GST spotlight headed to smaller end of town

With large multinational and public companies put on notice by the ATO over their GST compliance obligations, smaller taxpayers have been warned of “greater frequency and rigour” of reviews heading their way.

Earlier this month, the ATO released their GST review process for large multinational and public companies, highlighting information needed, including structure and business activities, and tax governance and risk management processes.

While the notice was targeted towards larger corporates, the smaller end of town should brace themselves for increased reviews, says Moore Stephens director James Tng.

“In our experience, these GST reviews are not limited to the big end of town – we’re seeing it across the board,” Mr Tng told Accountants Daily.

“The softly, softly approach of probably the first 10 years of GST is over, now they are into tough compliance and making sure you are meeting the tax obligations, hence you are seeing more releases, practice guidance statements and alerts from the tax office.

“Whilst it is not to the same extent [as the large corporate], which is quite exhaustive, it is almost going to them early and letting them review the entire process and system, and we haven't seen that degree of review at the smaller end of town yet, but we are seeing much greater frequency in the rigour and the number of GST reviews.”

Accordingly, Mr Tng believes taxpayers will need to act early in preparation for any impending audits, to save time and costs in dealing with the ATO.

“Accountants need to start to have the conversation early. Clients are great when they come to you early to seek advice, what is important next is to begin structuring and documentation of the structure early – if there is third-party funding or related-party lending involved, documenting that,” said Mr Tng.

“You want to remove the low-hanging fruit where it is an audit situation and there are obvious things you haven't considered, the tax office will be very quick to pick up on low-hanging fruit and pin an audit on that

“We have seen vanilla property investors who might be doing apartment development. In the scheme of things, they are not big numbers, but you are seeing as soon as a refund is triggered, the ATO is asking for information, show us your loan agreements, they want to see what the arrangement is with third parties overseas, so they are starting their compliance activity very early.”

Jotham Lian
29 August 2018
accountantsdaily.com.au

In case you missed it – The company tax Bill that did pass Parliament.

Amidst all the drama in Canberra recently, you could be forgiven for missing an important company tax rate change.

One bill – (Enterprise Tax Plan Base Rate Entities) Bill 2017 actually did get passed by the Senate.

This is an important company and dividend taxation amendment, having both retrospective and prospective impacts.

The lower company tax rate is now dependent on:

having an aggregated turnover less that the requisite threshold (i.e. $25 million in 2017-18 and $50 million in 2018-19 and future years), and
no more than 80% of a corporate’s assessable income for the relevant year is passive income as defined.

Further, maximum franking credits that can be attached to dividends are to be determined by:

assuming the aggregate turnover in the current year is the same as in the previous year; and
applying the corporate tax rate for the current year.

It should not be – but to answer the question what company tax rate will I pay – it depends!!

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What is Bankruptcy?

Bankruptcy is a legal process whereby a person is declared unable to pay their debts.

In all bankruptcies, a trustee in bankruptcy is appointed to administer the bankrupt estate. The trustee may either be the Federal Government Official Trustee, or a private registered trustee.

When someone is declared bankrupt, creditors who do not hold security for their debt (the unsecured creditors), are generally prevented from continuing to seek recovery of their debts.

Creditors cannot begin or continue recovery action during the bankruptcy period or after the person’s discharge from bankruptcy. The bankrupt is released from these debts upon their discharge from bankruptcy.

The bankrupt may choose to continue making repayments to their secured creditors. If they do not, the secured creditors may take possession of their security and sell it.

A bankrupt is generally entitled to retain the following:-

household furniture and personal effects
low value motor vehicles
low value income producing tools of trade
superannuation

At risk of forfeiture would be the share of:-

the family home
investment property
listed shares
business assets

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ATO drills in car-sharing focus this tax time

The tax office has reiterated it will be paying close attention to taxpayers earning income through car-sharing platforms, in line with its focus on the share economy this tax time.

