FBT – Christmas Parties and Taxi Fare/Rideshare

Some employers, who are commendably anxious to protect their employees and clients from the drink/driving laws, also pay for taxis/rideshare to and from the place of entertainment.

For FBT purposes there may be different consequences for payment of the taxi fare.  For clients, the taxi fare is considered to be part of the entertainment expense and no deduction is allowable.  For employees, if the fare is for travel from home to the place of entertainment (not being their place of employment) and return home again, the benefit is considered to be for the facilitation of entertainment and is not a separate benefit from the entertainment itself.

The result is that the employer would then have to rely on the total entertainment package being under $300 for the minor benefit rule to apply.

However, if the Christmas function is held on the employer’s premises, the taxi trip is FBT exempt if it is a single trip beginning or ending at the employer’s premises. For example, the exemption would apply if the employee went from the workplace to home, or any other place. 

However, the exemption would not apply if the trip was broken and continued at some other time.  For example, the employee gets a taxi from the workplace and goes out to a nightclub; that trip is deductible and exempt from FBT.  If the employee later gets another cab to home, that leg of the trip would be deductible to the employer but FBT would be payable.

Note however, that if the employer is using the 50/50 split method of calculating FBT and deductions, the taxi travel would always be included in the cost of entertainment, and there would be no exempt journey for travel from the workplace to home.

Uber and other ride sharing services are now also included for FBT exemption as taxi services, after recent changes to the FBT Act, from 1^st April 2019.

AcctWeb

Client Alert – December 2022 & January 2023

Looming changes for the “buy now, pay later” market

In a bid to protect consumers, the Federal Government has released a consultation paper seeking views on options to regulate the “buy now, pay later” (BNPL) market. Currently the BNPL space is unregulated in Australia and thus not subject to responsible lending standards, despite involving financial products that offer credit.

The Reserve Bank of Australia estimates that approximately seven million active BNPL accounts made a total of $16 billion in transactions in the 2021–2022 financial year – around a 37% increase on the previous year. Low value BNPL products that typically provide a spending limit of $2,000 are the most popular in Australia, although spending limits of up to $30,000 are available from some providers for large ticket items such as home upgrades.

Currently, the BNPL space is unregulated in Australia because it falls under the exemptions available to certain types of credit under the National Consumer Credit Protection Act 2009. This means BNPL products aren’t subject to responsible lending standards or the other requirements of the Credit Act, and BNPL providers don’t need to hold an Australian credit licence.

Consumer advocates argue that this regulatory gap has the potential to create harm – “instant” access to BNPL credit for all sorts of purchases might seem great at first, but the lack of requirements for providers to check your financial status and make sure you understand the terms and fees can make it easy for you to end up in unsustainable debt.

The consultation paper proposes three broad options for regulatory intervention. Option 1 would impose a bespoke affordability assessment for BNPL providers under the Credit Act and address any other regulatory gaps in a strengthened industry code to make it fit-for-purpose. Option 2 would require BNPL providers to hold a credit licence and comply with modified responsible lending obligations and a strengthened industry code. Option 3 would impose the strictest regulation, with BNPL providers needing to hold a credit licence and comply with all its regulations and the responsible lending obligations, including taking reasonable steps to check that their BNPL products are suitable for each person who accesses them.

NSW first home buyers: choice of tax

In a bid to encourage home ownership in NSW, the state government has introduced the First Home Buyer Choice scheme, which allows eligible first home buyers a choice between paying an annual property tax or the traditional stamp duty. Eligible first home buyers of residential properties valued at up to $1.5 million or vacant land of up to $800,000 will be able to access the scheme, provided other conditions are met.

Eligible buyers can access the scheme from 12 November 2022. These buyers are required to pay stamp duty on purchases made until 15 January 2023 but will be able to apply for a refund of their stamp duty if they choose to opt into the annual fee. From 16 January 2023, purchasers can opt into the annual fee directly.

As its name suggests, the First Home Buyer Choice scheme is only available to individual first home buyers over 18 years of age who haven’t previously owned residential land in Australia. For individuals with a spouse, it’s also a requirement that the spouse has not at any time owned residential land in Australia. Generally, occupation of the property must occur within 12 months of the first home buyer taking possession and must continue for at least six months.

If the option to pay the annual property tax is elected by the eligible individual, the rate of tax will differ depending on whether the property is owner-occupied or used as an investment after the initial six months occupation requirement. For owner-occupiers, the property tax rates per annum will be $400 plus 0.3% of the home’s land value.

In cases where the property is rented out, the property tax rates per annum will be $1,500 plus 1.1% of land value. While the NSW government has committed to not increasing these rates for the first two financial years of operation, from the 2024–2025 financial year property tax rates will be indexed each year, capped at a 4% maximum.

Tip: A first home buyer choice calculator is available on the Service NSW website at www.service.nsw.gov.au/transaction/calculate-your-property-tax.

Proposed new method for calculating work from home expenses

Taxpayers could soon be dealing with more paperwork at tax time, or facing the prospect of a lower tax deduction for work from home (WFH) expenses. The ATO has recently proposed a new revised fixed rate method of calculating WFH expenses for the purposes of claiming a tax deduction from 1 July 2022.

The proposed new rate of 67c per hour would replace the previous shortcut method of 80c per hour (which many people have been using during the COVID-19 pandemic) as well as the previous fixed rate method.

Tip: It’s important to note that this proposal comes from the ATO (which does not itself create the tax law) and is still at the draft stage. The ATO is asking for submissions from interested parties.

Before 1 July 2022, people working from home could use one of three methods for calculating a tax deduction for the expenses incurred:

• the actual costs method, which involved calculating the actual expenses incurred as a result of working from home;
• the fixed rate method, which allowed 52c per hour to cover their electricity and gas expenses, home office cleaning expenses, and the decline in value of furniture and furnishings, with a separate deduction claimable for work-related internet expenses, telephone expenses, stationery and computer consumables and the decline in value of a computer/laptop; and
• the shortcut method, which was introduced during the COVID-19 pandemic to make it easier for the large proportion of employees suddenly working from home. This method allowed claiming 80c per hour to cover all WFH expenses, with no separation of deductions.

Given the continual increase in energy bills and other inflationary pressures, this new proposed fixed rate method is likely to yield consistently lower deductions than if the actual cost method was used. Coupled with the abolition of the shortcut method, this seems to mean that taxpayers would either have to accept a lower WFH deduction in the coming years or deal with increased paperwork to be able to claim WFH deductions under the actual costs method.

ABN registration: draft legislation to enforce lodgement and notification compliance

Treasury has released draft legislation which proposes two new grounds under which the Registrar of the Australian Business Register may cancel an Australian Business Number (ABN).

The government had earlier announced its intention to “strengthen” the ABN system by imposing new compliance obligations for ABN holders to retain their ABN. Currently, ABN holders are able to retain their ABN regardless of whether they are meeting their income tax return lodgment obligations or the obligation to regularly update their ABN details.

It’s worth noting that there are over nine million active ABN holders on the Australian Business Register.

Outstanding income tax returns

The proposed changes would allow the Registrar of the Australian Business Register to cancel a person’s ABN if they haven’t lodged their required income tax returns for two or more income years where the period for lodgement has ended. These wouldn’t need to be consecutive income years.

This ground for cancellation would apply for failures to lodge tax returns beginning with income years commencing on 1 July 2022, so the earliest the Registrar could cancel an ABN would be in the second half of 2024, if the ABN-holder failed to lodge tax returns for the income years beginning on 1 July 2022 and 1 July 2023.

Failing to confirm accuracy

The proposed changes would also allow the Registrar to cancel an ABN if the holder hadn’t given a notification within the past 12 months that they still require the ABN and that the information on the Register is current and correct.
This power would be available to the Registrar after 1 July 2024. In effect, this would require ABN holders to check their ABN details and notify the Registrar at least once in the period between the commencement of these provisions and 1 July 2024, and then at least once annually.

A little planning can help avoid an FBT hangover this festive season

Yes, it’s that time of year again! As the so-called “silly season” gets underway, and with many employers reverting to pre-pandemic norms around meal entertainment, it is the perfect time to consider what benefits your business is going to provide to staff and how, with a little planning, employers might be able to avoid an FBT hangover.

During this time of the year, in addition to the typical end-of-year party, we generally see a marked increase in expenditure across meal and recreational entertainment, as well as gifts.

Meal entertainment

Employers must choose how they calculate their FBT meal entertainment liability. Most use either the “50/50” method or the “actual” method.

