including contributions made under a salary sacrifice arrangement);
personal contributions claimed as a tax deduction by a self-employed person.

The non-concessional contributions cap includes personal contributions for which you do not claim an income tax deduction.

Both of these are noted in the table below.

Income year	Concessional contributions general cap	Non-concessional contributions cap
2014-15	$30,000**	$180,000
2015-16	$30,000	$180,000

**If you are 49 years old or over on 30 June 2014, the concessional contributions cap is temporarily increased for the 2014-15 income year to $35,000. This cap is not indexed and will cease to apply when the indexed cap that otherwise applies reaches $35,000.

CHANGES TO SUPERANNUATION EXCESS CONCESSIONAL CONTRIBUTION CAP

From 1 July 2013, if you exceed your concessional contributions cap, the excess amount will be included in your assessable income and taxed at your marginal rate. An interest charge also applies.

You can choose to release out of your super fund up to 85% of the excess contribution made if you complete an election form. If you do elect to release an amount, the ATO will issue your super fund with an ‘excess concessional contributions release authority’. Your super fund must pay the amount to be released to the ATO (as well as return the release authority statement) within 7 days.

The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

To do!

It is worth checking your super fund account to ensure no excess contributions have gone in, or if they have, considering whether you want to withdraw them. Talk to your tax agent if you are unsure whether the right amount of super has been paid into your account.

Amendment to taxing excess super contributions

Following on from the above, the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 amends some provisions that relate to the taxation of excess super contributions to:

provide individuals with an option to be taxed on the earnings associated with their excess superannuation non-concessional contribution at their marginal tax rate;
ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan are not disadvantaged through the transfer; and
remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred, and allow taxation officers to record or disclose personal information in certain circumstances.

If you are concerned you have made excess contributions to your super fund, speak to your tax agent about whether you are likely to be affected by any of these recent changes.

The Bill received Royal Assent on 19 March 2015.

ARE YOU PAYING SUPER FUND FEES UNNECESSARILY?

The ATO noted in a recent media release that Australians with multiple superannuation accounts could be paying thousands of dollars in unnecessary fees every year. According to new figures released by the ATO, 45% of working Australians have more than one superannuation account.

The ATO is encouraging taxpayers with multiple accounts to consider consolidating their superannuation into one preferred account. Australian Prudential and Regulation Authority (APRA) figures show the median figure for fees and charges paid by Australians for a low cost superannuation account is $532 per year.

To do!

Do you have multiple super fund accounts and are wasting money on unnecessarily paying fees in all the funds? If so, it is time to combine all your super into one account. Your tax agent can help you to do this.

TIME LIMITS FOR FAMILY ASSISTANCE LUMP SUM PAYMENTS

If you want to claim any of the following family assistance payments for the 2014 financial year, you must lodge your claim with the Department of Human Services (Centrelink) by 30 June 2015 to be eligible:

Family Tax Benefit
Child Care Benefit
Single Income Family Supplement (SIFS).

Your tax agent will be able to help you make this claim.

DABBLING IN BITCOIN? WHAT’S THE ‘TAX’ STORY?

On 17 December 2014, the ATO issued its position on how it will treat Bitcoin, a digital currency, for tax purposes. The ATO’s views are:

Income Tax

Bitcoin is not a ‘foreign currency’ for the purposes of the income tax law because the ATO does not view Bitcoin as currency or foreign currency in the context in which those terms operate for the purpose of the Australian tax law (TD 2014/25).
Bitcoin is a ‘CGT asset’ for the purposes of the income tax law as it is regarded as ‘property’ for the purpose of the tax law (TD 2014/26).
Bitcoin is trading stock when held for the purpose of sale or exchange in the ordinary course of a business because it is regarded as property for tax purposes (TD 2014/27).

FBT

The provision of Bitcoin by an employer to an employee in respect of their employment is a property fringe benefit (TD 2014/28).

GST

A transfer of Bitcoin from one entity to another is a ‘supply’ for GST purposes. The exclusion from the definition of supply for supplies of money does not apply to Bitcoin because Bitcoin is not ‘money’ for the purposes of the GST Act.
The supply of bitcoin is not a ‘financial supply’ nor an input taxed supply.
A supply of bitcoin is a taxable supply if the requirements under the GST Act are met.
A supply of bitcoin in exchange for goods or services will be treated as a barter transaction.
Bitcoin is not goods and cannot be the subject of a taxable importation. However, an offshore supply of Bitcoin can be a taxable supply under the ‘reverse charge’ rules.
An acquisition of Bitcoin will not give rise to input tax credits under the provisions of the GST Act which allow input tax credits for certain acquisitions of second-hand goods.
A supply of Bitcoin is not a supply of a voucher.

(See GSTR 2014/3)

The reasoning behind the ATO’s positions is very technical. If you are interested to understand more about it, your tax adviser will be able to tell you more.

Note!

If you are dabbling in Bitcoin, beware the possible tax implications for you.

Also, at the time of writing, there is a Senate committee conducting an inquiry into how Australia should regulate digital currency, including how the tax system should treat digital currency, such as Bitcoin. The tax treatment for Bitcoin could potentially change pending the outcome of the inquiry due to report in August this year.