The ATO has warned that the growing popularity of third-party services such as Car Next Door, Carhood or DriveMyCar Rentals has prompted its interest, noting that it will be taking a close look at taxpayers who leave out such income from tax returns.

ATO assistant commissioner Kath Anderson said there is evidence that some taxpayers who are undertaking sharing activities might not understand the taxation implications, similar to its notice to 200,000 taxpayers who facilitate short-term rental properties, earlier this month.

“No matter how little you earn through car sharing, it is important to include it in your tax return. It’s no different to anyone else renting out an asset, like a house or a car park. You must declare the income and you cannot avoid tax by calling it a hobby,” said Ms Anderson.

“Whether you are a digital native or an electronic illiterate, it will be difficult to avoid scrutiny as the ATO has sophisticated systems and data to help identify where sharing platforms are being used to generate income.”

Taxpayers who rent their cars may also be entitled to claim some deductions, including expenses like platform membership fees, availability fees, cleaning fees and car running expenses, in respect to earning the rental income.

H&R Block director of tax communication Mark Chapman earlier told Accountants Daily that the rise and rush to rental platforms may have caught some clients out in terms of declaring such income on their returns.

“It might seem obvious to those of us in the tax business that this income is taxable, but I’ve certainly encountered taxpayers who had no idea that this income needed to go on their tax return – or indeed, that they can also claim tax deductions against the income,” said Mr Chapman.

Jotham Lian
23 August 2018
accountantsdaily.com.au

Superannuation Amnesty – Maybe! Maybe Not!

An amnesty to allow unpaid superannuation to be reported and paid without penalties has hit a big snag.

The amnesty announced in May 2018 lasting for 12 months was concessional in allowing employers to catch-up unpaid compulsory superannuation with reduced penalties.

However, the legislation has not passed and will not be considered until Federal Parliament next meets in mid-August.

If you do want to use the amnesty, be aware it may not become law. And extensive wages details need to be provided proving the calculation of unpaid super – possibly a significant time by your pay office (or yourself).

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Update of Australia’s vital statistics

Please click on the following link to see all this interesting information. The areas covered are:

Overview
Markets
GDP
Labour
Prices
Money
Trade
Government
Business
Consumer
Housing
Taxes
Climate

Access all this data here.

tradingeconomics.com

Update to Australia’s vital statistics

Please click on the following link to see all this interesting information. The areas covered are:

Overview
Markets
GDP
Labour
Prices
Money
Trade
Government
Business
Consumer
Housing
Taxes
Climate

Access all this data here.

tradingeconomics.com

Understanding the evolution of blockchain and cryptocurrencies

While it’s unlikely that traditional accounting will be replaced by a blockchain method in the near future, accountants should keep a keen eye for any developments and be prepared to deal with new standards in accounting for cryptocurrencies.

While bitcoin is arguably the most famous cryptocurrency, it’s far from the only one. There are more than 1,500 cryptocurrencies around the world, and that number continues to grow. Bitcoin, along with many other cryptocurrencies, is based on the distributed ledger known as blockchain.

Originally, blockchain was exclusively used with cryptocurrencies, so the terms were commonly interchangeable. Now, blockchain has expanded to include various use cases that centre on validating identity and transactions.

This transformative technology has moved beyond buzzword status to become a realistic, viable business technology, so it’s important for accountants to understand how it works and how to account for it. Some even say the impact of distributed ledger technology could be as revolutionary as the internet itself.

To understand why, it’s important to define the blockchain. Essentially, it removes the need for intermediaries such as banks to verify transactions. Each ‘block’ in the chain contains a cryptographic hash of the previous block. Because each block depends on the one before it, the transactions can’t be changed retroactively without altering all the subsequent blocks. This makes it practically impossible to fraudulently alter the blockchain without the collusion of all other members.

While it’s unlikely that traditional accounting will be replaced by a blockchain method in the near future, the technology does have applications throughout business. Of more immediate interest and debate, however, is the volatility in the value of cryptocurrencies.

