Robert Goodman Accountants Blog

Growing your super

Are you nearing retirement or just want to put a little extra away for the future without putting a strain on your household budget? Contributing to superannuation might be your best bet. There are two main ways to boost your super balance, salary sacrificing super (if your employer has made that option available) and personal super contributions.

The end of the financial year is nearly upon us, and there is no better time than now to get your financial plans in place for next year. If you're nearing retirement or just want to put a little extra away for the future, contributing to superannuation might be your best bet, this is especially true if you're female. Research has previously shown that women retire with an average of $120,000 less in their superannuation than men due to a combination of the gender pay gap, taking time off paid work, and working part-time.

There are two main ways to increase your super balance without putting too much strain on your weekly household budget, salary sacrificing super (if your employer has made that option available) and personal super contributions.

Salary sacrificing super

Put simply, salary sacrifice is an arrangement where you forego part of your salary in return for your employer providing the amount sacrificed into super. You should beware that your salary sacrificed contributions are considered to be contributions from your employer (eg if you decide to salary sacrifice 5% into your super your employer would only legally have to contribute 4.5% instead of the 9.5%).

Therefore, before you commence any salary sacrifice arrangement, it is advisable that you and your employer clearly state and agree on all the terms of the agreement. This may involve an explicit agreement between you and your employer that specify that they continue to pay the minimum super guarantee amount ignoring any salary sacrifice contributions you may make.

Salary sacrifice is a tax-effective way to boost your super, as the sacrificed component is not counted as your assessable income for tax purposes (provided the salary sacrifice arrangement itself is "effective") and hence is not subject to PAYG withholding tax. Although there are no limits per se to salary sacrificing superannuation, any sacrificed amounts are counted towards your annual concessional contributions cap. Therefore, tax-effective salary sacrificing arrangements are effectively limited to the concessional contributions cap.

Personal super contributions

Personal super contributions are the amounts you contribute to your super fund from your after-tax income (ie take home pay). These contributions are in addition to the compulsory super contributions your employer makes and does not include any contributions made through salary sacrifice arrangements.

Prior to 1 July 2017, only self-employed people could claim a deduction for personal super contributions, but from 1 July 2017, most people (regardless of their employment arrangement) are able to claim a full deduction for personal super contributions they make to their super until they turn 75. However, if you're between the age of 65 and 75, you will need to meet the "work test" to be eligible to claim the deduction.

If you have made a personal super contribution and want to claim a tax deduction, you will need to complete and lodge the form "Notice of intent to claim or vary a deduction for person super contributions" with your super fund and have this notice acknowledged in writing by your fund. You will need to do this before you lodge your tax return for the income year in which you are claiming a deduction for.

Interested in making a personal contribution?

Would you like to make a personal contribution and claim a deduction for tax time? Or maybe you would like to find out whether or not you qualify for the work test? Whatever it is, from setting up an effective salary sacrifice arrangement for the next financial year, to other tax strategies to make the most of your super, we can help you avoid all the pitfalls and get it right.

© Copyright 2018. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants.

Tax time focus areas for businesses

With the ATO's compliance targeting of large businesses in the past few years reaping rewards, this tax time, its turning its attention to small businesses. As a small business owner, what do you need to be aware of to stay out of the ATO spotlight?

A recent interview with Tax Commissioner Chris Jordan revealed details of what the ATO will be paying particular attention to this year. Perhaps not surprising, the ATO will be targeting businesses that deal in cash. As a part of its cash and hidden economy operation, the ATO has compiled "data-maps" of cash-only businesses and those that do not frequently or readily use electronic payment facilities.

Using the data-maps the ATO is homing in on particular suburbs which have a high incidence of cash-only businesses. In Sydney, Cabramatta and Haymarket were cited as examples of areas that the ATO visited in relation to its operation. According to the Commissioner:

"People say to me: 'it's terrible - people steal the money, you've got to count it, you've got to reconcile it, you've got to have security around it, you've got to take it to the bank' … There's no compelling business reason to have cash only."

With these cash and hidden economy visits the ATO is conducting, it is looking for several things: whether the business has undeclared income; whether the employees are allowed to work (visits in the past have been made in conjunction with the Fair Work Commission or the Department of Immigration); and whether the employees are receiving the correct amount of wages, conditions and superannuation.

