Tools to help you manage your financial position are available on our site.

Three ingredients to attaining your retirement goals: give yourself enough time, utilise professional assistance and increased financial literacy.

On a beach, in a desert, atop a mountain, at a restaurant, overseas, under a tree, or by a river there’s always time to work at improving the understanding you have of your financial position and of how better to manage your money.

Being able to develop and manage a Budget has always been important to gaining better control of our affairs. Unfortunately, undertaking this task on a regular basis has always been hard, time consuming and, at best, ad-hoc. While there are many tools and resources available to you those that better connect you to your financial planner can provide the best long-term outcomes. Plus such tools are secure and available 24/7 so you can use your time rather than ‘fitting’ in with someone else.

The value of completing and managing a budget on an ongoing basis cannot be overstated. So to help we take great pleasure in providing you with access to a comprehensive range of integrated budgeting, superannuation and cash flow tools via our website.

To start using them simply click on the Calculators or Financial Tools button in the menu bar and login in again or register.

The real beauty of these tools is that you can use them, leave, and when you come back to keep developing your budget or test some Super strategies the information you entered previously is still there waiting for you. Of course, you need to Register so the system knows which information is yours, just like, say, Internet Banking.

While these tools are great for those getting closer to retirement they are also of value to the young who need to look at both their short-term needs as well as thinking of the long-term as well. It is never too early to start managing money and setting course for some life time financial objectives.

Your Financial Planner

New passive income test for lower corporate tax rate

New rules ensure that companies with more than 80% passive income will not qualify for the reduced company tax rate.

Calculations of a business’s “passive income” would include:

distributions by corporate tax entities (other than non-portfolio dividends);
franking credits attached to such distributions;
non-share dividends;
interest;
royalties;
rent;
gain on qualifying securities;
net capital gains; and
amounts included in the assessable income of partners in a partnership or beneficiaries of a trust estate that are referable to another base rate entity passive income amount.

This will apply from the 2017–2018 income year.

The lower company tax rate of 27.5% is available in 2017–2018 for small businesses and corporate base rate entities with turnover of less than $25 million.

You must also “carry on a business” to be eligible for the lower corporate tax rate.

AcctWeb

Resources to help understand and implement Single Touch Payroll (STR)

STR is a significant change for business tax compliance, though for now those businesses that need to make this charge have 20 or more employees. Changes take effect on 1-7-2018, 12 months later for businesses with less than 20 employees.

In short, this change means that ‘you will report payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information from your payroll solution each time you pay your employees.’

The information and links listed below will help you quickly check or double check what you need to do to comply. If you are having trouble or want to discuss cash flow and tax implications then ask your accountant. But, above all, do not delay in getting ready for this change.

ATO resources and explanatory notes:

Source: Australian Taxation Office (ATO)

New rules capture SMSFs trading big with cryptocurrency

Sizeable cryptocurrency transactions will “come to the attention of the ATO” under new rules that came into effect this week, so a mid-tier firm has put together a checklist of key considerations to keep SMSF investors compliant.

As of today, all cryptocurrency exchanges must be signed up to a new Digital Currency Exchange Register. Transactions exceeding $10,000 must also be reported to AUSTRAC to meet existing rules for bank transfers and cash transactions.

“People will need to be ready to explain not only where the money came from, but also to show that they have followed the ATO’s rules,” said partner at HLB Mann Judd, Peter Bembrick.

“A critical aspect for an SMSF’s compliance is having the right documentation to establish that the investment has been made by the fund, as well as keeping track of the market value annually and recording disposals, gains and losses,” Mr Bembrick told SMSF Adviser.

Ignorance of the tax-related consequences of cryptocurrency exchanges is not adequate defence, particularly given the very public campaigning of the ATO about cryptocurrency in the lead up to tax time.

“There are a number of areas that may catch people by surprise, if they haven’t done their research. It’s never a good idea to fall foul of the ATO and, as always, ignorance of the rules is not considered an adequate defence for failing to pay the appropriate tax.”

Mr Bembrick prepared a checklist for professionals with clients who hold cryptocurrency, as follows:

The tax implications of mining cryptocurrency

Generally speaking, the ATO would treat activities to acquire cryptocurrency by mining additional units as a business, and the value of units acquired would be assessable income in the year of acquisition.

“On the assumption that the cryptocurrency units are treated as either trading stock or CGT assets, however, then any further unrealised increased in the value of units held will not be taxable until they are eventually realised on a later disposal,” Mr Bembrick said.

“In addition, if there are direct costs such as electricity or the depreciation of equipment dedicated to cryptocurrency mining activities, these should be tax deductible against the income received from the cryptocurrency mining business,” he said.

