Downsizer Super Contribution

Australians who are 65 years old or older may make a downsizer contribution into their superannuation of up to $300,000 from the proceeds of seeling their home.

The downsizer contribution can still be made even if the contributor has a total superannuation balance (TSB) greater than $1.6 million.

A few points are:-

will not affect the TSB until 30 June at the end of the financial year
can only be made for the sale of one home
not tax deductible and will be taken into account in determining eligibility of the Age Pension
there is no requirement to purchase another home
must have held an ownership interest in the home for 10 years
limited to the lesser of $300,000, or the total capital proceeds received from the sale of the interest in the home
can be both owners (i.e. $300,000 each)
within 90 days of the change of ownership.

Early planning will ensure you don’t miss the boat.

AcctWeb

Tax payers to receive beefed up tax returns.

Great news!! The Tax Office will now start processing beefed-up tax refunds after the government’s $158 billion tax cut plan was passed in full.

Client Alert – July 2019

Tax planning

With the end of the 2019 income tax year upon us, this issue draws attention to year-end tax planning strategies and compliance matters that you need to consider to ensure good tax health. It focuses on the most important issues for small to medium businesses and individuals to consider.

Tip: This is general information, but we’ll take your particular circumstances into account to help you achieve good tax health. Contact us to find out more.

Deferring derivation of income

If your business recognises income on an accruals basis (when an invoice is raised) and your cash flow allows, you may consider delaying raising some invoices where work is incomplete until after 30 June, meaning the assessable income will be derived after the 2019 income tax year.
For business income derived on a cash basis (interest, royalties, rent and dividends), you may consider deferring the receipt of certain payments until after 30 June 2019. For example, setting term deposits to mature after 30 June 2019 rather than before.

Bringing forward tax-deductible expenses

To qualify for deductions in the 2019 income tax year, you may be able to bring forward upcoming expenses so that you incur them before 30 June 2019. Small businesses and individual non-business taxpayers may prepay some expenses (such as insurances and professional subscriptions) up to 12 months ahead. This should only be done subject to available cash flow and where the prepayment makes commercial sense.

Tax relief for individuals and small businesses

Instant asset write-off

The instant asset write-off threshold for small businesses has been increased to $30,000 and extended to 30 June 2020. And from 2 April 2019, the instant asset write-off has also been expanded to include businesses with a turnover from $10 million to less than $50 million.
If you purchase an asset (new or second-hand) costing less than $30,000 and it is used or installed ready for use from 7:30pm on 2 April 2019, you can claim a deduction for the portion your eligible small business uses. Different thresholds and deduction amounts apply for assets purchased before that date.
You can purchase and claim a deduction for multiple business assets as long as each asset is under the relevant threshold. Assets costing $30,000 or more can’t be immediately deducted. You can continue to deduct them over time using the small business pool.

Low and middle income tax offset

A new low and middle income tax offset (LMITO) will be available for individuals, providing a benefit of up to $255 if you earn under $37,000 and up to $1,080 for if you earn between $48,000 and $90,000. The offset reduces by 3 cents for every dollar in excess of $90,000. There is no offset for individuals who earn more than $126,000.

Individuals

Deduct work-related expenses

People overclaiming deductions for work-related expenses like vehicles, travel, internet and mobile phones and self-education are on the ATO’s hitlist again this year. There are three main rules when it comes to work-related claims:

You can only claim a deduction for money you have actually spent (and that your employer hasn’t reimbursed).
The expense must be directly related to earning your work income.
You must have a record to prove the expense.

Deductions are not allowed for private expenses (eg travel from home to work that’s not required to transport bulky equipment) or reimbursed expenses (eg for the cost of meals, accommodation and travel). And although you don’t need to include records like receipts with your tax return, the ATO can deny your claim – and penalties may apply – if you can’t produce the evidence when asked.

Tip: The ATO now uses real-time data to compare deductions across similar occupations and income brackets, so it can quickly identify higher-than-expected or unusual claims.

Don’t forget sharing economy income

Money that you earn from “gig” jobs through platforms like Uber, Airtasker and Airbnb, such as transporting passengers or renting out a room or house, counts as your assessable income. This means you must declare it on your tax return.
Depending on your gig activities and expenses, you may also be able to claim deductions related to this type of income, but it’s important to keep evidence to support your claims.

