ATO to ramp up scrutiny of $20K tax break use

THINK ABOUT IT – Accountants and SMEs should be wary of entering “dodgy” end-of-year deals simply to utilise the $20,000 instant asset write-off according to one accounting body, with the ATO poised to up its monitoring of the tax concession.

Last week, the government announced that legislation to extend the $20,000 instant asset write-off for small businesses for another year was passed by the senate with no amendments.

Whilst supporting the extension of the tax break, Chartered Accountants Australia and New Zealand (CA ANZ) head of tax Michael Croker has warned SME owners that the ATO will be carefully monitoring how taxpayers respond to this tax concession.

“The ATO monitors business spending and any ‘high risk’ behaviours can result in follow-up contact,” Mr Croker said.

“Spending leaves a data trail, and the ATO expects that trail to lead to bona fide business activity. Few appreciate the huge amount of data the ATO collects to monitor business spending patterns.”

CA ANZ warned that the ATO will be on the lookout for businesses falsely representing their annual turnover to be under $10 million, as well as breaking down one large purchase into lots of less than $20,000 purchases.

Also on their radar will be false invoicing, collecting discarded cash receipts to make false claims, pretending something is worth nearly $20,000 when it isn’t, and buying equipment for personal or home use rather than business use.

Finally, they will monitor private buyers giving funds to small business operators and asking them to buy equipment on their behalf, quoting a false Australian Business Number, and non-business taxpayers misrepresenting their eligibility for an Australian Business Number.

Mr Croker also issued a warning to small businesses owners not to fall for end of financial year “dodgy deals” in order to get the $20,000 tax deduction.

“Chartered Accountants know from experience that clients get the best outcomes when they take time out to think about what new equipment will boost productivity and the cash flow impacts,” Mr Croker said.

Mr Croker said that SME owners should consider what new equipment their business really needs, if they have budgeted for this spending, and how they would finance the purchases.

Now that the legislation has been extended till 30 June 2018, Mr Croker said they should think about spreading the expenditure over two financial years. He also reminded that the equipment must be installed and ready for use by 30 June 2017 to get the deduction this financial year.

LARA BULLOCK
Monday, 19 Jun 2017
accountantsdaily.com.au

‘Bank-like heists’ make way for new wave of cyber crime

WARNING: Identity theft is an increasingly popular method of cyber crime as opposed to “bank-like heists” of the past, and SMSF trustees are a prime target, according to a university professor.

Professor Matthew Warren, deputy director at the Deakin University Centre for Cyber Security Research, told SMSF Adviser cyber criminals are no longer simply after stealing lump sums by cracking through security systems.

Instead, criminals aim for identity theft, which allows them to assume the identity of the client and transfer funds out into a different account, going under the radar of SMSF firms on the lookout for suspicious external activity.

“Attackers wouldn’t necessarily go after superannuation funds to extract large sums of money in a single transaction because they know identity theft and assuming the identity of customers of those organisations would just be as successful,” he said.

Professor Warren said there is more than one route of attack facing trustees, but more often than not, the pathway is based around identity theft utilising a social engineering method.

“A social engineering attack is when you are trying to manipulate people’s actions in terms of a social context whether it’s via email, whether it’s phoning someone and pretending to be someone else or whether it is physically going into an organisation,” said Professor Warren.

“So in terms of threats you are not seeing one particular type of threat but you are now seeing the sophistication of attackers develop a number of different threat strategies into a single attack.”

KATARINA TAURIAN AND JOTHAM LIAN
Tuesday, 13 Jun 2017
accountantsdaily.com.au

ATO reports on key contraventions for 2016-17

WATCH OUT FOR THESE – The ATO has identified the most commonly reported contraventions this financial year and flagged concerns over auditors misreporting illegal early release as loans to members.

ATO assistant commissioner Kasey Macfarlane said there has been a downward trend in the number of auditor contravention reports (ACRs) received in the 2016-17 financial year compared to the same time last financial year.

“There has been around a 10 per cent drop [in 2016-17]. Usually the number of ACRs we receive is around 9,000 to 11,000,” said Ms Macfarlane.

The ATO continues to see the same types of contraventions reported, she said, with loans to members and in house assets still by far the most common.

“They were in the top three for the 2015-16 financial year, and they’ve been in the top three for at least the last five years. So it’s something that’s very common and something SMSF auditors just probably need to be mindful of and look at,” Ms Macfarlane noted.

Ms Macfarlane said the ATO is concerned that some of the contraventions reported to the ATO as loans are in fact illegal early release upon closer inspection.

