Employee travel expense deductions

To claim for transport or other employee travel expenses (like accommodation and meals) you must have incurred the expenses as part of gaining or producing your taxable income.

Just to reinforce the obvious, private and domestic travel expenses, including the costs of your ordinary home-to-work travel, aren’t claimable.

Important issues are:-

– Is the travel a necessary part of performing your work (you can’t pretend your family holiday’s a work trip)?

– Does your employer pay you to undertake the travel?

– Do you have to follow your employer’s instructions during the travel period?

Accommodation, meal and other incidental expenses are deductible as work-related only if your work has “special demands” or “co-existing work locations” that mean you have to sleep away from home.

We’re here to help – contact us to find out more about getting your work-related tax deductions right.

AcctWeb

Payroll, compliance issues top dodgy practices in Aussie business

Thousands of anonymous reports to the workplace regulator have shown problematic payroll practices and shoddy internal compliance procedures are the leading causes of employee exploitation, particularly of foreign nationals.

More than 20,000 tip-offs alleging potential workplace breaches have been made with the Fair Work Ombudsman since the launch of its Anonymous Report tool in mid-2016.

The vast majority of anonymous reports contain allegations concerning pay, with a large proportion of the reports received each month relating to the hospitality industry, with retail the next most-reported industry.

In one example, an audit of a company’s record, following a tip-off, uncovered evidence of contraventions in relation to pay rates, break entitlements and pay slip requirements.

The company had been accused of paying its employees as little as $8 per hour, cash in hand, and were later issued with a compliance notice and a contravention letter, resulting in approximately $50,000 in wages and entitlements being paid back to workers.

Fair Work Ombudsman Natalie James said information received from members of the public provided valuable intelligence which helped design future compliance activities.

“The reports we receive enable us to identify trends and generate leads for our inspectors to follow up,” Ms James said.

“This assists us to focus our priorities and direct our resources to those areas where we will have the greatest impact.

“We also know that most people who use the tool provide information about their current employment.”

Young people, students and visa holders accounted for a significant number of the anonymous reports received, an indication of the vulnerability of these cohorts in the workplace.

Close to 800 reports were received in languages other than English, with Chinese and Korean the most common languages used.

The Fair Work Ombudsman has been shining a spotlight on payroll, with two-thirds of the workplace regulator's court cases involved alleged record-keeping or pay slip contraventions in the last financial year.

By: Staff Reporter
23 FEBRUARY 2018
accountantsdaily.com.au

Super changes: $1.6 million transfer balance cap and death benefit pensions

Where a taxpayer has amounts remaining in superannuation when they die, their death creates a compulsory cashing requirement for the superannuation provider.

This means the superannuation provider must cash the superannuation interests to the deceased person’s beneficiaries as soon as practicable.

It is expected that the new rules provide that where a deceased member’s superannuation interest is paid to a dependent beneficiary in the form of a death benefit income stream, a credit will arise in the dependant beneficiary’s transfer balance account (the superannuation pension ceiling after 1st July 2017). The amount and timing of the transfer balance credit will depend on whether the recipient is a reversionary or non-reversionary beneficiary.

To reduce an excess transfer balance, you may be able to fully or partially convert a death benefit or super income stream into a super lump sum. Or the dependent (assuming already in the SMSF) may be able to convert their own existing entitlements.

Guidance is going to be important, as these issues become increasingly complicated, and advisers become more familiar with the problems and the solutions.

AcctWeb

‘Substantiation will be a key focus’: ATO drums in tax time 2018 hit list

The tax office has further detailed what type of work-related expenses will be in focus this tax time and signalled a particular focus on documentation where “red flags” are automatically triggered in its system.

As part of its broader and heavily heralded clampdown on work-related deductions, the ATO said today that substantiation will be bumped up its priority list when it assesses suspect claims.

“It’s important that you have a record of the expense and can demonstrate how you calculated your claims. Every year we disallow lots of claims because there is no evidence to prove the expense. Yet it’s so easy to keep an electronic record,” ATO assistant commissioner Kath Anderson said.

‘Other’ work-related expenses will be an area of focus for record-keeping, after $7.9 billion in claims were recorded last year between about 6.7 million Australian taxpayers.

Expenses of this nature can include home office, union fees, mobile phone and internet, overtime meals and tools and equipment.

The ATO is also warning against claiming private expenses where they are bundled with work expenses.

“We are seeing quite a few examples of people trying to claim the whole expense, including the private portion. Like some who incorrectly claim their entire phone and internet bundle, and others who claim an overseas study trip even though they had a holiday as part of the trip,” Ms Anderson said.

Up to the commissioner level, the ATO has been publicly pushing its compliance focus on work-related deductions for several months.

The ATO’s campaign has triggered concerns from professional associations. Most recently, CPA Australia said work-related deductions could well be on the chopping block in the May federal budget.

“We are of course waiting on the data, but CPA Australia is concerned that if the commissioner can’t administer the current laws, there may well be a policy response required,” head of policy and corporate affairs at CPA Australia, Paul Drum, told Accountants Daily last week.