Therefore, the other areas the ATO is targeting this tax time also include unpaid superannuation guarantee contributions and cash payments of wages without the associated conditions and benefits. According to the ATO, with the introduction of the single-touch payroll (STP), it will be able to receive information on unpaid superannuation contributions much earlier and act on it.

Even if you're not running what the ATO deems to be a "cash business" there are other areas you will still need to be aware of this tax time. In particular, the ATO will be looking at small businesses wrongly claiming private expenses, and unexplained wealth or lifestyle.

Under tax law, you can generally deduct a business expense if it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided the expense is not capital, private or domestic. Commissioner Jordan noted that small businesses intermingling their private expenses with their business expenses have been an issue for a long time, but this year he has decided to "renew the discussion to highlight that we are going to be focusing on these areas". Hence if you're running a small business you should make sure all your expense claims are in fact business related, any expenses that are both business and personal needs to be apportioned on a reasonable basis.

The unexplained wealth or lifestyle targeted by the ATO includes instances of business owning families that have low or average reported incomes, but have a lifestyle that far exceed those modest incomes. Commissioner Jordan considers that having kids in private schools and taking frequent business class flights on overseas trips would be considered to be unexplained wealth. He said the ATO will use all its resources including obtaining information from other government departments (ie Department of Immigration) and social media (ie Facebook posts).

Want to find out more?

If you think your business may have some issues with ATO's tax time focus areas, we can help you sort them out before the ATO get involved. If you're thinking of moving away from cash and transitioning into electronic payments, we can assist with those first steps.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

IGT review of ATO garnishee notices

The Inspector-General of Taxation (IGT) has commenced an independent review to address allegations about the inappropriate use of ATO's powers to issue garnishee notices. In particular, the review will investigate allegations that the ATO gave directions to staff to issue standard garnishee notices in every case as a "cash grab" towards the end of the 2016-17 financial year. It will also examine the allegation that the ATO set targets for staff and assessed their performance based on the level of debt collected.

As a consequence of the allegations aired by current and former ATO staff about the inappropriate use of ATO's powers to issue garnishee notices, particularly to small businesses, on the Four Corners Program. The Inspector-General of Taxation (IGT) has now commenced an independent review to address these allegations to allay concerns of adverse impacts on the tax system.

Garnishee notices are the most common form of "stronger" actions used by the ATO to recover tax debt from taxpayers who are unwilling to work with them to address their debt, or repeatedly default on agreed payment plans. The notices are issued to third parties who are required to pay money, owed to the taxpayer, to the ATO to satisfy the taxpayer's debt. The notices may require either a one-off payment or recurring payments for certain periods of time.

If you're an individual, the ATO can issue garnishee notices to your employer, contractor, banks, financial institutions and building societies where you hold an account, and people who owe money to you from sale of real estate (ie purchaser, real estate agent and solicitors). If you're a business, the ATO may issue garnishee notices to financial institutions where your business holds an account, trade debtors, and suppliers of merchant card facilities.

According to the Inspector-General of Taxation: "Cash flow is the lifeblood of small businesses and, if inappropriately disrupted, can have an unjustified and devastating effect on them. My investigation will examine the accuracy of the allegations made along with themes emerging from complaints to my office with the aim of finding improvements where necessary and restoring confidence in the system".

In particular, the review will investigate allegations that the ATO gave directions to staff to issue standard garnishee notices in every case as a "cash grab" towards the end of the 2016-17 financial year. As well as the allegation that the ATO set targets for staff and assessed their performance based on the level of debt collected. It will draw on IGT complaints data, assess the relevant ATO systems including interviewing current and former ATO staff in debt recovery units across multiple locations, and seek to understand and assess the nature of any impact on affected taxpayers.

The terms of reference of the review include:

  • understanding ATO's strategies to manage tax debts by way of garnishee notices;
  • policies and procedures for issuing garnishee notices, including the circumstances the ATO considers in cases of vulnerable small businesses and individuals;
  • mechanisms present to ensure staff adhere to its garnishee notice policies and procedures;
  • key performance indicators for both tax debt collection and staff performance;
  • specific communications to staff regarding use of garnishee notices and associated KPIs at each location of its debt recovery units; and
  • other relevant concerns or potential improvements identified during the course of the review.

Do you have a gripe?

If you've experienced what you think is unfair treatment by the ATO in terms of garnishee notices issued to your business or yourself, we can help you make a submission to the review. Contact us today. 