Using the “50/50” method
Rather than apportioning meal entertainment expenditure based on the proportion received by employees (and their associates) and non-employees (who aren’t associates of employees) and by reference to where food and drink is actually consumed under the actual method, many employers choose to use the simpler “50/50” method. Under this method, irrespective of where the meal entertainment occurs or who attends, 50% of the total expenditure is subject to FBT and 50% is deductible for income tax purposes.

Using the “actual” method
Under the “actual” method, only the entertainment provided to employees and their associates is subject to FBT. In addition, where food and drink are consumed by employees on the employer’s premises, there will be no FBT due to the property exemption -– this takes care of Friday night drinks in the office! But usually, the greatest reduction in FBT when using the actual method will come from the “minor benefits” exemption. Outside of a handful of exceptions, where a benefit with a notional taxable value of less than $300 (including GST) is provided to an employee or an associate, the minor benefits exemption will generally apply to exempt the benefit from FBT.

Usually, employers would save a considerable amount of FBT using the “actual” method; however, they usually don’t have the time to determine precisely who received the benefit in order to apply the exemption.

Recreational entertainment

A common trap is where an employer has an employee who is considered a “frequent entertainer” for meal entertainment purposes and then is automatically considered a frequent entertainer for recreational entertainment, such that the minor benefits exemption doesn’t apply.

Accordingly, we recommend reassessing which employees should be eligible for the minor benefits exemption with respect to recreational entertainment.

Giving gifts

Gifts provided to employees, or their associates, will typically constitute a property fringe benefit and therefore be subject to FBT unless the minor benefits exemption applies.

Gifts, and indeed all benefits associated with the end-of-year function, should be considered separately to the party itself in light of the minor benefits exemption. For example, the cost of gifts such as vouchers, bottles of wine or hampers given at the function should be looked at separately to determine if the minor benefits exemption applies.

Gifts provided to clients are outside of the FBT rules, but may be deductible if they are being made for the purposes of producing future assessable income.

FBT car parking benefits: new draft ruling

Businesses that provide FBT car parking benefits should be aware that the ATO has recently released an updated consolidated draft taxation ruling that incorporates proposed changes to FBT car parking benefits. Broadly, the ATO is saying that for FBT purposes from 1 April 2022, it will consider the “primary place of employment” as a broad test that isn’t limited to the specific place at which an employee’s duties are performed on any one day. Relevant considerations will include the employee’s conditions of employment, such as rostering, allowances and car parking, as contained in their employment contract or industrial instrument.

This follows the decision in Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd, where the Full Federal Court looked at the concept of “primary place of employment” and ultimately found that Virgin Airlines provided FBT car parking benefits to its flight and cabin crew in various airports.

The Virgin employees parked at (or near) a “home base” airport and undertook travel as part of their work, including staying overnight at other locations, while their home base car parking continued.

Virgin originally argued successfully in the Federal Court that the employees were carrying out their duties in many different places (on planes and in other airports) from where the parking occurred, so the parking location shouldn’t be considered the “primary place of employment” and the car parking shouldn’t be considered a Virgin-provided benefit subject to FBT.

The ATO appealed to the Full Federal Court, which in the end concluded that a Virgin employee’s relevant home base airport was their “primary place of employment”, even on days when the employee didn’t attend or work at the home base airport at all, for example because they were working on flights or had a rest period in another location. The car parking was therefore an employer-provided FBT benefit because the employees’ cars were parked at, or in the vicinity of, their primary place of employment.

Tax implications of deferred rent for businesses

As inflationary pressures start to bite, many businesses may be seeking rental deferrals or variations from their landlords to help them through this tough period. However, if your business has been lucky enough to receive a waiver, deferral or variation of rent you need to be aware that there may be income tax, GST and perhaps even CGT consequences, depending on a number of factors.

Where your business owes rent for a past occupancy period which is later waived or released by the landlord, including under bankruptcy or insolvency law, if you have already claimed a deduction for the rent on the business tax return, you’ll still be entitled to that deduction. However, the unpaid amount will be considered a debt forgiveness. This means the amount won’t need to be included in the assessable income of the business but may be offset against amounts that could otherwise be claimed as deductions.

For businesses that have already paid rent for a past occupancy period and claimed a deduction, any amounts waived or refunded will need to be included as assessable income.

Where your landlord waives rent related to a future period of occupancy, the business won’t be entitled to a deduction for the amount of rent that would have been paid. The only amount that can be claimed is the amount of rent that the business is required to pay.

For businesses that account for GST on an accruals basis, a waiver or variation of rent payable may lead to GST consequences. If the business has already claimed a GST credit for the rent which is waived or refunded, an increasing adjustment will need to be raised to pay back the credit that was claimed. This needs to be done in the BAS period when the business becomes aware of the waiver or receives a refund.

Deferrals, however, generally don’t need any GST adjustment. Businesses do need to be aware that if their landlord has changed the rental agreement, including timing or amount of scheduled payments, the GST credit that can be claimed will be based on the new agreement. In addition, if your business had claimed a GST credit for a deferred amount which the landlord later writes off as a bad debt, an increasing adjustment may be required.

Businesses that account for GST on a cash basis need not worry about adjustments, as they can only claim GST on the basis of actual rent paid as shown on a tax invoice.

Rental concessions may also have CGT consequences for your business. This may occur if, for example, your landlord has changed the rental agreement for payment or other consideration from the business or has created a new or additional agreement.

Future of superannuation

The Federal Government has showed its hand in terms of potential future changes to the Australian superannuation system. The Assistant Treasurer and Minister for Financial Services, Stephen Jones, recently outlined two main areas the government will be focusing on. This includes legislating an objective for super (earmarking it specifically for use in retirement), which will then enable conversations around the taxation of super – in particular tax concessions given to high-asset self-managed superannuation funds (SMSFs). The second area the government will seek to tackle is performance tests, on which work has already commenced.

From its beginnings in 1992, superannuation collectively has become a juggernaut and has grown to encompass over $3.3 trillion in assets held by an estimated 16 million Australians. That figure makes Australian superannuation the world’s third largest pension pool.

A Bill was previously introduced in 2016 that proposed to enshrine the primary objective of the super system in legislation: to provide income in retirement to substitute or supplement the age pension. It would have also required all new Bills relating to super to be accompanied by a statement of compatibility with the objective of the super system. This Bill lapsed ahead of the 2019 election and was never reintroduced.
Having a clear legal objective of super, the government says, will break the vicious cycle of plans to raid super such as drawing on super to pay for housing, HECS or living expenses, which have all been proposed at various stages in the past few years.

The government estimates that there are 32 SMSFs with more than $100 million in assets, with the largest SMSF having over $400 million in assets. Industry estimates also indicate that the tax concessions on a single $10 million SMSF could support 3.1 full age pensions. With this in mind, the government is looking to have a conversation around the concessional taxation of these high-asset SMSFs.

The other change the government is looking to make will stem from the results of the review into the Your Future, Your Super (YFYS) laws. The YFYS measures were initiated to ostensibly remove “unintended consequences” and keep the focus on “high performance”. A consultation paper has been released and the government has established a technical working group in addition to public submissions and stakeholder consultations.

In order to conduct the review to keep the focus on high performance, the government paused the extension of the existing Australian Prudential Regulation Authority (APRA) performance test to Choice super products for 12 months. The performance test therefore currently only applies to MySuper products, which represent around $13.7 million accounts. Super members in other types of products will not have access to the same independent APRA performance analysis unless the consultation concludes they should.

According to Mr Jones, “the performance tests, conducted by APRA, must and will continue. Trustees need to be held to account because it is about ‘Your Future’. We also need to ensure members have meaningful information so that they can hold their funds to account and make informed decisions about their retirement.” Hence, it appears that the performance tests will continue in one form or another into the future, perhaps with different benchmarks.

Data security and compliance key to holiday shutdowns

Source: CPA AUSTRALIA

Three accounting practices share tips on what to do before closing the office for the festive season

Megan Breen | December 2022

This article was current at the time of publication.

As the end of the year approaches, it’s time to prepare for the annual office holiday shutdown.

There are simple steps accounting practices should take to ensure clients are taken care of, staff can take a proper break, and that any emergencies are managed. 

Communicate your closure dates

First things first: decide the dates on which you will be closed and communicate them to all key stakeholders – from staff to suppliers, clients and vendors.

There are a few ways to do this. You can send a short email, put it out on social media, include it in a newsletter, or advertise it on your website.

Importantly, when staff clock off for their break, make sure they’ve put an out-of-office reply on their email with details of an alternative contact, says Nicole Bedoya, Practice Manager at Guests Accounting in Melbourne. 

“We send an alert to staff and remind them that this is their time to have a break,” Bedoya says. 