Claiming a personal use exemption

The ATO will accept that cryptocurrency is a personal use asset if it can be shown that it was acquired purely to hold and then exchange for other goods and services, and not with the intention of making a profit or in the course of carrying on a business, Mr Bembrick said.

A personal use asset — with examples including a car, boat or holiday home — is exempt from CGT if it costs less than $10,000.

“However, the question of intention can be quite subjective and is not always so easy to prove,” Mr Bembrick said.

Tax payable if someone is paid using cryptocurrency

Contrary to some client chatter, if someone is paid in cryptocurrency for goods or services they provide in the course of carrying on a business, this payment is still taxable.

“The ATO views this in just the same way as being paid with other goods or services, that is, as a form of barter arrangement. The taxable amount is the AUD value of the non-cash consideration for the goods or services at the time of the transaction,” Mr Bembrick said.

“Similarly, if cryptocurrency is used to pay for goods and services in the course of carrying on a business, the AUD value of the payment would be treated for tax purposes in the same way as if you had paid the equivalent amount in cash,” he said.

Capital gains tax

As the ATO indicated in its guidance note last year, there is a taxable capital gain when a cryptocurrency unit is sold for more than the purchase price, and a capital loss when it is sold for less than originally paid.

“The capital gain or loss needs to be recorded on the personal tax records, just as any other investment such as shares,” Mr Bembrick said.

“For Australian residents who have held the cryptocurrency for at least 12 months, a 50 per cent CGT discount can be claimed, meaning they only pay CGT on half of the actual gain,” he added.

Further, it’s important clients are aware of the difference between investor and trader for tax purposes.

“Just like other investments, be aware that the ATO may treat some investors as a trader or speculator. This means that, if the purpose of buying and selling cryptocurrency was for short-term profit rather than long-term capital growth, then any gains would simply be taxed as personal income, without any access to the CGT discount and without the ability to offset any capital losses from other investments against the cryptocurrency gains,” Mr Bembrick said.

“The only good news is that trading losses can be offset against other types of income,” he added.

Not a currency

Cryptocurrency, such as bitcoin, is not a currency, but rather is treated as an asset for tax purposes.

Consequently, the price in Australian dollars will change over time, which is important because it means that there are tax consequences from the purchase or sale of a unit of cryptocurrency.

“As with other investments, the exact nature of the tax implications will depend on the taxpayer’s related activities as well as their intention when they acquired the cryptocurrency,” Mr Bembrick said.

By: Katarina Taurian
03 APRIL 2018
www.smsfadviser.com

ABN Lookup – Business Names/Trading Names

From November 2018, trading names will be removed from the ABN Lookup.

The ABN Lookup contains a list of all Australian Business Numbers (ABNs) and any associated business names.

A ‘trading name’ refers to an unregistered name that businesses could use before the introduction of the National Business Names Register.

A trading name is not a registered business name.

If you want to trade under a specific name, you’ll need to register it as a business name with the Australian Securities and Investments Commission (ASIC).

You don’t need to register a business name if you trade under your own name (‘John Smith’), but you’ll need to have a business name if it’s anything else (‘John Smith Plumbing’).

To continue using a trading name after November 2018, businesses have to register them.

Should you require a business name to be registered or would like any further information or assistance please contact Nicole Bedoya on 9509 7033 or email nb@guests.com.au

Client Alert – April 2018

ATO embarking on e-Audits

The ATO has recently published information about the “e-Audit” technology it uses as part of its tax compliance activities. These audits involve the ATO performing computer tests on a taxpayer’s own electronic records to verify that the data is accurate and complete and that the taxpayer has complied with relevant tax laws.

If a taxpayer is selected by the ATO for an audit or review, the ATO will take a copy of the relevant records (eg data held in the taxpayer’s accounting or payroll systems) in order to perform the tests. Although the ATO has broad powers to access taxpayers’ records, the ATO takes a cooperative approach and will work with the taxpayer and their advisers.

The ATO may also use an assessment tool to rate a taxpayer’s system risks in relation to correct reporting of tax and super obligations. This can have benefits for the taxpayer because the ATO will provide them with a final report that highlights any particular compliance risks for their business and includes recommendations for addressing these issues.

Court finds pay-as-you-go amounts “withheld” from salary payments

The Federal Court has ruled that pay-as-you-go (PAYG) amounts were “withheld” from a taxpayer’s salary payments so that she was entitled to a tax credit, despite the amounts never being remitted or notified to the ATO by her employers.