The value of a cryptocurrency has been proved to be highly susceptible to speculation. For example, one bitcoin is currently worth approximately AUSD$6,000, just six months ago it was valued as high as US$20,000. Having said that, some businesses continue accepting cryptocurrency payments and investing in digital currencies, despite their volatile value.

Another challenge regarding cryptocurrencies is in relation to the accounting, classification, and valuation of them for financial reporting purposes. The International Accounting Standards Board (IASB) has not yet issued a standard or clear guidance for accounting of cryptocurrencies. The best guidance available for Australian accountants is possibly the ASAF 2016 Meeting – Digital currency – A case for standard setting activity prepared by the Australian Accounting Standard Board (AASB). It presents a case for setting standards around digital currencies that concluded that digital currencies don’t meet the definition of most classes of assets in the accounting framework, including failing to represent cash, cash equivalents or financial assets.

Therefore, it seems likely that the only way to account for digital currencies is as intangible assets. They meet the identifiable criteria of an intangible asset, because they’re sold in units on an exchange. As mentioned above, because they don’t meet cash or cash equivalent definitions, they therefore meet the ‘non-monetary’ element of the criteria for intangible assets. They also have no physical substance, so they meet the criteria on that basis as well.

Despite this, the AASB concluded that entities trading with cryptocurrencies would be considered to hold those currencies for sale in the ordinary course of business. They would therefore be excluded from the scope of intangible assets and would have to account for them as inventory.

Businesses selling digital currency in the course of business may need to determine whether they’d be considered as a ‘commodity broker-trader’ under the standard. If so, they can’t account for digital currencies as inventory. Instead, they’d need to measure these assets at fair value less the cost to sell them, with changes in the fair value recognised as profit or loss.

This lack of clarity means entities will need to develop their own accounting policy to deal with how they recognise, classify, and value cryptocurrencies. That policy should provide guidance on how to account for the digital currencies, depending on the purpose of holding them.

For example, if an entity holds digital currencies for investment purposes, then they can be classified as an intangible asset measured at either the cost model or the fair value model (The fair value model could be the most useful way to communicate the value to a stakeholder).

Entities can also treat cryptocurrencies as intangible assets if they accept the cryptocurrency as payment for goods or services and will convert it to cash in the short term. However, if the entity holds digital currencies for trading, then they should be accounted for as inventory and measured at fair value less cost to sell, with changes in fair value recognised through profit or loss.

While this presents a logical interim approach for accounting for cryptocurrencies, future advancements in standards and definitions could provide a more concrete framework for businesses to adhere to. Accountants should, therefore, keep a watching brief on this area and be prepared to pivot to new standards.

By Rafael Morillo Maldonado
Principal, Audit and Assurance, RSM Australia
www.accountantsdaily.com.au

Guidance for SMSFs on transfer balance reporting

The Australian Taxation Office has released further guidance on when SMSFs need to report events affecting their members’ transfer balance accounts (by making a transfer balance account report, or TBAR) for the purposes of the $1.6 million pension cap.

From 1 July 2018, SMSFs that have any members with a total superannuation balance of $1 million or more must report events impacting that member’s transfer balance account within 28 days after the end of the quarter in which the event occurs.

SMSFs where all members have total super balances of less than $1 million can choose to report events which impact their members’ transfer balances at the same time that the fund lodges its annual return.

The guidance also covers reporting requirements for retirement phase income streams and commutations (including commutation authorities).

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Salary sacrifice integrity

Legislation has also been introduced to prevent employers from using an employee’s salary sacrifice contributions to reduce the employer’s own minimum SG contributions.

Some employers who offer salary sacrifice into superannuation, calculate the minimum SG contribution on the “reduced” salary rather than the “package”.

This change would apply to working out employers’ SG shortfalls for quarters beginning on or after 1 July 2018.

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