“We encourage them to reach out to their clients and work out a plan for them over the closure period, including how emergencies will be handled.”

What constitutes an emergency may be subjective for different businesses, but a common way of covering off on any holiday dramas is to assure clients there will still be someone on board to deal with any major issues, says South Australia-based AFM Services Managing Director, John Zerella FCPA.

“Members of our admin team come in for two or three hours, maybe once or twice a week, to check the mail and pass on any urgent messages,” Zerella says.

As a general rule, such messages go through to the business owners, so it’s up to the team at AFM to determine if they are, in fact, urgent, and also whether a compliance team member needs to be alerted.

“It’s human nature that people want things cleared off their to-do list, describing them as ‘urgent’,” he says. 

“I think each year we get a little better educating our clients and having them recognise what requires somebody’s annual leave to be disrupted.”

Plan ahead

It’s a good time to get ahead on compliance work, says Managing Director at Duberly Vincent Associates in New Zealand, Matt Vincent CPA.

“We outsource some of our compliance work and this time of the year is a good time to look at our workflow,” Vincent says. 

“We make a real drive to get clients’ records, so we can pass that to our offshore team to get started while some of the NZ-based team takes a break. That way, when they get back from leave, annual financial statements and tax returns are ready for review.”

Payroll clients also benefit from forward planning and may require staff to be available to complete the work needed for pay runs.

“We contact our payroll clients in advance to discuss their specific requirements during our closure period,” Bedoya says. 

“For some clients, we can schedule pay runs in advance and they’re happy to do any adjustments when everyone’s back on deck. We do need some key staff working through on payroll clients.”

Keep compliance current

Of course, tax regulators don’t stop during the holiday season, so it’s important to make sure all correspondence is up to date before shutting down,” she adds.

“It’s a good idea to make sure all clients have paid their annual review fees, or at least that we have them out so they’ve plenty of time to pay. We manage it so there is no crossover in the down period.”

Zerella agrees, particularly because of the time-sensitive nature of a director penalty notice (DPN), for example.

“DPNs are consistently being issued by the ATO and they’re also very date-sensitive,” he says. 

“The ramifications of giving the client time to deal with [a DPN] can be significant.”

Security first

Although security should always be a business priority, it’s a good idea to double-check that all systems and processes are in place during the holiday season.

Also, recheck the backup cycle for computers and servers and work with your IT team to confirm who to contact if there’s a problem.

“Our IT is managed externally and we make sure they have a few key team members here that get notified if there are any problems, but they also have authority to take action on any suspicious activity where necessary,” Vincent says.

Zerella recommends continually reminding staff trusted with company equipment that it’s not for personal use.

“The biggest problem, of course, is external units, especially during the Christmas period,” he says. 

“I suggest reminding staff of the protocols for using them as well as investing in software on devices used outside the server that will notify the IT manager of any high-risk activity.”

Get ready for 2023

Before shutting the doors in 2022, unplug all electrical equipment that won’t be used such as coffee makers, photocopiers and air conditioners.

Test security gear like fire alarms, access control systems, cyber security software, and CCTV and ensure that they stay switched on.

Finally, with fewer people around, there are opportunities to undertake office renovations or repairs or even just to clean things up.

“We do a deep clean of the office at this time of the year,” Bedoya says. 

“That way, when everyone returns from holiday, everything is fresh and ready to go.”

Client Alert – October 2022

Due Diligence Checklist

Bonus deduction for employee training proposal

As a part of its strategy to address the current skills shortage and future-proof Australia’s workforce by building better trained and more productive workers, the Federal Government has proposed to implement a temporary “skills and training boost” initiative. This initiative proposes to give small businesses access to a bonus deduction equal to 20% of eligible expenditure on certain training for employees, both existing and new, between 29 March 2022 and 30 June 2024.

The bonus deduction would be available to all entities that meet the definition of a small business entity (ie those with an aggregated annual turnover of less than $50 million) in the income year in which the eligible expenditure is incurred.

Under the proposed measure, eligible expenditure would need to satisfy a range of criteria, including that the money must be spent with a registered training provider on training employees (either in-person in Australia, or online) and it must be an expense already deductible under taxation law and incurred within the specified period.

This initiative is only intended to cover employees, so the bonus deduction would not be available for training non-employee business owners, such as sole traders, partners in a partnership and independent contractors who are not employees of the business within the ordinary meaning. The costs of in-house or on-the-job training would not be eligible for the bonus deduction. According to the government, this is because the bonus deduction is not intended to cover general business operating costs.

This proposal is currently in the draft stage and undergoing consultation, and as such the bonus deduction will not be available until the measure becomes law.

Crypto reforms: change in consultation approach

According to the latest Australian Security and Investments Commission (ASIC) report into retail investment, the uptake in cryptocurrency has skyrocketed among Australian retail investors. The regulator found that 44% of those surveyed reported holding cryptocurrency, making it the second most common product type held after Australian shares. At the same time, a quarter of the surveyed investors who held cryptocurrency also indicated that cryptocurrency was the only investment they held.

With this increase in the uptake of cryptocurrency and other related blockchain technology, coupled with the lack of regulation which has allowed scams to proliferate, it will perhaps come as no surprise to learn that the Australian Competition and Consumer Commission (ACCC) estimates that more than $100 million has been reported lost to cryptocurrency investment scams just in the first half of 2022.

In a bid to stamp out these scams, the then Coalition government had commissioned the Board of Taxation to conduct a review into the appropriate policy framework for the taxation of digital transactions and assets in Australia. The Board is due to report back by the end of 2022.

However, the Labor Government has recently criticised the previous government for “prematurely jump[ing] straight to options without first understanding what was being regulated” and said it is now seeking to take a “more serious approach to work out what is in the ecosystem and what risks needs to be looked at first”. Treasury will prioritise “token mapping” work as a first step, aiming to identify how cryptocurrency assets and related services should be regulated. The next steps will be to identify notable gaps in the regulatory framework, progress a licensing framework, review innovative organisational structures, look at custody obligations for third-party custodians of cryptocurrency assets and provide additional consumer safeguards.

Sale of principal home: extension of exemption

In a bid to support pensioners and in conjunction with the announcement of its intention to reduce the eligibility age for downsizer super contributions, the government has introduced a measure to extend the existing assets test exemption under social security for principal home sale proceeds which a person intends to use to purchase a new principal home.

Under the social security system, the level of income support received by individuals depends on their income and assets. For example, for an individual to receive the age pension, Services Australia (Centrelink) will assess the individual’s and their partner’s income from all sources, including financial assets such as superannuation, using deeming. Deeming assumes that a financial asset earns a set rate of income regardless of the actual income generated. Applicants for the age pension also need to pass the assets test, the limits of which change depending on whether they own their own home and whether they are single or in a couple.

Currently, when an age pensioner or other eligible income support recipient sells their principal home to either purchase or build another home, those proceeds are exempt from the assets test for up to 12 months. However, the proceeds will still be subject to deeming. An additional 12-month extension may be granted where the income support recipient has demonstrated a continued intention to apply the sale proceeds to the purchase, build, rebuild, repair or renovation of a new principal home.

The Bill introduced by the government would automatically extend the existing assets test exemption from 12 to 24 months. An additional 12-month extension may also be available in particular circumstances, taking the maximum exemption period to 36 months in total. The Bill also seeks to apply a lower deeming rate to the principal home sale proceeds when calculating deemed income for the period during which the proceeds are exempt from the assets test.

ASIC’s focus on super complaints handling

The Australian Securities and Investments Commission (ASIC) is the body responsible for overseeing the operation of Australia’s financial services dispute resolution framework, including the internal dispute resolution (IDR) systems of superannuation trustees and other financial firms. Together with the Australian Financial Complaints Authority (AFCA), it forms the key consumer protection mechanism to ensure all complaints are resolved in a fair and timely manner.

Recently, to gauge the degree of superannuation trustees’ compliance with the IDR requirements, ASIC collected and analysed data from a selection of 35 trustees of 38 funds, covering 49,029 complaints received between October 2021 and February 2022. This initial surveillance found indicators of significant compliance issues and areas that need to be strengthened.

According to ASIC, 10% of the funds recorded significantly fewer complaints than the expected average, which may be a result of trustees either failing to record all member complaints or using an inappropriately narrow definition of “complaint”.

ASIC also reported concerns about the time super trustees take to respond to complaints, and failure by some trustees to notify complainants of delays and their rights to go to AFCA when a written response is not sent within 45 days. In fact, nearly 50% of complainants weren’t notified of delays or their rights, and one in three trustees advised ASIC of varying failures in their IDR processes, including failure to capture complaints, the omission of mandatory content from response letters or failure to send out responses to complainants.