This case illustrates the importance of records and documentation in tax matters. The Court examined evidence such as the taxpayer’s offer of employment, payslips, bank statements and payment summaries, which suggested that the salary payments she received were “net pay” amounts (and not “gross”).

The Court noted that where an employer has not remitted PAYG withholding amounts to the ATO, this will raise questions about whether amounts were really withheld. However, adequate documentation can – as in this case – be used to prove that PAYG has in fact been withheld by an employer, even if the employer has subsequently failed to remit this to the ATO.

“Transition to retirement” pensions to become simpler

In welcome news for superannuation members, the government has announced plans to simplify the payment of transition to retirement income streams (TRISs) so that they will always be permitted to automatically revert to a dependant upon the death of the original pensioner. This is designed to address a trap in the current legislation that is causing some administrative difficulties for funds when a TRIS recipient passes away.

TIP: With greater certainty about the payment of TRISs on death, now is a good time for superannuation members to review their estate plans.

ATO releases latest small business benchmarks

The ATO has released its latest small business benchmarks, providing over 100 different industries with average cost of sales and average total expenses.

These benchmarks can not only assist businesses with tax compliance (eg by prompting them to double-check their records if their expenses are outside the benchmark range for their industry), but also provide useful information to help businesses judge their performance against others in the industry.

TIP: You can access the benchmarks online or by using the ATO app. Contact our office if you wish to discuss how your business compares against industry benchmarks.

Capital gains tax withholding: updated information for trustees

The foreign resident capital gains tax (CGT) withholding regime requires purchasers of Australian property to withhold an amount from the purchase price (for remission to the ATO) if the vendor is a foreign resident. This regime is designed to assist the ATO in collecting CGT payable by foreign residents.

If the vendor is an Australian resident, they must provide an ATO-issued clearance certificate to the purchaser on or before the day of settlement to ensure no withholding occurs. The ATO has released some guidance for trusts and superannuation funds about specific information they must provide when applying to the ATO for a clearance certificate. Contact our office for further assistance.

Goods and services tax on low-value imported goods

From 1 July 2018, goods and services tax (GST) will apply to some offshore supplies of goods valued at $1,000 or less that are purchased by consumers and brought into Australia. The new rules are designed to create a more “level playing field” for local retailers.

The ATO has released a ruling covering GST registration issues for suppliers and other technical aspects of the new legislation. Notably, the existing rules about GST on imports valued above $1,000 are unchanged.

Superannuation rates and thresholds for 2018–2019

We summarise some of the key superannuation rates and thresholds for the upcoming financial year:

Contributions

Concessional contributions cap	$25,000
Non-concessional contributions cap	$100,000*
CGT cap amount	$1,480,000
Super guarantee percentage	9.5%
Maximum contribution base (per quarter)	$54,030

* 300,000 for a “bring forward” arrangement

Government co-contributions

Lower income threshold	$37,697
Higher income threshold	$52,697

Superannuation payments

Lump sum low rate cap	$205,000
Untaxed plan cap	$1,480,000
ETP cap amount	$205,000
Genuine redundancy and early retirement payments – tax-free amounts:
· base amount	$10,399
· service amount	$5,200

Pension cap

General transfer balance cap	$1,600,000
Defined benefit income cap	$100,000
“Total superannuation balance” threshold	$1,600,000

Super guarantee: ATO compliance approach to non-payment

The ATO has released a fact sheet explaining its compliance approach to employers who fail to meet their superannuation guarantee (SG) obligations.

Broadly, employers are required to make SG contributions of 9.5% of an employee’s ordinary time earnings (provided they have paid the employee at least $450 in a calendar month). Payments are due quarterly. Employers are also liable to make contributions for certain contractors.

The ATO confirms that its compliance approach towards a particular employer will depend on that employer’s compliance history and other circumstances. The ATO will take firm action against any employer who repeatedly fails to pay the correct amount of SG or who does not cooperate with the ATO (eg by failing to provide information or attempting to mislead or obstruct the ATO).

Single Touch Payroll reporting: ATO urges employers to get ready

The ATO is urging employers with 20 or more employees to start preparing now for the Single Touch Payroll (STP) reporting regime, which will be mandatory from 1 July 2018.

This reporting change for employers means they will report payments such as salaries, wages, allowances, PAYG withholding and superannuation contributions information to the ATO directly from their payroll solution at the same time they pay their employees. STP reporting starts on 1 July 2018 for employers with 20 or more employees, and is slated to apply from 1 July 2019 for those with 19 or fewer employees.

TIP: Businesses should do a headcount of employees as at 1 April 2018 to check if they have 20 or more. There are rules about which employees to include in the headcount. Contact our office for assistance.