Superannuation contributions and changes

Both employees and self-employed individuals can claim a tax deduction annually (maximum $25,000) for personal superannuation contributions, provided the super fund has physically received the contribution by 30 June 2019 and the individual provides their fund with a “notice of intention to claim” document.

Important to note!

New rules mean that insurance coverage will be cancelled on “inactive” superannuation accounts from 1 July 2019, unless the fund member informs the fund in writing that they want to keep the insurance. Also, where an inactive account has a low balance (under $6,000) the fund will have to send that super to the ATO for consolidation and safekeeping.
If you haven’t made contributions or rolled over your super in the past 16 months, no matter what your balance, it’s important to check in with your fund now to keep your account active and maintain the insurance you want.

Tip: The new law also bans super funds from charging exit fees when you want to leave the fund, which should make it easier to change and consolidate your super accounts when you need to.

Businesses

Lower company tax rate

From 1 July 2016, the income tax rate applicable to qualifying companies has reduced to 27.5%. For the year ending 30 June 2019, this lower tax rate now applies for companies with aggregated turnover of up to $50 million, as long as they satisfy the “passive income test”.

Small business restructure rollover relief

Small businesses (<$10 million turnover threshold) have access to the small business restructure relief, which allows eligible taxpayers to transfer assets between related entities, including companies, trusts and individuals, without any income tax or CGT consequences. While this rollover can be very beneficial to a small business, and can lead to substantial tax savings, the eligibility rules can be complex, so care is needed.

Super guarantee contributions

The rate for super contributions paid by employers on behalf of their employees under the super guarantee for the year ended 30 June 2019 is 9.5%.
If you’re an employer, you must make super guarantee contributions for your employees quarterly, within 28 days after the end of each quarter (September, December, March and June).

Tip: Although the June 2019 quarter super guarantee contribution doesn’t have to be paid until 28 July 2018, it’s worth considering an early payment – you can only claim deductions on this year’s return for contributions that employees’ super funds receive by 30 June 2019.

Single touch payroll

From 1 July 2018, employers with 20 or more employees will have to run their payroll and pay their employees through accounting and payroll software that is Single touch payroll (STP) ready. This is a major reporting change, as employers will report payments such as salaries and wages and allowances, PAYG withholding and super information to the ATO directly from their payroll solution at the same time employees are paid.
From 1 July 2019, this system will extend to all employers.

TIP: STP reporting also means changes for employees, who will see year-to-date tax and super information in myGov. Employers no longer have to give employees payment summaries (group certificates) for information reported through STP, because this information will appear on an employee’s employment income statement in myGov at the end of the financial year.

Beware of ATO impersonation scams at tax time

The ATO warns taxpayers to be alert to malicious scammers who are using increasingly sophisticated methods and technology to impersonate the ATO. A new tactic on the rise is “spoofing”, where scammers mimic a legitimate ATO phone number caller ID to call or send SMS messages, or mimic a legitimate email domain to send emails.
SMSs and emails may ask you to click on a link and provide your personal details to get a “refund” from the ATO. Scammers may also say you need to pay a (fake) tax debt. The ATO warns that these scammers may intend to steal not only your money, but also your identity by using your personal information.

TIP: If you’re not sure whether a communication is really from the ATO, don’t respond, don’t click any links and don’t open any attachments. Call the ATO’s scam hotline on 1800 008 540 to check its legitimacy.

Small business clients need to be ready for STP by 30 September

The original deadline of 1-7-2019 has been extended. Read more about what every small business needs to do by then.

Reporting through Single Touch Payroll (STP) for small employers started on 1 July. Small businesses have until 30 September 2019 to take action. There are a range of resources available on the ATO website to help, click on the link below.

STP is mandatory for all small businesses.

SINGLE TOUCH PAYROLL (STP) and what do do before 30 September 2019.

The Australian Taxation Office

3 out of 4 tax dob-ins are about business

The Tax Office has confirmed that the majority of “tip-offs” it receives about possible tax avoidance are related to business, amid concerns competitors may play dirty by “dobbing in” innocent businesses.