In the next stage of its surveillance, ASIC will be checking how trustees are addressing the concerns identified thus far, and will closely examine a smaller subset of trustees. It will consider regulatory action where appropriate.

Compliance with super laws: ATO’s approach

When it comes to legal compliance by self managed superannuation fund (SMSF) trustees, the ATO’s main focus is on encouraging trustees to comply with the super laws. However, there are occasions when stronger responses are required.

The following courses of action are available to the ATO to deal with SMSF trustees who have not complied with super laws:

Education direction – the ATO may give an SMSF trustee a written direction to undertake a course of education when they have been found to have contravened super laws. The trustee will need to provide evidence they have completed the course and sign a declaration confirming they understand their obligations.

Enforceable undertaking – an SMSF trustee may initiate a written undertaking to rectify a contravention. The ATO will decide whether to accept the undertaking, taking into account the compliance history of the trustee, the nature of the contravention and the strategies to prevent the contravention from recurring.

Rectification direction – the ATO may give a trustee a written direction to rectify a contravention of the super laws.

Administrative penalties – individual trustees and directors of corporate trustees are personally liable to pay an administrative penalty for breaches of the super laws. Penalties cannot be paid or reimbursed from the assets of the fund.

Disqualification of a trustee – the ATO may disqualify an individual from acting as a trustee or director of a corporate trustee if they have contravened super laws or if the ATO is concerned about the individual’s actions or suitability to be a trustee.

Civil and criminal penalties – these may apply where an SMSF trustee has contravened certain provisions of the super laws.

Notice of non-compliance – serious contraventions of the super laws may result in an SMSF being issued with a notice of non-compliance. In this case, the fund remains non-compliant until it receives a notice of compliance.

Allowing the SMSF to be wound up – following a contravention, the trustee may decide to wind up the SMSF and roll over any remaining benefits to an APRA regulated fund. However, the ATO may continue to issue the SMSF with a notice of non-compliance or apply other compliance treatments.

Freezing the SMSF’s assets – the ATO may give a trustee or investment manager a notice to freeze an SMSF’s assets where it appears that conduct by the trustees or investment manager is likely to adversely affect the interests of the beneficiaries to a significant extent. This is particularly important when the preservation of benefits is at risk.

Client Alert – September 2022

Beware of payment redirection scams

The Australian Securities and Investment Commission (ASIC) has warned small and micro businesses to be alert for payment redirection scams, which have caused some of the highest losses to businesses in 2021, to the tune of $13.4 million reported. In fact the true figure is likely much higher, as an estimated one-third of scam victims do not report their loss.

These scams typically involve scammers impersonating legitimate businesses or their employees and redirecting upcoming payments to a fraudulent bank account. The most common contact method reported was phone or text message, and bank transfers were the most common payment method.

In some cases, the scam may involve the actual hacking of legitimate business email accounts to send scam emails. Other methods include intercepting legitimate invoices and amending bank details before releasing the email to the unsuspecting business customer, or registering email addresses that are very similar to ones from a legitimate business.

TIP: Take immediate action if you or your business inadvertently fall prey to a scam. Start by contacting your financial institution to see if anything can be done to recover the money, and then report the scam to either Scamwatch or the Australian Cyber Security Centre.

Businesses should also beware of falling victim to a follow-up money recovery scam, where victims of previous scams are contacted with the promise of recovering lost money for an up-front payment and/or retrieving detailed personal information.

These money recovery scammers often pose as trusted organisations such as a law firm, the fraud taskforce or a government agency. Some more sophisticated scams will have official-looking websites with fake testimonials.

TPAR due soon: is your business ready?

The taxable payments annual report (TPAR) must be lodged every year by businesses that have made payments to contractors for building and construction services, cleaning services, courier services, road freight services, IT services and security, investigation or surveillance services.

TIP: The TPAR for 2021–2022 is due to be lodged by 28 August 2022.

The ATO uses TPAR information in its data analytics to identify non-compliance with a range of tax obligations, such as lodging income tax returns, reporting the correct amount of income, lodging BASs, being registered for GST when required, and using valid ABNs. The ATO also uses it in pre-filling tax return data, to assist contractors in lodging correctly.

According to the ATO, around $11 billion a year goes missing in taxes. The TPAR system is just one of the tools used to identify non-compliance and keep things fair for all businesses. Last financial year, around $350 billion in payments made to 950,000 contractors was reported through the TPAR.

Tax time focus on rental properties

Rental property income and deduction mistakes continue to be one of the main focus areas for the ATO this tax time. This is no surprise, considering that a recent ATO random enquiry program found 90% of tax returns that report rental income and deductions contain at least one error.

One of the income categories for rental properties that may be important for this year, but that many landlords may not know to include, is insurance payouts. With recent events such as the major flooding in large parts of the country, if you obtained insurance payments in relation to loss of rental income or repairs, those amounts will need to be included in your tax return.

If you rent out your investment property, your home, or even part of your home on a short-term basis on platforms such as AirBnB, that income also needs to be included, and you’ll need to apportion any expenses according to the space rented out. Joint owners of properties need to ensure that their income and deductions are in line with the rental property’s ownership interest.

As for expenses, while some expenses such as rental management fees, council rates, repairs, interest on loans, and insurance premiums can be deducted in the year they are incurred, other expenses, such as borrowing costs, capital works, and some depreciating assets, can only be claimed over a number of years.

If you’ve sold a property during the 2021–2022 income year you’ll need to be extra cautious, as capital gains is another of the ATO’s focus areas for this year.

Remember that the ATO receives rental income data from a wide range of sources, including share economy platforms, rental bond authorities of various states, property management software providers and state and territory revenue and land title authorities. This information can of course be matched and compared to the information provided on tax returns, meaning that there is no hiding income from the all-seeing eye of the ATO.

SMSF COVID-19 relief measures have now ceased

The ATO has reminded trustees of self-managed superannuation funds (SMSFs) that COVID-19 relief measures that previously applied for the 2019–2020, 2020–2021 and 2021–2022 income years no longer apply from 1 July 2022. The relief measures covered a wide range of areas, including residency requirements, rental reductions and waivers, rental deferrals, in-house assets, loan repayments, limit recourse borrowing arrangements, and related party transactions.

Until 30 June 2022, individuals who became stranded overseas due to COVID-19 and so were out of Australia for more than two years could rely on the SMSF residency relief. This meant the ATO wouldn’t take compliance action to determine whether a particular SMSF met the residency test, provided there were no other changes in the SMSF or member/trustee circumstances. Since this relief no longer applies, SMSFs may risk failing to meet some of the residency conditions to be an Australian super fund for tax purposes, which may see it lose its complying super fund status and associated tax concessions.

One of the other prominent relief measures now ended is rental relief provided to related parties. The ATO had confirmed that no compliance action would be taken and no auditor contraventions needed to be reported for rental reductions and waivers to related parties, provided they were on commercial terms, relief was due to COVID, and the arrangement was property documented. Again, now that the rental relief has ended, if an SMSF provides rental reductions or waivers to related parties, it may give rise to a reportable contravention of the super laws.

Similarly, the relief measures relating to loan repayment relief provided by an SMSF and SMSF limited recourse borrowing arrangements relief no longer apply. Therefore, from 1 July 2022, approved SMSF auditors must report contraventions via the auditor/actuary contravention report. Before that happens, SMSF trustees are encouraged to use the ATO’s voluntary disclosure service to report any identified contraventions and plan to rectify the contravention as soon as possible. Voluntary disclosures will be taken into account when determining what action the ATO will take.

Thinking of ditching your SMSF?

Are you having doubts about using your self-managed superannuation fund (SMSF) for your retirement? Whatever your age, if recent market conditions, cost or the amount of administration involved are getting to be too much and you would like to wind up the SMSF, there are several steps involved. Winding up an SMSF is not a simple process and requires the trustee to understand the terms set out in the trust deed, dispose of the fund’s assets and finalise compliance obligations, among other things.

Even if you are happy with your SMSF, it may be prudent to ensure that there are no impediments to winding up if something unforeseen happens. An exit plan should be in place as a matter of course. In some complex cases it may be prudent to seek professional advice.

For most SMSFs, the first step in a winding up is to find out what the fund’s trust deed requires in that event. For example, the trust deed may require all of the assets of the fund to be sold, or all ownership to be transferred to members.

Trustees are then required to meet to ensure they agree with the winding up decision and to sign the winding up agreement. Decisions and details about asset sales should be carefully documented.