WHAT’S THE ATO’S VIEW OF GST AND CROWDFUNDING?

Crowdfunding involves using the internet and social media to raise funds for specific projects or particular business ventures. For ATO information about the GST treatment of crowdfunding, go to the ATO’s website.

ARE YOU IN A PARTNERSHIP?

In November last year, the ATO issued an addendum to Taxation Ruling TR 2005/7:

TR 2005/7A1 – Income tax: the taxation implications of ‘partnership salary’ agreements

The addendum amends the ruling to include the taxation consequences of a partner’s salary where the partnership is a corporate limited partnership.

As a result, ATO ID 2002/564 (Income Tax Partner Salary in A Corporate Limited Partnership) has been withdrawn.

If you are in a partnership, this change might affect you. Talk to your tax adviser to see if you are affected in any way.

CORRECTING ARRANGEMENTS INVOLVING PRIVATE COMPANIES AND SHAREHOLDERS AND THEIR ASSOCIATES

Recently, the ATO published on its website information about what to do if a private company has, for example, made a loan to a shareholder that is a ‘deemed dividend’ for tax purposes. A taxpayer can take corrective action by, for example, putting the right loan documentation in place, to ensure that the amount is not captured by the ‘deemed dividend’ rules (colloquially known as “Division 7A”).

Your tax agent will be able to assist you if you have any concerns about loans or other arrangements you may have in place with a private company, so it is always best to consult your tax professional for help with these sorts of things.

Note!

If you have a loan from a private company, check with your tax adviser to see if you need to take any corrective action.

NIL ACTIVITY STATEMENTS MUST BE LODGED

If you have Activity Statements to lodge, even if your Activity Statement is nil for a particular period, the Activity Statement still needs to be lodged. Failure to lodge an activity statement, even one with zero obligations, may delay processing and result in penalties.

It is good to stay on top of these obligations and obtain the assistance of your tax agent to ensure you lodge your Activity Statement on time, every time.

Tip!

The ATO has published some tips for getting your Activity Statement right which you can find on the ATO website.

IF YOU WORK IN THE BUILDING AND CONSTRUCTION INDUSTRY

The ATO has published the following information about the taxable payments reporting obligations of persons in the building and construction industry:

DO YOU OWN A RENTAL PROPERTY?

The ATO has advised that it has redeveloped the letters it is sending to agents and taxpayers regarding reviews of rental legal and/or borrowing expense claims to make the letter clearer. In feedback, the ATO was asked to provide information on the specific area of the expense claims it is reviewing. The re-drafted letters now identify:

return label and amounts in question;
the proposed adjustments;
what to do in the event of a disagreement; and
where to find relevant information on ato.gov.au about what can be claimed, including QR reader codes to scan for smart phones or tablets.

To Do!

You should see your tax adviser if you have a rental property and receive one of these letters.

SELLING OR CLOSING DOWN A BUSINESS

If you are selling or closing down a business, there are some important tax obligations for the business that you should attend to, such as:

ensuring all outstanding Activity Statements and returns (income tax, FBT) have been lodged;
put in all requests for any refunds owed to your business;
cancel any PAYG withholding registrations for the business; and
cancel the business’ ABN (which should also result in the cancellation of other registrations such as GST).

More information can be found on the ATO’s website.

ATO UPDATES

a) Are you a director of a company?

The ATO advises that it has created a new page on its website with information about the director penalty regime, which is all about what happens when a company deducts PAYG withholding amounts from its employees’ salaries and wages, but fails to remit those amounts to the ATO. To access the page, go to the ATO website.

b) Deductibility of working with children checks

The ATO advises that the requirement for people to obtain a Working with Children check will be introduced in NSW and exists in many other states.

For information about when the cost of a working with children check is deductible, check the ATO website.

c) GST – avoiding common errors

For ATO advice about avoiding common errors that may occur when completing activity statements, accounting for GST and claiming GST credits, go to the ATO website.

d) Farm management deposits scheme

For ATO information about the farm management deposits scheme, go to the ATO website.

THE PRIVACY COMMISSIONER AND THE TAX FILE NUMBER PRIVACY RULE

The Privacy Commissioner has issued a new privacy rule under the privacy law about Tax File Numbers, to replace the previous Tax File Number Guidelines 2011. The new rule is the Privacy (Tax File Number) Rule 2015 (Legislative Instrument F2015L00249; registered 4 March 2015).

The primary purpose of the rule is to regulate the collection, storage, use, disclosure, security and disposal of individuals’ Tax File Number (TFN) information. A breach of the rule is an interference with privacy under the Privacy Act. Individuals who consider that their TFN information has been mishandled may make a complaint to the Privacy Commissioner.

The rule explicitly authorises the use and disclosure of TFN information by a TFN recipient (such as the Commissioner of Taxation and the trustees of a superannuation fund) for the purpose of giving an individual any TFN information that the TFN recipient holds about an individual. This ensures that the TFN Rule does not prevent an individual being given access to his or her information under Australian Privacy Principle 12 of the Privacy Act, or another Act that provides for access by persons to documents.

Disclaimer

April 1st, 2015|