The ATO recently revealed it is on track to receive more than 70,000 tip-offs about undeclared income and dodgy tax practices this financial year — a major increase on the 51,000 received last year.

“We’re seeing an upwards trend in the volume of referrals about people suspected of participating in the black economy, which suggests that honest businesses have had enough of competitors cheating the system and getting an unfair advantage,” said ATO assistant commissioner Peter Holt at the time.

At least one My Business reader expressed concerns that some of these tip-offs may have nefarious intentions.

“My concern is what happens if someone wants to cause harm to a business or person out of spite?” the anonymous commenter said.

“Dobbing is very un-Australian and I believe that guidelines should be given so that people know what is a tax dodge and what may be a legitimate occurrence of payment either way.

“Many small business[es] receive cash or pay cash to non-tax-claiming employees such as casual jobs of a couple of hours to teenagers for simple jobs.”

Almost three-quarters relate to business: ATO

The ATO was approached for comment on these concerns about the authenticity of tip-offs it receives.

While it did not directly respond to questions about the proportion of tip-offs that are found to be unsubstantiated, the ATO confirmed via a spokesperson that not all reports lodged result in action being taken.

“We take all tip-offs seriously. All information is assessed and referred to experienced staff who consider the information provided with other indicators to determine the veracity of risk and if any further action is required. We do not take action on all reports,” the spokesperson told My Business.

The spokesperson did, however, confirm that the majority of tip-offs it receives are business related.

“The new Tax Integrity Centre system will enable better reporting capability. However, at a high level, approximately 70 per cent of tip-offs were where someone identified a business,” the spokesperson said.

That would equate to around 49,000 of the projected 70,000 tip-offs the ATO will receive for the 2018–19 financial year.

My Business was advised that the ATO does not keep track of an individual’s motivation for making a tip-off.

New tip-off website set to launch

Asked about what guidelines are provided to taxpayers who may want to lodge their concerns about a third party, the ATO said that it is preparing to launch a dedicated reporting guide.

“From 1 July, our website will be updated (ato.gov.au/tipoff) to include information to support providing a tip-off, including how to make a good tip-off and what information to provide,” the spokesperson said.

“Our hotline staff have [also] received additional training.”

The spokesperson urged anyone making an honest tip-off to be as detailed as possible.

“Even if you only know part details, this information is still very useful,” they told My Business.

“To help us to identify who you are reporting, proving information like their name, an ABN and any social media details are helpful.

“If you know, it is also helpful for us to hear about:

what they are doing and where it is happening
how long it has been happening
information about others involved
any advertising they are doing
copies of receipts or other materials you have that support your report
details of any supporting information you are aware of, what it is and who holds it

Adam Zuchetti
27 June 2019
accountantsdaily.com.au

Tax on compensation received for inappropriate advice

Again, the answer to a tax question is “it all depends”.

On the heels of the banking and financial services Royal Commission, the Australian Taxation Office has published information about how tax applies for people who receive compensation from a financial institution that provided inappropriate advice and/or did not provide advice it should have. This can include compensation for the loss of an investment, or a refund of fees or interest.

Capital gains tax comes into play, and the compensation amount may count as part of your assessable income if it’s a refund of adviser fees that you’ve already claimed as a tax deduction.

AcctWeb

‘Extra care’ crucial in avoiding ATO spotlight this tax time

Tax agents have been urged to apply “an extra bit of thought and extra care” into handling clients’ claims this tax time as ATO scrutiny mounts.

Speaking to Accountants Daily, H&R Block director of tax communication Mark Chapman said that a combination of factors — the publication of the $8.7 billion individual tax gap and a major increase in ATO funding — has created a perfect storm for the Tax Office to come down hard on errant claims this year.

“The ATO has done their research on it and they’ve got this $8.7 billion tax gap figure in their minds, so they’ve got a bit of science behind their suspicions regarding work-related expenses,” Mr Chapman said.

“They’re not just looking at clients, they are profiling tax agents, so if the claims you are putting through are outside the benchmarks for other tax agents, that can increase scrutiny on the agent themselves.

“They risk-profile every tax agent these days and if you fall well outside these benchmark,s then you can expect the Tax Office to turn up on your doorstep and going through your files.”