Given the government’s focus on returning the budget to surplus, and its axeing of popular deductions for property investors last year, CPA’s hypothesis could come to fruition, but it would likely be to the detriment of small business and individuals.

“CPA Australia maintains its strong support for an equitable income tax system where all taxpayers — regardless of type — are able to claim tax deductions for qualifying expenses they have incurred in the derivation of their income,” CPA Australia said in its pre-budget submission.

“If the evidence shows the need for policy reform in this area it is important that any changes do not abrogate the right of all taxpayers to make any claims for WREs at all,” CPA Australia said.

By: Katarina Taurian
20 FEBRUARY 2018
accountantsdaily.com.au

New downsizing cap available

A benefit from downsizing to a smaller home.

If you are aged 65 or over, your home is your main residence for CGT purposes and you have owned it for a minimum of ten years, you could benefit. You will be able to make additional non-concessional contributions, up to $300,000, from the proceeds of selling your home from 1 July 2018.

The downsizer contribution cap of $300,000 will be in addition to existing caps; the capital must come from the proceeds of the sale price and application must be made within 90 days after the home changes ownership.

There will also be exemption from the contribution rules for people aged 65 and above, and the restrictions on non-concessional contributions for people with total super balances above $1.6 million.

AcctWeb

ATO set to doorknock as 60% of cash-heavy businesses caught

As part of the government’s broader crackdown on the cash economy, the tax office has told tax agents it will soon be visiting more clients to check they are reporting their cash payments.

The ATO has already conducted nationwide ‘Protecting honest business’ visits in a bid to monitor reporting compliance with cash payments.

It’s set for a new round of visits soon, in areas where its data matching shows businesses are not accepting electronic payments.

“While we know not every business is doing the wrong thing, we found over 60 per cent of the businesses we visited so far need to take some kind of corrective action,” the ATO said in a statement released yesterday.

This follows the ATO visiting about 400 small businesses operating with a heavy focus on cash transactions last year.

The ATO’s work is part of a massive government crackdown on the black economy in Australia. In December 2016, the Turnbull government launched a taskforce dedicated to those who use cash payments to avoid tax and superannuation obligations.

By: Katarina Taurian
30 JANUARY 2018
accountantsdaily.com.au

Foreign resident CGT withholding: early recognition of tax credit

In other words, an embarrassing deficiency in legislation has been corrected.

The Commissioner has made a determination to modify the time at which the vendor is entitled to a tax credit in respect of an amount withheld under the foreign resident CGT withholding rules.

The modification, applicable for transactions entered into on or after 1 July 2016, ensures that, where a settlement period for a transaction covers more than one income year for the vendor, the credit entitlement will be available in the same year as that in which the transaction giving rise to the payment to the ATO is recognised for tax purposes for the vendor.

In other words, an embarrassing deficiency in legislation has been corrected. This is a positive new principle that allows the Tax Commissioner to remedy “bad rules” promptly.

AcctWeb

Where Australia is at. Our leading indicators.

While dry and not that exciting, stats on how Australia is going in regard to a vast range of important issues can be very illuminating.

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

SMSF compliance traps with bitcoin

With the surge in the bitcoin price (and many other cryptocurrencies) attracting greater numbers of SMSF investors, what compliance traps do SMSF accountants and auditors need to be aware of?

The digital currency bitcoin operates as a decentralised peer-to-peer payment system. It enables online payments to be transferred directly without an intermediary. Imagine there is an Excel spreadsheet containing all the transactions that have ever been conducted in the digital currency. Imagine too, that this spreadsheet is duplicated across a network of millions of computers that are updated in real time. No matter how many changes are made, by how many users, everyone has an identical up-to-date version of this spreadsheet. This is the essence of the technology behind bitcoin, a mass-distributed, single and identical public ledger called the blockchain.

The beauty of blockchain technology lies in the fact that transactions are incorruptible and irreversible. The transactions are grouped and added to the public ledger in blocks. These blocks cannot be controlled by any single entity and there is no single point within the block vulnerable to failure. The verdict from around the world is that this technology is here to stay with multiple future applications possible.

Bitcoin is designed to be pseudonymous. The creator of bitcoin itself is pseudonymous – created as it was by the mysterious Satoshi Nakamoto. His or her identity has remained unknown since bitcoin first emerged in 2008.

Transacting bitcoin

In order to purchase bitcoin, you need to have a “bitcoin wallet”. A wallet is a software program (there are many providers of such software). Once the necessary software has been downloaded, you have, in essence, opened a “bank account” with a zero balance.

A wallet stores and manages your “public key” and “private key”. The public key is for receiving money and the private key for spending money. The public key and the private key are mathematically related. A private key can be transformed mathematically into a public key, but this function can only to performed in one direction. It is impossible to reverse the calculation, therefore it is safe to reveal the public key. An address is a hashed version of the public key, which basically means a bitcoin address would look something like this:

1EHNa6Q4Jz2uvNExL497mE43ikXhwF6kZm

Sometimes the terms public key and addresses are used interchangeably. In practice, a bitcoin address as it appears above is used to receive bitcoin. Each time bitcoin is received, a new address is created by the wallet.