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Tax time focus areas for individuals

Tax time has come around for another year, and this year the ATO is focusing on "other" work-related expense deductions and work-related car expenses.  It says taxpayer must remember that they are not automatically entitled to claim standard deductions and that all expenses need to be substantiated. Taxpayers need to be able to show that they spent the money themselves and were not reimbursed, the expense was directly related to earning their income, and they have a record to prove it.

It's tax time again, as you gather your receipts and other assorted tax documents, you should also turn you mind to what the ATO is paying close attention to this year. This year, the ATO is focusing on taxpayers who claim "other" work-related expense deductions at label D5 on individual tax returns.

According to the ATO, taxpayers need to be able to show that they spent the money themselves and were not reimbursed, the expense was directly related to earning their income, and they have a record to prove it. Where the expense is for both work and private use, only the work-related portion can be claimed. The ATO urges taxpayers to remember that they are not automatically entitled to claim standard deductions and that all expenses need to be substantiated.

As a part of their focus on other work-related expense claims, the ATO will also be closely scrutinising work-related car expenses which around 3.75m individuals claimed in 2016-17 totalling $8.8bn. Assistant Commissioner Kath Anderson said:

"While most people want to do the right thing, we know the rules can be a bit tricky for some and we are seeing a lot of mistakes. We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn't make, and car expenses that their employer paid for or reimbursed."

There are two ways a deduction for car expenses can be calculated under tax law, the cents-per-kilometre method (which limits claims for work-related travel up to 5,000 km) and the log-book method in which a log book is kept for a continuous 12-week period to determine the work-related percentage of the actual expenses incurred.

Around 870,000 individuals claim the maximum amount under the cents-per-kilometre method each year, and the ATO is concerned that there is an erroneous belief among taxpayers that the maximum claim is a standard deduction that does not require evidence of any travel. While it notes that using the cents-per-kilometre method does not require a log book, taxpayers will still need to show evidence of the number of kilometres travelled by using a diary for example, if required.

This year, the ATO is using enhanced technology and data analytics to identify unusual claims, which includes comparing taxpayers to others in similar occupations earning similar incomes. It says its models are particularly useful in identifying individuals claiming things like home to work travel or trips not required as a part of their work.

The ATO is advising taxpayers that it may request proof that the travel for work was required, this is especially significant in circumstances where individuals may claim the transport of bulky tools or equipment as required by their work. It warns individuals this year, it'll be on the lookout for false logbooks, claiming home to work travel, claiming for expenses paid for by the employer, incorrect claiming of home to work travel where bulky tools are not involved, and claiming expenses for a car which is under a novated lease. 

Need help at tax time?

Bring in your receipts and associated tax documents, we can help you navigate the murky water of deductions and get you the maximum claim you are entitled to. If you're thinking of claiming other work-related expenses or car expenses this year, let us look over your claim to make sure it's all above board to avoid a future ATO investigation.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au© Copyright 2018. All rights reserved. Source: Thomson Reuters.  Brought to you by Robert Goodman Accountants. 

When is early release of super legal

Contrary to what illegal early access of superannuation promoters may say, you cannot get your super early to pay for a holiday or buy a car. There are rules that govern when super can be accessed, and usually access can only be obtained at retirement or in exceptional circumstances (compassionate grounds, severe financial hardship, terminal medical condition, and temporary or permanent incapacity). Be very wary of any individual or company purporting to allow you to access your super early when you don't meet those exceptional circumstances.

Most people know that superannuation cannot be accessed until retirement or in exceptional circumstances. What exactly are these exceptional circumstances have caused considerable confusion and allowed unscrupulous individuals to promote illegal schemes to access super early to pay for a holiday or buy a car.  

To clarify, exceptional circumstances that allow you to access your super early usually relate to specific medical conditions or severe financial hardship. They broadly fall into 4 categories, compassionate grounds, severe financial hardship, terminal medical condition, and temporary or permanent incapacity.

Compassionate grounds

Includes the need to pay for medical treatment for yourself or a dependant, to make a payment on a loan to prevent you from losing your home, to modify your home or vehicle for special needs of yourself or your dependant due to severe disability or to pay for expenses associated with a death, funeral or burial. The amount of super that can be withdrawn is limited to what is "reasonably needed".