The next step is to finalise outstanding tax and compliance obligations, and final invoices and expenses due to assets sales and outstanding tax liabilities need to be paid before the calculation and distribution of member benefits. Where a member meets a condition of release, their benefits can either be paid out in cash or rolled over into another complying super fund. Where a condition of release is not met, the member benefit must be rolled over into another complying super fund.

Finally, after member benefits have been distributed, the trustee needs to ensure the SMSF has been audited every year since its establishment and complete one final audit.The final SMSF annual return can then be lodged. The ATO will confirm by letter that the SMSF has been wound up, close the SMSF records on its system, and cancel any associated ABNs.

Client Alert – August 2022

ATO reminder to small businesses this tax time

Small businesses are again in the ATO’s sights this tax time, with a focus on stamping out deductions not related to business income, overclaiming of expenses, omission of business income and insufficient records to substantiate claims.
 
The ATO receives external data from a variety of sources, including the taxable payments reporting system for certain industries. This data can be used to data-match information included in tax returns to ensure completeness and accuracy.
 
Businesses can only claim what they are entitled to, and the claiming method may differ depending on the type of business structure. For example, sole traders need to claim deductions in their individual tax return in the “Business and professional items” schedule, while partnerships, trusts, and companies need to claim deductions in their respective tax returns.
 

ATO warns against asset wash sales

With COVID-19 lockdowns and restrictions in the rear-view mirrors of most of the country, the ATO is also beginning to resume ordinary compliance activity levels. One of the many areas it will be paying close attention to this tax time is “asset wash sales”.
 

Tip: An asset wash sale involves a person or business disposing of assets just before the end of the financial year. After a short period of time, they then reacquire the same or substantially similar assets. The ATO views these transactions as a form of tax avoidance.
 

Although there may be legitimate reasons for selling and then reacquiring the same or substantially similar assets, a wash sale is different from normal buying and selling as it is usually undertaken for the artificial purpose of generating a tax benefit – such as a capital loss – in the current financial year.
 
The assets involved in wash sales are not necessarily traditional assets such as shares. Taxpayers could also be disposing of crypto-assets and reacquiring them later as a part of a wash sale. With the price of many crypto-assets at a low ebb, people looking to rid themselves of these assets need to be careful they do not inadvertently attract the attention of the ATO.
 
To stamp out this behaviour this tax time, the ATO will use analytics to identify wash sales through data from various share registries and crypto-asset exchanges. Where the system identifies a wash sale, the capital loss claimed by the taxpayer in their tax return will be rejected. The Commissioner of Taxation may then make a determination to adjust their tax situation, and compliance action and additional tax, interest and penalties may be applied.
 

ATO protocol for legal professional privilege

As a part of the ATO’s extensive information-gathering powers, it can compel taxpayers to furnish or produce certain documents. However, information and documents where the underlying communication is privileged do not have to be provided. Legal professional privilege (LPP) operates as an immunity from any obligation to disclose documents created by these powers.
 
Recently, the ATO released a protocol which contains its recommended approach for identifying communications covered by LPP and making LPP claims. While it’s voluntary to follow the steps outlined, it’s more likely that the ATO will accept LPP claims without further enquiries if the protocol is followed.
 
The protocol applies to both legal practitioners and non-legal practitioners and all LPP claims, regardless of the firm or business structure within which the service or engagement is provided.
 
The protocol itself contains three steps for taxpayers who receive an information-gathering notice and wish to make an LPP claim:

• assessing the full situation and all of the communications involved;
• explaining the basis of the LPP claim; and
• advising the ATO how the LPP claim was approached.

Tip: Legal professional privilege is a highly contested area and whether a document or information is subject to LPP can depend on the facts of your individual case. If you’ve been issued a notice under the ATO’s formal information-gathering powers, we can save you time and help you work out which documents are subject to LPP under the new protocol.
 

Is this the end for stamp duty in New South Wales?

In the NSW Budget handed down on 21 June 2022, the State Government announced plans to make some transfer duty optional from January 2023. However, the scope of the proposal is quite limited at this stage.
 
The key features announced are as follows.

• First home buyers purchasing properties for up to $1.5 million on or after 16 January 2023 will be able to choose to pay an annual property tax instead of stamp duty.
• There will be a higher rate of annual property tax for investors than for owner occupiers, with rates indexed annually to wage growth.
• The tax will be based on a financial year, unlike land tax, which is based on a calendar year.
• The existing First Home Buyers Assistance Scheme duty concessions for properties valued up to $800,000 will remain.
• The property tax will only be payable by first home buyers who choose it and will not apply to subsequent purchasers of a property.
•  

Of course, legislation must first be enacted, and the details remain to be seen, including the transitional provisions that will apply.
 
If the announcements become law, by next January NSW will have the existing transfer duty regime, the existing land tax regime and a new annual property tax all running in parallel.
 

Current compliance issues in the SMSF space

The self-managed superannuation fund (SMSF) space has always been a complex area for trustees, beneficiaries and advisers. In the past few years, the ATO has made many concessions and has put compliance action on hold because of COVID-19. However, for the 2022–2023 year and beyond it’s looking to scale up its compliance program as a reaction to indicators of heightened risk in the sector.
 
Recent statistics indicate that there are around 600,000 SMSFs, with over 1.1 million members holding an estimated total asset value of $876 billion.
 
While the ATO’s main compliance focus will always be on any activity that puts retirement savings at risk or inappropriately takes advantage of the concessional tax environment, in the near-term it will focus specifically on illegal early release of super in all forms. This is when individuals access their retirement savings before a condition of release has been met. This type of activity is currently on the rise.
 
One of the big red flags that the ATO looks out for is when individuals establish their SMSF and initiate a rollover but then fail to lodge a corresponding first annual return. This is a good predictor that an illegal early release has occurred, either as a result of deliberate behaviour or participation in a scheme.
 
New registrants that do not lodge will now be targeted with a “three strikes and you’re out” compliance campaign. The ATO will first issue a “blue letter” that encourages the SMSF trustees to take immediate action to lodge, offering a pathway for those who need support. If no response is received from the blue letter, the ATO will follow up with an “amber letter” warning trustees of the consequences of failing to lodge their return. Finally, if no response is received from the amber letter, a final warning or “red letter” will be issued advising the trustees that the ATO has commenced the disqualification process and will consider other enforcement action.
 
The ATO issued its first and second batches of “red letters” to funds in early April and June 2022.
 

SMSF TBAR to be streamlined

In good news for trustees of self-managed superannuation funds (SMSFs) and after much community consultation, transfer balance account event-based reporting (TBAR) will soon be streamlined for convenience.

The TBAR allows the ATO to record and track an individual’s balance for both their transfer balance cap and total superannuation balance. That information is not extracted from the SMSF annual return, or any information shared through a rollover. Under the existing framework, an SMSF must report common events that affect a member’s transfer balance account when they happen.

An SMSF may be required to report earlier if a member has exceeded their personal transfer balance cap. For individuals who start their first retirement phase income stream on or after 1 July 2021, their personal transfer balance cap will be $1.7 million.

From 1 July 2023, the TBAR will be streamlined by removing the total super balance threshold and requiring all SMSFs to report 28 days after the end of the quarter in which a reportable event occurred. Some obligations to report earlier will continue.

Under the new streamlined framework, trustees of SMSFs will still be allowed to report transfer account balance events more frequently if they wish. This may be beneficial in instances where members are close to their personal transfer balance cap and will avoid excess transfer balance determinations.

Client Alert – July 2022

Tax Time 2022: businesses get ready

As the end of another tax year approaches, the ATO is reminding businesses that it’s time to:

• see if there are tax-deductible items your business needs before 30 June;
• check if there are any concessions your business can access before 30 June;
• think about your recordkeeping habits this past year – should anything be done differently in future?

If your business has employees, the Single Touch Payroll (STP) information for 2021–2022 must be finalised by 14 July. Remember to let your employees know when the information’s finalised, so they can lodge their income tax returns.
Deductions
Increasing your business’s tax deductions will lead to a lower tax bill. For example, you may be able to bring forward expenditure from the next tax year to the current tax year, or to deduct the full cost of a depreciating asset under the temporary full expensing rules. An immediate deduction is also available for start-up costs and certain prepaid expenses.
If your business is in an industry that requires physical contact with customers, you can claim deductions for expenses related to COVID-19 safety. This includes hand sanitiser, sneeze or cough guards, other personal protective equipment and cleaning supplies.
Charitable donations are another good way to increase your deductions. Don’t forget to keep donation receipts!
The ATO has three golden rules for a valid business deduction:

• The expense must have been for business, not private, use;
• If the expense is for a mix of business and private use, only the business portion can be claimed as a deduction.
• You must have records to prove your business incurred the expense.