“So SMSF auditors, when they are looking at monies inappropriately withdrawn from an SMSF, need to [verify] themselves if it is a loan,” she said.

“We’d expect to see evidence and documentation that there was in fact a loan or at least an intention to create a loan, and sometimes when we have a closer look none of that evidence is in place, so that’s just something to be mindful of.”

Among the in-house asset contraventions, the majority of them, she said, relate to investments in related unit trusts, loans to related companies or loans to related unit trusts.

“Where SMSFs have those types of investments, it’s important that SMSF auditors take a close look at those to make sure that’s okay,” she said.

Ms Macfarlane added that a large number of the contraventions reported to the ATO also relate to funds that don’t meet the definition of an SMSF because something has happened in the fund.

“For example, a member may have become bankrupt and they haven’t taken the necessary steps within that six-month period to either restructure the fund or roll the monies out of the SMSF sector,” she explained.

“Overall only 2 per cent of SMSFs each year have ACRs reported to us, and 50 per cent of those, by the time they’re reported to us, they’re reported as rectified, so that is a very pleasing result.”

MIRANDA BROWNLEE
26 Jun 2017
www.smsfadviser.com

ATO, mid-tiers warn on common expenses myths

BE CAREFUL – As the ATO continues to ramp up its focus on scrutinising work-related expense claims this year, two mid-tier firms are urging SMEs to educate themselves on common tax time myths that commonly catch out their clients.

This year the ATO is using real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims according to ATO assistant commissioner Kath Anderson.

“It is important to know what you’re eligible to claim before lodging your tax return and to make sure you don’t claim more than you’re entitled to. Many taxpayers don’t have a good understanding of what deductions they can claim, and believe they can claim for items which they in fact can’t,” Ms Anderson said.

“The ATO scrutinises every return. We have the technology and experience to detect non-compliance and we are continuing to catch taxpayers who are deliberately doing the wrong thing.”

Moore Stephens business advisory partner Matthew Free told Accountants Daily that SMEs have a number of common misconceptions about work-related expense claims and that his advice to businesses is “if in doubt, then ask the question”.

Mr Free said that common misconceptions exist around training and home office expenses.

“Self-education and/or staff training can be claimed either by the business as training or by the employee as a self-education cost, but only where the employee incurs the expense. The study must have the necessary nexus to the income currently being earned by the employee,” he said.

“For home office expenses, you can only claim a set rate per hour of usage to cover outgoings such as electricity and heating. Do not claim a percentage of mortgage interest or rent based on the size of the home office.”

HLB Mann Judd partner Peter Bembrick also spoke to Accountants Daily about claims where businesses often stumble such as insurance and business trips.

“While income protection insurance is an important tax-deductible item, other insurance premiums for TPD, trauma and life cover are not deductible,” he said.

“When you travel interstate or overseas you are allowed to claim the reasonable allowance rates for food, accommodation and incidentals. This amount is often overlooked and without substantiation you can claim up to the ATO rates published.”

Mr Free and Mr Bembrick have both seen some strange claims over their time as accountants.

Some of the less conventional but allowed claims Mr Free is aware of include Xbox consoles, Foxtel, ping pong tables and pool tables by businesses to boost team morale and efficiency, swords by professional sword swallowers, and make-up to prepare dead bodies by funeral parlours.

LARA BULLOCK
21 Jun 2017
accountantsdaily.com.au

ATO cracking down on taxable fringe benefits

The ATO is scrutinising organisations’ taxable fringe benefits, with a specific focus on customer loyalty programs, ride-sharing services and utility vehicles, according to a mid-tier.

RSM Australia is urging accountants to work with their clients to review their policies ahead of possible investigation by the ATO on the provision of taxable fringe benefits to employees.

One key area of focus is on employees’ use of business or personal credit cards linked to customer loyalty programs, as well as substantial personal frequent flyer points obtained through business travel.

“Businesses that let employees redeem points accumulated through business credit cards on personal expenditure, as well as employers who use points to reward or incentivise current or potential employees, may leave themselves liable to fringe benefits tax,” said Rami Brass, national head of tax at RSM Australia.

“This also extends to the use of personal credit cards by employees to accrue customer loyalty points when purchasing business goods, the cost of which is later reimbursed by the company. Businesses may also be exposed when former employees, on leaving the company, covert their points for money or other goods.”

A second area of focus is the use of ride-sharing services which aren’t included in the fringe benefits tax (FBT) exemption that applies for taxi travel between home and work locations, according to Mr Brass.