It’s crucial that the private keys remains confidential. Anyone having access to a private key has complete control over the stored bitcoin. Anyone having access to a wallet also has access to all the private keys in it. A wallet may have the function to export private keys. It is important that both the wallet and the private key are kept secure.

The wallet also keeps track of the transactions made, with time stamps on each transaction.

Challenges for SMSF compliance

One compliance challenge for investing bitcoin in an SMSF is that the wallet does not have the SMSF title on it. A wallet does not have any title on it. While title and ownership are fundamental concepts for SMSF compliance, bitcoin is pseudonymous by design.

An online wallet can potentially show the trustee’s name. However, it is not recommended to have private keys stored online, especially when the investment is significant. Blockchain technology itself is robust, but private keys and passwords are still vulnerable in traditional ways.

In theory and in reality, one can have multiple wallets. Each time a transaction occurs, there is a new address to it. It can be messy to create an audit trail.

Compliance traps

(1) Reg 4.09A Separation of assets

Investments in an SMSF must be clearly identifiable as being owned by the SMSF and clearly separate from assets held by the trustees in their personal capacity.

It is critical that an individual’s wallet is separate from a wallet dedicated to the SMSF. Otherwise it is an immediate breach of the separation of assets.

(2) S66 Acquisition from related party

Bitcoin can not be used as an in specie contribution and the SMSF can’t purchase bitcoin from its members as it is neither a listed security nor a commercial property. It must be purchased with cash in the fund from an unrelated party.

(3) Reg 4.09 Investment strategy

The trustee must formulate and give effect to the investment strategy. Bitcoin is no doubt highly volatile based on historical pricing; the decision to invest in bitcoin needs to be reflected on in the fund investment strategy.

Another consideration is that bitcoin may not fall into any existing asset class in the investment strategy. Bitcoin is not cash, it doesn’t have a physical form, therefore is not classified as a collectable, and it is technically a right. It is recommended that cryptocurrency is added as a separate asset class.

(4) Trust deed

I would imagine an existing normal trust deed would not specifically allow or disallow investing in bitcoin. It is prudent to check the fund trust deed, and hopefully the definition is not too narrow.

Audit bitcoin in SMSF

The good news for auditors is that we can have access to this single public ledger. Websites such as https://blockexplorer.com allow input of an address or transaction ID to get detailed data of that transaction. Third party verification for auditors is possible. We can obtain a transaction list generated by the SMSF wallet in Excel and verify the holding.

For example, if we input the following address to search:

1GDJiB51cd1gZcPYDdpLGHaNLxySJH4dch

We discover this address has received 0.01020774 Bitcoin and that it is all spent. We can also see when it was purchased and when it was sold. The green 'U' in brackets on the right means the holding is not sold, the red 'S' means the holding is sold. Even if a holding is partially sold, it will still show a red 'S'. Once a holding is partially sold, the remaining amount will be under a new address.

The trustees need to provide an acknowledgement of trust over the bitcoin if the SMSF is not on title. The trustees will also need to sign a declaration that they can still recover the asset and that their private keys and passwords are safe. They should also declare that the wallet they use is secure. Of all the types of wallets available, online wallets are the least secure.

When the holding is immaterial, the above evidence plus a screenshot of a wallet balance and transactions should be sufficient.

When the holding is significant, we need to verify ownership. That is, the super fund owns the address and has not merely copied it from elsewhere. Message signing is one method of proving control of a particular address.

The mechanism of message signing is similar to the mechanism of how private keys and public keys work. Some wallets have a message signing function. If a wallet doesn’t have such a function, it will be quite a hassle to achieve the same function by oneself.

Auditors can use the following site to verify a message: tools.bitcoin.com/verify-message

The ATO’s view

TD 2014/25 is the most comprehensive ATO interpretation on bitcoin. Based on the levels of use and acceptance of bitcoin within the community in 2014, the commissioner concluded that “it is far short of what may be regarded as sufficient or necessary to satisfy the test in [Moss v Hancock], nor is it a generally accepted medium of exchange as per Travelex”. Accordingly, bitcoin does not satisfy the ordinary definition of money.

In the legislative context, paragraph 32 states “Parliament intended to use the term ‘currency’ in the same sense that currency is used in the Currency Act – namely a currency legally recognised and adopted under the laws of a country…”. Therefore, bitcoin is neither Australian currency nor foreign currency. It is not currency.

In TD 2014/26 it is considered that “the bundle of rights ascribed to a person with access to the bitcoin under the bitcoin software and by the community of bitcoin users” amounts to a property within the meaning of paragraph 108-5(1)(a). Bitcoin is a CGT asset.

By: Vivian Bai, Access Super Audit
19 JANUARY 2018
accountantsdaily.com.au

$20,000 asset write-off renewed for another financial year.

Asset write-offs reminder for small business.

Small businesses with a turnover of less than $10 million can get an immediate deduction for assets that cost up to $20,000 each in their 2016–2017 return. The $20,000 threshold now applies until 30 June 2018.

Assets that cost $20,000 or more can't be immediately deducted. They need to be deducted over time using a small business asset pool.

It’s important to apply all of the simplified depreciation rules correctly so your business doesn’t under-claim for its eligible assets.

AcctWeb