For example, if you buy a laptop and only use it for your business, you can claim a deduction for the full purchase price. However, if the laptop is used 50% of the time for your business and 50% of the time for private use, only 50% of the purchase price can be claimed as a business deduction.
Recordkeeping
Records explain the tax and super-related transactions conducted by a business. Businesses are legally required to keep records of all transactions relating to their tax and superannuation affairs as they start, run, sell, change or close the business, specifically:

• any documents related to the business’s income and expenses;
• any documents containing details of any election, choice, estimate, determination or calculation made for the business’s tax and super affairs, including how any estimate, determination or calculation was made.

Tip: Make sure you understand what records are needed for your business, and aim to make accurate and complete recordkeeping practices a part of your daily business activities. Talk to us about what records your business needs to keep, for how long, and what we can do to help!

ATO guidance update: debt relief and waivers

Tax-related debts are sometimes ignored by those of us struggling with inflationary pressures and sky-high energy prices. However, this may not be the wisest course of action, since these disregarded debts are likely to continue to accumulate general interest charges.
 
Generally, the ATO won’t pursue a debt if it’s satisfied that the debt is uneconomic or irrecoverable at law. However, in certain instances, such as where a taxpayer has a significant history of non-compliance or where there are public interest considerations, the ATO may pursue a debt even though it is uneconomical.
 
A simpler way of dealing with a tax debt, particularly if you’re experiencing hardship, is to apply to the ATO to be released from it.
 
You can make a formal application and may be released from a tax debt if you’re experiencing “serious hardship”. For the ATO, this means judging that the payment of your tax liability would result in you being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.
 
To decide whether serious hardship exists, the ATO will use an income/outgoings test and an assets/liabilities test.
 
The income/outgoings test assesses your capacity to meet your tax liabilities from your current income, taking into account your household income and expenditure. The assets/liabilities test looks at what equity or assets you may have access to, as an indication of whether you can pay – for example, your residential property, motor vehicles, life insurance or annuity entitlements, collections, furniture and household goods, or tools of trade.
 
The ATO will also consider a range of other relevant factors, depending on your particular circumstances.

What might the Federal Government’s proposed electric car discounts mean for taxpayers?

One of the new Federal Government’s policies, announced as part of its election platform, is to make certain electric vehicles exempt from import tariffs, and from the fringe benefits tax (FBT) imposed on electric cars that are provided through work for private use. These exemptions would apply to vehicles valued below the threshold for the luxury car tax for low-emission vehicles.
 
Under the current statutory formula for valuing car fringe benefits, electric cars are arguably at a disadvantage compared to fossil fuel-consuming cars, but the FBT exemption proposal would tilt the balance very much back in favour of the electric car.
 
For example, an employee on a salary of $150,000 who salary-packages a $60,000 electric car with annual running costs (including lease payments) of $17,000 net of GST could expect to be around $4,500 better off annually after tax, due to the change in FBT treatment.
 
The exemption from the 5% import tariff should also make certain electric vehicles cheaper for Australian consumers and businesses.
 
The government has indicated that the electric car discount policy would be reviewed after three years, taking account of developments in the adoption of electric cars by that time.

Tax benefits for unused “carry forward” concessional superannuation contributions

From 1 July 2019, new rules were introduced that allow eligible people to claim tax deductions for the unused portion of their super concessional contributions caps from prior years. This brings tax deductions into the current financial year that would have otherwise been in excess of the ordinary annual concessional contribution cap.
 
A concessional contribution is defined as a contribution to a super fund before tax. This type of contribution is taxed at a flat rate of 15% in your fund.
 
Concessional contributions can come from several sources: from your employer, from pre-tax salary sacrificed contributions you may elect to make through your employer, and from contributions you make personally and claim a tax deduction. The combined total of these contributions counts towards your concessional contribution cap.
 
The 2022 financial year concessional contribution cap is $27,500, an increase from the previous financial year’s $25,000.
 
The new rules give allow you to look back on each financial year from 1 July 2018 to calculate the “unused” portion of your concessional contributions cap in each financial year. You can then “carry forward” and, when desired, “catch up” and claim the unused portion in a later financial year, which can achieve a better tax outcome for that financial year and maximise the amount you’re able to contribute to super.
 
You can only claim unused super contributions from previous years if your total super balance is less than $500,000 at 30 June in the financial year before the year when you make catch-up contributions, and unused concessional cap amounts can only be carried forward for a maximum of five years.
What are the benefits?
Making a catch-up contribution is an easy way to boost your super balance at a time when you have the financial resources to do so, while offering significant tax benefits. For example:

• Your work patterns and income may fluctuate from year to year. A tax deduction for super contributions may not be needed in a low income year, but may be useful the following financial year if your income is significantly higher.
• Restricted cash flow may prevent you from making super contributions, but you can make catch-up contributions when your situation improves.
• Your usual income may mean there’s no real tax advantage in making super contributions, but if you sell a large capital asset like shares or a rental property, you could have a significant capital gain. You could then make a catch-up super contribution to reduce your taxable income in the year of that sale.

TIP: Concessional superannuation contributions can be a complex area. It’s best to seek professional advice so you can implement the right strategies for your circumstances and maximise your super savings.

Personal super deductions: remember the notice of intent

The end of financial year is fast approaching, and people with excess savings or who have received a bonus since the beginning of the year may want to use the extra cash to grow their super. One of the easiest ways to grow your super and get a tax deduction at the same time is to make a personal superannuation contribution.

If you’re considering making a personal contribution to your super and would like to claim a deduction, it’s important to remember to give the required notice to your super fund before making a claim in your tax return. There have been recent cases of taxpayers     being denied deductions for personal super contributions where they didn’t provide the required notice to a super fund in time.

A deduction for a personal contribution can only be claimed if the income earned came from your salary and wages, a personal business, investments, government pensions or allowances, superannuation, partnership or trust distributions, or a foreign source.

If you’re aged between 67 and 74 years, you must also meet the work test or satisfy the work test exemption criteria to be able to claim a deduction for any personal contributions made. There are also contribution deduction rules for people aged 75 years or older.

The ATO provides a standard form for giving the required notice to super funds. Many super funds also have their own online forms which can be lodged easily. Your fund will then send a written acknowledgment to the ATO indicating that it’s received a valid notice from you. Only then can you claim the deduction in your tax return.

Client Alert – June 2022

What’s next on the agenda for the government?

With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years.
 
One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia.
 
During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care and retaining the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.
 
Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.
 

Tax time 2022: ATO focus areas

Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure Australians are doing the right thing and paying the right amount of tax.
  
Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time. People who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.
 
While the ATO receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals, so it’s important to ensure you include it all as well.
 

Tip: If you need help this tax time, we have the expertise to help you report all the right information and maximise your deductions. Contact us today.

Some of the traditional areas the ATO is focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares.
 
Any deductions you claim must be backed by evidence – people who deliberately attempt to increase their refunds by falsifying records or don’t have evidence to substantiate their claims will be subject to “firm action”.
 
For people who are working from home or in hybrid working arrangements and claim related expenses, the ATO will be expecting to see a corresponding reduction in other expenses you claim, such as car, clothing, parking and tolls expenses.
 
With the intense flooding earlier this year, some rental property owners may have received insurance payouts. These, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.
 
Lastly, the ATO’s keeping a close eye on people selling property, shares and cryptocurrency, including non-fungible tokens (NFTs). Any capital gains need to be included in your tax return so you pay the right tax on them. But if you’ve recently sold out of cryptocurrency assets you may have a capital loss, which can’t be offset against other income such as salary and wages, only against other capital gains.
 

Single Touch Payroll: Phase 2

While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software.
 

TIP: Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run.
 

Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems needs to be reported through the payroll software. For example, while many newer businesses may have employee start date information handy, older businesses may have trouble finding exact records, particularly for long-serving employees. In those instances, a default commencement date of 01/01/1800 can be reported.
 
Employers need to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN isn’t available, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.
 
Employers also need to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement, is a death beneficiary, or is a non-employee. The report generated for STP Phase 2 includes a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from their payments. Most STP solutions will automatically report these codes, but it’s a good idea to understand what the codes are to ensure that they’re correct.
 
Income and allowances are also further drilled down – instead of reporting a single gross amount of an employee’s income, employers need to separately report on their gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments and salary sacrifice amounts.
 
If your DSP has a deferral in place, you don’t need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.
 

ATO resumes collecting aged debts

Taxpayers with aged debts that the ATO had paused collecting or put on hold during the COVID-19 pandemic should be aware that offsetting aged debts against tax refunds or credits has now resumed. The aged debts can be offset either from ATO accounts or credits from other government agencies, although a debt will not be offset if the only available credit relates to a Family Tax Benefit amount.
 