“With the disruption of the taxi industry, a significant number of employers are now using Uber and other ride-sharing services for their employees’ travel,” Ms Brass said.

“Under the FBT Act, a taxi is defined as a ‘vehicle that is licensed to operate as a taxi’. Therefore the Section 58Z exemption cannot apply, as Uber drivers are not lawfully required to hold a license to operate as a taxi.”

A third area of scrutiny for the ATO is utilities and dual cabs. Mr Brass reminded that these vehicles are only exempt from FBT providing the private use of eligible vehicles only includes travelling between home and work, with other private use needing to be ‘minor, infrequent, and irregular’

“Employers may be liable for FBT when the ATO deems regular private trips made by employees are frequent and regular (although minor) in nature,” Mr Brass said.

“Common examples include picking or dropping off children on the way to or from work and using the vehicle to do grocery shopping. This also extends to driving long distances: however infrequent and irregular this might be, it is not considered minor.”

LARA BULLOCK
Monday, 05 June 2017
www.accountantsdaily.com.au

Intangible capital improvements made to a pre-CGT asset

The Australian Taxation Office has issued an opinion regarding “parts” of an asset which many advisers consider controversial.

It provides that for the purposes of the “separate asset” rules, some intangible capital improvements can be considered separate capital gains tax (CGT) assets from the pre-CGT asset to which the improvements are made. This applies if the improvement cost base is more than the improvement threshold for the income year when CGT event happened, and it is more than 5% of the capital proceeds from the event.

This can result in part of the sale of pre CGT asset being fully taxable (with no 50% discount). Hence, extra care is required when selling.

An example could be the sale under a single contract of an operating hotel where the freehold was acquired prior to 1985, but (arguably) the goodwill is generated after.

AcctWeb

Higher instant asset write-off threshold for small business extended

The Government will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2018.

The threshold amount was due to return to $1,000 on 1 July 2017. As a result of this announcement, SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2018 and first used or installed ready for use by 30 June 2018 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off (or other simplified depreciation rules), for example horticultural plants and in-house software.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The instant asset write-off threshold and the threshold for immediate deductibility of the balance of the pool will revert to $1,000 on 1 July 2018.

The aggregated turnover threshold for a SBE will increase to $10 million (from 2016–2017). Accordingly, SBEs with aggregated turnover between $2 million and $10 million will benefit from the $20,000 instant asset write-off concession.

AcctWeb

Australian population figures

The following information covers Australia's recent population trends and movements.

SEPTEMBER KEY FIGURES

	Population at end Sep qtr 2016	Change over previous year	Change over previous year
PRELIMINARY DATA	'000	'000	%

New South Wales	7 757.8	109.6	1.4
Victoria	6 100.9	127.5	2.1
Queensland	4 860.4	67.7	1.4
South Australia	1 710.8	9.4	0.6
Western Australia	2 623.2	25.2	1.0
Tasmania	519.8	2.6	0.5
Northern Territory	245.7	0.8	0.3
Australian Capital Territory	398.3	5.8	1.5
Australia(a)	24 220.2	348.7	1.5

(a) Includes Other Territories comprising Jervis Bay Territory, Christmas Island and the Cocos (Keeling) Islands.

SEPTEMBER KEY POINTS

ESTIMATED RESIDENT POPULATION

§ The preliminary estimated resident population (ERP) of Australia at 30 September 2016 was 24,220,200 people. This is an increase of 348,700 people since 30 September 2015, and 91,300 people since 30 June 2016.

§ The preliminary estimate of natural increase for the year ended 30 September 2016 (155,500 people) was 5.1%, or 7,500 people higher than the natural increase recorded for the year ended 30 September 2015 (148,000 people).

§ The preliminary estimate of net overseas migration (NOM) for the year ended 30 September 2016 (193,200 people) was 8.9%, or 15,800 people higher than the net overseas migration recorded for the year ended 30 September 2015 (177,400 people).

POPULATION GROWTH RATES

§ Australia's population grew by 1.5% during the year ended 30 September 2016.

§ Natural increase and NOM contributed 44.6% and 55.4% respectively to total population growth for the year ended 30 September 2016.

§ All states and territories recorded positive population growth in the year ended 30 September 2016.

§ Victoria recorded the highest growth rate of all states and territories at 2.1%. The Northern Territory recorded the lowest growth rate at 0.3%.

Source: Australian Bureau of Statistics

New data points to spiralling retirement costs

Recent figures by the Association of Superannuation Funds of Australia reveal that the costs of a modest retirement for both singles and couples have risen by around a third in the past decade.