Mr Chapman, a former senior director at the Tax Office, believes agents can steer clear of any potential scrutiny this tax time by have a firm grasp of the tax law and applying some common sense to claims.

“The ATO sometimes tries to put across this message that they almost expect tax agents to audit their clients before they lodge their returns, and I don’t buy into that at all, but just using your common sense and that feeling about whether something stacks up, and if it doesn’t, ask some questions and take some notes to justify why the claim is being made,” he said.

“If you just put in that extra bit of thought and extra care, that will pay dividends for the client because they won’t be audited and pay dividends for the practice because you won’t get that ATO spotlight on you for making incorrect excessive claims.”

Mr Chapman also believes it might be prudent to turn away clients who are aggressive with their claims.

“Sometimes clients come into the office and are very forceful about what they want to claim, very forceful about what they are entitled to, and if you don’t put the claim through they will go somewhere else,” Mr Chapman said.

“If a client takes that attitude then, unfortunately, you might have to prepare to tell them to go and find someone else because you don’t think these claims stack up.

“A lot of it comes down to understanding the basics of tax law, and secondly, it comes down to the common sense understanding of what claims stack up and what don’t.”

Jotham Lian
27 June 2019
accountantsdaily.com.au

ATO flashes warning over $7.2bn car expenses claims

Over $7.2 billion in work-related car expenses claimed last year have placed the popular deduction firmly in the headlights of the ATO this tax time.

According to ATO assistant commissioner Karen Foat, over 3.6 million people made a work-related car expense claim in 2017–18, totalling more than $7.2 billion.

The deduction will be a key focus area for the Tax Office this year, with one in five claims exactly at the maximum 5,000km limit for the cent per kilometre method.

“While some claims of exactly 5,000km are legitimate, we’ve found many people are unable to show how they’ve arrived at this amount, and as a result, they’ve had their claim reduced or disallowed in full,” Ms Foat said.

“We are still concerned that some taxpayers aren’t getting the message that overclaiming will be detected, and if it is deliberate, penalties will apply.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make and car expenses their employer paid for or reimbursed them for.”

Ms Foat said the ATO’s sophisticated analytics will compare taxpayer claims with others earning similar amounts in similar jobs.

In one unsupported claim last year, a taxpayer claiming $4,800 using the logbook method had triggered an ATO red flag, with a request for the logbook resulting in the taxpayer presenting a car service logbook instead of a logbook kept for calculating their work-use car percentage. The taxpayer was found to have not undertaken any work-related car travel during the year.

Another claim was flagged after the ATO identified an office worker claiming $3,300 for 5,000 kilometres of work-related travel using the cents per kilometre method. The taxpayer advised that his employer did not require him to use his car for work and that his claim was based on trips he made from home to work.

According to Ms Foat, where the Tax Office identifies questionable claims, they will contact taxpayers and ask them to show how they have calculated their claim. In some cases, where further scrutiny is warranted, the ATO may even contact employers to confirm whether a taxpayer was required to use their own car for work-related travel.

“Simply driving between work and home is not enough to warrant a deduction. You must have a work-related need to travel while performing your job, like traveling from site to site or be required to transport bulky tools,” Ms Foat said.

Apart from work-related deductions, the ATO has also indicated its focus on the overclaiming of rental deductions and the non-declaration of rental income, after commissioner Chris Jordan said that a random audit sample of returns with rental deductions found that nine out of 10 contained an error.

Jotham Lian
25 June 2019
accountantsdaily.com.au

Alert – Online Share Accommodation

Home-owners should consider the wider taxation implications of renting the family home before taking a short-term benefit.

The online platform (e.g. AirBnb) that facilitates the rental of your residence also provides much of that information to the Australian Taxation Office (ATO). Thereafter, it is a simple matter from them to ensure all taxpayers disclose this rental income in their income tax return.

It is unlikely that many costs of the property during that period will be deductible.

However, a much more significant concern is the loss of full main residence exemption from Capital Gains Tax when the family home is sold. An apportionment for the “business use” of the property will mean some of the “tax-free” gain has become taxable.

How accurate are your records (compared to the ATO who have the on-line platform records)? How complex has it become?

Most taxpayers will forget the details but be surprised by an amended assessment without enough information to dispute ATO assessment.

AcctWeb