Accountants spy elder abuse spike as mortgage stress sets in

Housing affordability is tempting some adult children into elder abuse territory, as they look to their parents' retirement savings to alleviate their mortgage stress.

Protecting Seniors Wealth chief executive Anne McGowan said she is regularly contacted by professionals who are concerned their clients may be subject to financial abuse by either family members or other individuals.

One of many recent cases came from an accountant reporting his stepfather was suffering financial abuse from another member of the family.

“What was happening was another member of the family had begun to take the older gentleman in around to all their banks, and this family member was closing all the bank accounts and putting the money into his own companies,” Ms McGowan explained at an SMSF Association event in Sydney this week.

This family member had enlisted the help of a lawyer to set up a number of these companies, she said.

The accountant, through his firm, did a number of searches on these companies, and they started to trace what was happening with the companies and then chase the funds.

“It ended up going to court, it took him a while and he was the one that had to drive it all,” Ms McGowan said.

“The outcome of that court case was that the funds had to be paid back to the older gentleman, and the lawyer’s professional indemnity had to pay all the court costs.”

While the older gentleman hadn’t necessarily lost capacity, the perpetrator had somehow convinced him that it was a good idea, she said.

Verante Financial Planning director Liam Shorte said he has likewise seen adult children of clients come into the firm and state that because their mother or father are only receiving a small return on their term deposit, that perhaps the money in the account should instead be put towards their own mortgage.

“We see situations where someone comes in and says ‘dad or mum are only getting 2.5 per cent on the term deposit, so what we've agreed with dad or mum is that we'll put the money towards our mortgage where it saves us interest but we'll pay mum or dad 3 per cent,” explained Mr Shorte.

“It starts off being all legal, and then six months later some expense comes in and they can't afford to pay mum or dad the money, and they say ‘they don't need the money anyway’. Then we have to raise the point: ‘Well you may not think it, but your siblings probably do’. I've seen that a few times with clients in the past few years. It's disturbing.”

These patterns correlate with increasing levels of mortgage stress on a national scale. Accountants Daily has previously reported clients are increasingly looking to risky tax strategies to boost their repayment capacity.

Research house Digital Finance Analytics (DFA) late last year showed about 29.7 per cent of households — 921,000 — are under “mortgage stress.”

About 24,000 households are under “severe mortgage stress”, up by 3,000 from November 2017.

DFA principal Martin North believes the risk of default for Australians has increased for 2018, with an estimated 54,000 households currently at risk of 30-day debt defaults in the next 12 months.

By: Miranda Brownlee
21 MARCH 2018
www.accountantsdaily.com.au

Tax office releases fresh guidance on SMSFs

The ATO has released a new piece of guidance which outlines its concerns and compliance activity with reserves in SMSFs.

****Update***The ATO used the new vehicle of an SMSF Regulator’s Bulletin to issue this guidance. This is now live on the ATO's website and available here.)

The ATO is set to “closely scrutinise” arrangements where amounts within an SMSF are held in a reserve, as opposed to being allocated directly to a member’s superannuation interest.

Compliance resources will not be applied to arrangements entered into by an SMSF before 1 July 2017, with exceptions to arrangements such as those that were not originally lawfully entered into.

In particular, the ATO is concerned that the advent of the transfer balance cap may entice some SMSF members to use reserves as a means to circumventing the new balance restrictions. In these instances there can be serious consequences, as the Part IVA provisions may apply.

Effectively, the ATO will be on the lookout for unexplained increases in the creation of new reserves, in the balances of existing reserves, or allocation of amounts from a reserve directly into the retirement phase.

The types of arrangements that will be of particular interest to the ATO include the use of a reserve to reduce a member’s total superannuation balance, allowing them to make non-concessional contributions without breaching their cap.

Using a reserve to reduce a member’s total superannuation balance below $500,000 in order to allow the member to access the catch-up concessional contributions arrangements will also capture the ATO’s attention.

The ATO will be looking for signs of intentional use of a reserve to reduce the balance of a member’s transfer balance account below the member’s transfer balance cap, allowing the member to allocate a greater amount to retirement phase, thereby having more earnings in the SMSF being exempt current pension income (ECPI).

Similarly, intentional use of a reserve to reduce a member’s total superannuation balance below $1.6 million in order to allow the SMSF to use the segregated method to calculate its ECPI will also raise red flags.

The number of SMSFs using reserves is in the low thousands, and the ATO has not seen a spike in problematic arrangements. Rather, the regulator is taking a “prevention is better than detection” approach, Deputy Commissioner James O’Halloran told SMSF Adviser.