Tip: “Aged debts” is a collective term the ATO uses for uneconomical non-pursued tax debts that it’s placed on hold and has not undertaken any recent action to collect. These debts don’t typically show up on taxpayers’ online accounts as an outstanding balance.
 

Usually when a debt is put on hold, the ATO notifies the taxpayer via a letter that the debt collection has been paused, although any credits the taxpayer is entitled to will be offset against the debt. The ATO reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection.
 
While most taxpayers (or their tax agents) should have received their aged debts letter by now, some may not have received anything, due to a change of address or patchiness in the postal service. The first clue for them that they may have an aged debt could be when they notice that their refund is less than expected or a credit on one account is less than it should be.
 
To avoid surprises, if you’re unsure whether you have an aged debt you can check ATO Online Services for a transaction with the description “non-pursuit” on your statement of account. If you have multiple accounts (for example, a business and an individual account), remember to check them all.
 

Operation Protego: detecting GST fraud

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, to warn the business community not to engage with fraudulent behaviour and to encourage those who may have fallen into a criminal’s trap to make a voluntary disclosure.
 
Recently, the ATO has seen a rise in the number of schemes where people invent fake businesses in order to submit fictitious business activity statements (BASs) and obtain illegal GST refunds. The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts.
 
It’s possible that not all of the individuals involved in these refund schemes know they’re doing something illegal. Ads for schemes falsely offering to help people obtain loans or government disaster payments from the ATO have been on the rise on social media platforms. But ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.
 

Tip: The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort.
 

Government disaster payments are administered through Services Australia if they are Federal government payments, or through various state and territory government bodies if they are state or territory government payments.
 
Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details. People who may have shared myGov login details for themselves or their businesses with scheme operators are encouraged to contact the ATO for assistance.
 

More ATO action on super guarantee non-compliance

Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO will prioritise engaging with taxpayers that have SG debts, irrespective of the debt value.
 
The Australian National Audit Office (ANAO) recently issued a report on the results of an audit on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance. Overall, the ANAO report found that the ATO activities have been only partly effective. The report notes that while there is some evidence that the ATO’s compliance activities have improved employer compliance, the extent of improvement couldn’t be reliably assessed.
 
Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.
 
The ATO has responded to say that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced, and its focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.
 
The ATO says it’s already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. It will continue to investigate every complaint in relation to unpaid SG amounts, and take action where non-payment is identified. The actions available include imposing tax and super penalties, as well as recovering and back-paying unpaid super to employees. The ATO will also be increasing transparency of compliance activities and employer payment plans, so that affected employees can be aware when to expect super back-payments.

TIP: If you have issues with making super guarantee payments to your employees or would like to make a voluntary disclosure before a potential ATO audit, we can help. Contact us today.

Client Alert – May 2022

Employees vs contractors: more clarity coming

For many businesses, the line between employees and contractors is becoming increasingly blurred, partly due to the rise of the gig economy. However, businesses should be careful, as incorrectly classifying employees as contractors may be illegal and expose the business to various penalties and charges.

Recently, the High Court handed down a significant decision in a case involving the distinction between employees and contractors. In the case, a labourer had signed an Administrative Services Agreement (ASA) with a labour hire company to work as a “self-employed contractor” on various construction sites. The Full Federal Court had initially held that the labourer was an independent contractor after applying a “multifactorial” approach by reference to the terms of the ASA, among other things. The High Court, however, overturned that decision and held that the labourer was an employee of the labour hire company.

The High Court held that the critical question was whether the supposed employee performed work while working in the business of the engaging entity. That is, whether the worker performed their work in the labour hire firm’s business or in an enterprise or business of their own.

As a result of the decision, the ATO has said it will review relevant rulings, including super guarantee rulings on work arranged by intermediaries and who is an employee, as well as income tax rulings in the areas of PAYG withholding and the identification of employer for tax treaties.

Movement at the FBT station: COVID-19 tests, car parking

FBT is generally seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.

RATs for employees

The 2022–2023 Federal Budget included a measure, now passed into law, to make costs for taking a COVID-19 test to attend their workplace tax-deductible for individuals from 1 July 2021.

COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees are considered benefits under the FBT regime.

However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero. The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.

Neat solution. Well, apart from the catch: employee-level declarations could be required when the provision of a RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).

Where a RAT is provided as an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).

In case collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend your time, we see three options at this stage:

• assess the potential application of the minor benefit rule to your situation;
• explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
• use an automated, electronic declaration tool to take some pain out of the process.

“Commercial parking station” definition

As a reminder:

• a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
• there must be a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
• “all-day parking” means parking continuously for at least six hours between 7 am and 7 pm.

The scope of the term “commercial parking station” is therefore fundamental to determining if an employer has taxable car parking benefits.

Broadly, a commercial parking station is one where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.

The ATO issued a ruling in 2021 that no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking (usually charging significantly higher rates) are not commercial parking stations. This was to apply from 1 April 2022.

In effect, this would bring facilities like shopping centre car parks and hospital car parks into the definition of a “commercial parking station”. For employers with only that type of parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.

The Federal Government has announced it will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits, which is closer to the original policy intent of the car parking FBT provisions. The readjusted definition would then apply from 1 April 2022 instead.

ATO urges vigilance: new TFN and ABN scams

The ATO is urging people and businesses to be vigilant following an increase in reports of fake websites offering to provide tax file numbers (TFN) and Australian business numbers (ABN) for a fee but failing to provide those services.

The fake TFN and ABN services are often advertised on Facebook, Twitter or Instagram. The scammers use the fraudulent websites they advertise to steal both money and personal information.

Tip: The ATO and Australian Business Register (ABR) do not charge fees for providing a TFN or an ABN. It’s free, quick and easy to use government services online to apply for a TFN through the ATO, or apply for an ABN through the ABR.

The ATO is also still seeing scammers impersonating the ATO, making threats, demanding the payment of fake tax debts or claiming a TFN has been “suspended” due to fraud.

In 2021, more than 50,000 people reported various ATO impersonation scams, with victims losing a total of more than $800,000.

Tips to protect yourself from scammers

• Know your tax affairs – You will be notified about your tax debt before it is due. Check if you have a legitimate debt by logging into your myGov account or calling your tax agent. Find the contact details for the ATO or your tax agent independently by searching online or using your own paper records – don’t trust details provided by possible scammers.
• Guard your personal and financial information – Be careful when clicking on links, downloading files or opening attachments. Only give your personal information to people you trust and don’t share it on social media.
• If you’re not sure, don’t engage – If a call, SMS or email leaves you wondering if it’s genuine, don’t reply. You can phone the ATO’s dedicated scam line on 1800 008 540 to check if it is legitimate. You can also verify or report a scam online at www.ato.gov.au/scams and visit ScamWatch at www.scamwatch.gov.au to get information about scams (not just tax scams).
• Know legitimate ways to make payments – Scammers may use threatening tactics to trick you into paying fake debts via unusual methods. For example, they might demand pre-paid gift cards or transfers to non-ATO bank accounts. To check that a payment method is legitimate, visit www.ato.gov.au/howtopay.

Federal Budget fuel excise reduction: will all businesses benefit?

The uncertainty around availability of fuel has seen fuel prices soar across Australia. The 2022–2023 Federal Budget proposed an answer for this by way of a temporary (six-month) reduction to fuel excise.

The six-month reduction is now law, and will end at midnight on 28 September 2022.

For petrol and diesel, this means an excise reduction from 44.2 to 22.1 cents per litre, which is already being felt by users at the pump. But who will actually benefit from this Budget promise and what does it mean for businesses claiming fuel tax credits (FTCs)?

Snapshot: who will benefit?

  Individuals:

• all fuel uses of individuals – benefit of 22.1 cents per litre.

Businesses:

• businesses operating light vehicles on public roads – benefit of 22.1 cents per litre;
• businesses operating heavy vehicles on public roads – benefit of 4.3 cents per litre;
• businesses operating vehicles on private roads – no benefit; and
• businesses using fuel for non-vehicle use (auxiliary, machinery, plant and equipment) – no benefit.

What should businesses do?

For businesses that currently claim FTCs, it’s important to understand the impact of these changes on their FTC entitlement and to adjust their FTC process accordingly.

We expect there will be increased complexity for businesses claiming FTCs in the first few weeks of the temporary measure and the weeks following its conclusion. This is because the changes in fuel excise are expected to trickle through from fuel suppliers depending on where businesses are located and how they purchase their fuel. Businesses will be required to determine which rate of fuel excise has been applied to fuel purchases to determine the rate of fuel tax credit available.