In the 10 years and nine months between June 2006 and March 2017, the ASFA standard for a modest retirement increased 33 per cent for a single person and 36 per cent for a couple.

The cost of a comfortable retirement rose by 23 per cent for a single person and 26 per cent for a couple.

The current rate of annual income required for a modest retirement living at March 2017 is $24,250 for singles and $34,855 for couples.

The rate of income required for a comfortable retirement is $43,665 for singles and $59,971 for couples.

During this period, there was an overall increase of 28.6 per cent in the consumer price index, ASFA chief executive Martin Fahy said.

Over this time, electricity costs jumped by 124 per cent, health costs rose by 60 per cent, property rates and charges went up by 83 per cent, and food costs rose by 24 per cent.

Price changes for less essential items tended to be lower and, in some cases, fell, Mr Fahy said.

The price of clothing fell by 3 per cent over the period, while the cost of communications including telephone and mobile phone charges fell by 8 per cent.

“The cost of international holidays rose by a relatively modest 16 per cent over the period,” Mr Fahy said.

While the age pension increased in real times by 70 per cent for a single person and 54 per cent for a couple, this was from an incredibly low base, he said.

“The age pension is adjusted by what is the greater of the increase in average wages or the CPI. During the period, average earnings rose by 43 per cent,” Mr Fahy said.

He said ASFA is increasingly concerned about the reality of many more retirees “at the mercy of the private rental market”.

“When you consider the increase in renting costs, it highlights the need for increasing numbers of retirees to have much greater super balances to support a reasonable retirement.”

STAFF REPORTER
Tuesday, 30 May 2017
www.smsfadviser.com

Personal insolvency numbers spike across Australia

New statistics from the Australian Financial Security Authority (AFSA) have revealed that business-related personal insolvencies are on the rise across much of the country, with one mid-tier concerned that numbers could continue to rise.

Yesterday AFSA released regional personal insolvency statistics for the March quarter 2017 in comparison to the December quarter 2016, showing increases in many of the capital cities and some regional states.

RSM’s national head of restructuring and recovery, Peter Marsden, told Accountants Daily that accountants need to ensure their clients are on top of their cash flow and business plan in order to avoid personal insolvency.

“It’s really about understanding what the business does, and then the usual tips and tricks and fundamental things that you need to do,” he said.

“One is manage your cash flow properly and pay great attention to your cash flow because ultimately your test as to whether you're insolvent is – can you pay your debts as and when they fall due.”

Mr Marsden said that the biggest single creditor that pursues people to bankruptcy and liquidation is the ATO for unpaid GST, superannuation, or tax.

“The big trap a lot of business people fall in to is that they don't pay their taxes because the ATO doesn't whinge if you miss one month’s payment, they really don't do very much about it,” he said.

“[Too often businesses] let the tax office slide and eventually you end up doing it for two or three or four months and then the numbers get so big you can't jump over it. So make sure that all those taxes are kept up-to-date. Don’t allow yourself to fall behind.”

The AFSA statistics revealed that the number of debtors who entered a business-related personal insolvency in the Greater Sydney region rose 8.6 per cent from the December 2016 quarter to the March 2017 quarter.

Conversely, the rest of NSW experienced a drop of 10.7 per cent in the number of debtors who entered a business-related personal insolvency.

The number of business-related personal insolvency debtors in the Greater Melbourne region and the rest of Victoria rose 5.7 per cent and 8.3 per cent respectively.

The Greater Brisbane region saw an increase of 13.9 per cent in the number of business-related cases, with the rest of Queensland experiencing a 2.1 per cent drop.

Business-related personal insolvencies increased in the Greater Adelaide region and the rest of South Australia, rising 9.8 per cent and 108.3 per cent respectively.

The Greater Perth region saw no change to the number of business-related personal insolvency cases, while the rest of Western Australia saw an increase of 9.1 per cent.

The number of business-related personal insolvencies rose 84.6 per cent in the ACT, remained unchanged in Tasmania, and fell 18.8 per cent in the Northern Territory.

Looking ahead Mr Marsden said further increases are possible given the current situation in the property industry and the “historically low” interest rates.

“There's a lot of talk about what is going to happen in the property industry and housing in particular and what's going to happen there. Any downward movement in that is going to disaffect a lot of small businesses that use properties they own as security for their loans from the bank,” he said.

“The other problem we've got is there are a lot of businesses in the economy who are holding on but not doing much better than that, so any upward movement in interest rates is probably going to lead to an increase in insolvencies.”

LARA BULLOCK
Friday, 26 May 2017
www.accountantsdaily.com.au