Outgoing Assistant Commissioner for SMSFs, Kasey Macfarlane, stressed the ATO understands there are legitimate cases for the use of reserves, but they mostly exist for historic reasons.

“That’s why the decision to create a reserve, or any growth in reserves, would attract our attention,” Ms Macfarlane told SMSF Adviser.

“We believe there are limited circumstances for use from 1 July 2017,” she said.

By: Katarina Taurian
15 MARCH 2018
www.accountantsdaily.com.au

Labor’s tax plans could favour the rich, analysis shows

Labor's plans for excess dividend imputation credits will favour the rich despite claims it is targeting wealthy Australians, according to specialist analysis.

If elected, Labor plans to end cash refunds for excess dividend imputation credits, with exemptions for pensioners and SMSFs with at least one pensioner or allowance recipient before 28 March this year.

Shadow treasurer Chris Bowen has framed the policy as one that targets the wealthy, but general manager for technical services and education at SuperConcepts, Peter Burgess, has found flaws in this assertion.

“It seems to me that this measure could actually allow the rich to accumulate more in super,” Mr Burgess told SMSF Adviser.

“Transferring some of their pension balance to the accumulation phase may allow them to use all of their franking credits. The effect will be more retained in super for longer, as they can draw down super from accumulation phase when they need it rather than being forced to take the minimum pension each year,” he said.

Further, ongoing associations with SMSFs and the wealthy is a “fallacy,” Mr Burgess said.

For one, ATO statistics show that the SMSF median member balance is about $350,000 and the average member balance reported by funds established in 2016 was $204,000.

“So this revised measure will still eventually end up impacting many thousands of members with moderate superannuation savings,” Mr Burgess said.

“The growth of the SMSF sector has been a huge success story in terms of increasing member engagement and allowing individuals to take control of their own retirement savings. It’s unclear, at least to me, why we would want to penalise future generations who want to do the same,” he said.

Broadly, in professional communities, the policy has been knocked back as one that is not fit for purpose or fair to retirees.

On grounds of equity for SMSF members, The SMSF Association argued the sector has already had its concessions adjusted, and this policy would represent another blow to those who have structured their arrangements under current law and in good faith.

“The transfer balance cap is limiting excess franking credits that would have been paid to SMSF members with large balances. Under the new transfer balance cap rules, SMSF members with more than $1.6 million will be paying tax on some of their earnings that will offset the value of their franking credits, limiting their refunds,” said chief executive John Maroney yesterday.

By: Katarina Taurian
29 MARCH 2018
www.accountantsdaily.com.au

Property investors on notice after ATO spots false claims

As usual some ridiculous claims ruin it for genuine investors.

(One case reported by the ATO, one man owned a property on Victoria's Mornington Peninsula and claimed $760,000 in deductions for a property used by either himself or family and friends for 87 per cent of the year.)

Clients with holiday homes will be subject to further ATO surveillance this tax time, after the ATO found a large number of “mistakes, errors and false claims” made by owners who use their property for personal holidays.

ATO assistant commissioner Kath Anderson has called on tax agents to double-check claims made by their property investor clients after finding a large number of incorrect deduction claims being made.

“As Australians enjoy the Easter break, they should be aware that the ATO is focusing on taxpayers who claim deductions for holiday homes that are not actually available for rent or only available to friends and family,” said Ms Anderson.

“While private use by family and friends of a holiday home is entirely legitimate, it does reduce your ability to earn income from the property. This in turn impacts the deductions you can claim.

“You can only claim deductions for your holiday home if your property is genuinely available for rent. You cannot claim for times when you were using it for your own personal holidays or letting friends and family stay rent-free,” she added.

“Holiday home owners also need to remember that if their property is rented to friends and family at mates rates, they can only claim deductions for expenses up to the amount of the income received.”

The ATO’s increased focus came after it found similar claims being made last year, including red flags when clients attempt to make claims for property that has not been genuinely rented out.

Ms Anderson said records were key to substantiating claims, including records of income received from the rental property, evidence of the property being rented out, and records of people who have stayed at the holiday home.

“We see things like unreasonable conditions placed on prospective renters, rental rates set above market rates, or failing to advertise a holiday home in a way that targets people who would be interested in it,” Ms Anderson said.

“Incorrect rental property claims will not go unnoticed. Whether it is a genuine mistake or a deliberate attempt to over-claim, new technology, data matching and other systems allow the ATO to identify unusual claims.

“Where something raises a red flag, it will be investigated. Property owners whose claims are disproportionate to the income received can expect scrutiny from the ATO.”

By: Jotham Lian
29 MARCH 2018
www.accountantsdaily.com.au