ATO’s COVID-related support for SMSFs

Because of the financial impacts of COVID-19, trustees of a self-managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.

In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years.

This generally includes not taking any compliance action against an SMSF and not requiring the SMSF auditor to report related contraventions in the following areas:

• where an SMSF trustee or a related party of the SMSF offered rental relief to a tenant due to COVID-19;

Tip: Temporary changes to a lease agreement for rental relief need to be properly documented, together with the reasons for those changes. A formal variation of the lease may need to be executed.

• where a plan to get the value of SMSF’s in-house asset holdings below 5% of the fund’s total assets couldn’t be executed in time because of COVID-19;
• where a fund offered loan repayment relief because the borrower was experiencing difficulty repaying the loan because of COVID-19;
• where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period; and
• where a fund has a limited recourse borrowing arrangement (LRBA) with a related party lender, and the lender offered COVID-19 loan repayment relief to the fund.

Trustees must properly document all of these sorts of relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

Client Alert – April 2022

Director ID – Guests Accounting Information Sheet

Support for flood-ravaged areas

The recent devastating flooding in South East Queensland and parts of New South Wales has left many people homeless, caused vast amounts of property damage and has sadly led to loss of life. While the clean-up effort continues in many areas, there is some immediate financial help available for those affected, including the Disaster Recovery Payment and Disaster Recovery Allowance.

Those who need immediate help can apply for the Australian Government Disaster Recovery Payment. This is one-off financial assistance of $1,000 per eligible adult and $400 for each eligible child aged under 16. This includes Australian resident individuals in various local government areas who have been seriously injured, lost their homes, have had their homes/major assets directly damaged, or those who have lost immediate family members as a direct result of the floods. The payment is also available to eligible New Zealand visa holders (Subclass 444) who have been affected by the floods.

Australian residents and eligible New Zealand visa holders may also be eligible to apply for the Disaster Recovery Allowance. This is a short-term payment for a maximum of 13 weeks. Eligible individuals will need to be 16 years or over, have lost income as a direct result of the storms/floods, and earn less than the average Australian weekly income in the weeks after the income loss.

Flood-impacted small businesses will receive an automatic BAS lodgment deferral – although general interest charge (GIC) may still apply to deferred payments – and can apply for a refund of previously paid PAYG instalments. Any GST refunds will also be “fast-tracked”.

Tip: If your small business needs help in deferring your tax obligations due to the floods, we can help liaise with the ATO on your behalf and work out the best plan for your situation. We can also help guide you through information about the available support payments for individuals and families.

Temporary full expensing of assets extended

The availability of temporary full expensing of depreciating assets for business has been extended for another year until 30 June 2023. This measure was originally introduced in 2020 as a part of the Federal Government’s COVID-19 business rescue package, aimed at encouraging business investment by providing a cash flow benefit. As originally introduced, the measure was due to end on 30 June 2022.

Businesses with an aggregated turnover below $5 billion or those that meet an alternative eligibility test can deduct the full cost of eligible depreciating assets of any value that are first held and first used or installed ready for use for a taxable purpose from 6 October 2020 until 30 June 2023.

For small business entities with an aggregated turnover of less than $10 million, the temporary full expensing of depreciating asset rules has been effectively replaced with simplified depreciation rules for any assets first held and used or installed ready for use for a taxable purpose between 6 October 2020 and 30 June 2023. This means that the full cost of eligible depreciating assets, as well as costs of improvements to existing eligible depreciating assets, can be fully deducted.

Not all costs relating to assets qualify for temporary full expensing. For example, building and other capital works, as well as software development pools do not generally qualify. Second-hand assets that would otherwise meet the eligibility conditions also do not qualify for temporary full expensing if the entity that holds them has an aggregated turnover of $50 million or more.

Special rules also apply to cars, where the temporary full expensing is limited to the business portion of the car limit.

Tip: If you want to take advantage of temporary full expensing, contact us first to make sure the assets your business is planning to purchase will meet the eligibility requirements.

Record-keeping education in lieu of ATO financial penalties

If you run a small business and are found by the ATO to have made unintentional record-keeping mistakes, you could face having to pay an administrative penalty. However, this could soon change under a proposed new law that would give ATO the power to issue a direction to complete an approved record-keeping education course instead. Legislation to implement this measure has been introduced into Parliament but not yet passed.

This proposed change originated as a part of the Black Economy Taskforce’s final report, which found that tax-related record-keeping obligations should be made clearer for businesses, and that the ATO should have a range of administrative sanctions available at its discretion for breaches of the rules.

Under the proposed new law, the ATO may issue a tax-records education direction in appropriate situations, which will require the appropriate person within a business to take a specified, approved course of education and provide the ATO with evidence of completion. This would be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps or variations in levels of digital literacy, or where the ATO reasonably believes that the entity has made a genuine attempt to comply with their obligations.

The tax-records education direction would not be available to businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will still be applied, and if there is evidence of serious non-compliance, the ATO may also consider criminal sanctions.

FHSS maximum releasable amount increased

The maximum amount that individuals can take out of their superannuation under the First Home Super Saver Scheme (FHSS) will be increased to $50,000 for any release requests made on or after 1 July 2022. The scheme was originally envisaged as a tax-effective way for first home buyers to save for a deposit, and the increase in the maximum releasable amount presumably reflects the rapidly escalating housing price increases. The scheme is available to both first home buyers and those intending to build their first home, subject to certain conditions of occupation.

The first step in releasing eligible funds is to obtain a FHSS Determination from the ATO which sets out the maximum amount that an individual can have released under the scheme. It’s imperative to make sure you’ve finished making all your voluntary contributions under the scheme before applying for a Determination, and of course, to check the accuracy of the Determination issued by the ATO.

There is a limit of $15,000 of eligible contributions that can be released each financial year (up to a total limit of $30,000 currently, or $50,000 from 1 July 2022).

TIP: To access part your super under the scheme, you must have a FHSS Determination from the ATO before any contract to purchase or build is signed.

When you have a FHSS Determination and subsequently sign a contract to purchase, a valid release request must be given to the ATO within 14 days. After the release of money, if you haven’t signed a contract to purchase or construct a home within 12 months, the ATO will generally grant an extension for a further 12 months automatically. You also have the choice to recontribute the amount back into your super fund, or to keep the money and pay a flat 20% tax on assessable FHSS released amounts.

Downsizer contributions: age limit change

To help those nearing retirement boost their super balances, people aged 65 and over can currently make downsizer contributions to their super of up to $300,000 from the proceeds of the sale of their home.

Tip: Downsizer contributions don’t count towards the super contribution caps, but do count towards the transfer balance cap, which applies when your super is moved into the retirement phase.

As part of a suite of measures introduced to provide more flexibility for those contributing to super, from 1 July 2022 the age limit for those making downsizer contributions will be decreased to include individuals aged 60 years or over. Optimistically, the government expects this decrease in the age threshold will encourage more older Australians to downsize sooner and “[free] up the stock of larger homes for younger families”.

If you or your spouse are thinking of selling the family home to capture a premium, especially in regional areas, some other criteria must be satisfied so you can to make a downsizer contribution to your super, including:

the location of the home must be in Australia;

Each person individual can make the maximum contribution of $300,000, so for a couple a total contribution of $600,000 can be made. However, the total contribution amount cannot be greater than the total proceeds from the sale of the home. If a home is owned only by one spouse and is sold, the spouse who didn’t have ownership can also make a downsizer contribution or have one made on their behalf, provided all other requirements are met.

Work test scrapped for super contributions: under 75s

From 1 July 2022, people aged between 67 and 75 will be able to make non-concessional and salary-sacrificed contributions to their superannuation without the need to pass the work test or satisfy the work test exemption criteria. The removal of the work test from that date also allows people aged under 75 to access the bring-forward of non-concessional contributions in some cases, which may allow you to access up to three times the annual non-concessional contributions cap in a single year. Personal contributions will also be affected, although now instead of having to pass the work test to contribute, the work test only applies if a deduction is sought.

These changes are designed to provide older Australians with more flexibility to contribute to their super and add to their comfort in retirement.

Contribution caps will still apply to any contributions made to your super.

To pass the work test, an individual must be gainfully employed for at least 40 hours during a consecutive 30-day period in each income year in which contributions were made. It’s an annual test, which means that once it is met, the individual can make contributions for that entire income year.

Tip: If you’re between the ages of 67 and 75, now is the perfect time put a plan in place to grow your super. Contact us to find out more about how you can take advantage of these changes.