Severe financial hardship

This condition may be satisfied if you have received Australian Government income support payments continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses. The maximum amount that can be accessed is $10,000 at a time, and you can only make one withdrawal from the fund due to severe financial hardship in any 12-month period.

Terminal medical condition

Early access to super may be allowed if you have a medical condition that is "likely to result in death within the next 24 months". The medical condition and prognosis will need to be certified by 2 different medical practitioners. One of the medical practitioners must be a specialist in an area related to the illness or injury. If you're accessing your super early due to a terminal medical condition, you should be aware that not all super funds allow for these types of payments. Where your fund doesn't allow for early access due to this condition, you may be able to rollover your super into a different fund which allows for these types of payments. 

Temporary or permanent incapacity

Temporary incapacity relates to physical or mental medical conditions which renders you temporarily unable to work (or to work less hours). You will be able to receive the super in an income stream over the time you are unable to work.

Permanent incapacity is also referred to as a "disability super benefit" the condition is met when the trustee of the super fund is satisfied that you have a physical or mental condition that is likely to stop you from ever working again in a job you're qualified to do by education, training or experience. If you would like to receive concessional tax treatment of the early release of super, at least 2 medical practitioners must certify your condition and prognosis.

Therefore, unless your circumstances fall into one of the 4 categories above or the balance of your super account is less than $200, you will not be able to access your super until you retire. Be very wary of any individual or company purporting to allow you to access your super early when you don't meet those exceptional circumstances. If you do go ahead and withdraw your super illegally, you could be hit with a range of penalties and interest charges or even a jail term depending on your involvement. 

Want to find out more?

Are you going through a tough time and need early access to your super? We can help you identify the best option for your circumstance. If you've been contacted or have inadvertently become embroiled in an illegal early release of super scheme, we can help you get the best outcome with the regulatory authorities.

© Copyright 2018. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants. 

Did you know from 1 July 2018, GST will apply to sales of all goods to Australia. The previous $1,000 low-value threshold will no longer apply and those businesses that meet the $75,000 registration threshold will need to register, charge and remit GST to the ATO. This applies regardless of where the business is based.

If you're running a foreign business that supplies low-value goods to Australia, you may be caught in the GST net from 1 July 2018. From that date the ATO will be using a number of information resources to find non-compliant businesses including:

  • financial data tracking that follows the flow of funds from purchasers to suppliers overseas;
  • customs data on details of imports into Australia;
  • information from other countries obtained through information sharing arrangements;
  • online investigations to identify websites and businesses involved in supplying goods to consumers in Australia; and
  • reports of non-compliance from individuals or businesses.

According to the ATO, it will treat businesses differently based on their compliance category.

Those businesses that are "willing to do the right thing" (ie registered for GST as required, made necessary changes to their business systems, collected GST as required, reported and paid GST collected by the due date) or are "mostly compliant" (ie registered for GST, made a genuine attempt to collect, pay and report GST but have difficulty with any or all of these) will not be contacted unless there is a mistake made, and no penalties will be imposed from 1 July 2018 to 30 June 2019.

However, those businesses that are partly compliant (ie registered for GST but have not collected, reported or paid the GST collected) or are completely non-compliant can expect the ATO to register the business for GST, calculate their liability and issue an assessment. An additional 75% administrative penalty will also be imposed (higher penalties can apply if the business is a "significant global entity) and debt recovery action will be initiated.

What legal recourse will the ATO have against non-complying businesses that are based in foreign jurisdictions and have no physical presence here, you may think. Well, according to the ATO, when the 75% (or more) administrative penalty is imposed, and becomes legally payable, it can then register a debt in a court in the business' home jurisdiction. The ATO can also request the taxation authority in the foreign jurisdiction to recover the debt on their behalf, and may intercept funds from Australia that are destined for the business.

While these enforcement mechanisms seem robust, it should be noted that the court systems in every country differs and varies in complexity as well as time it takes to get a judgment. If the ATO chooses to go down that route, it may be mired in many procedural legal actions in foreign jurisdictions for a long time to collect a disproportionate amount of GST revenue.

Unless Australia already has an agreement with a foreign jurisdiction in relation to the collection of debts, it may be difficult to convince a foreign taxation authority of enforcement, and with the rise of so many different methods of payment over the internet, the ATO may also find it difficult to intercept payments over so many different channels.

This carrot and stick approach may work for bigger players based in western countries, but what about small to medium enterprises that are selling to Australia based in emerging economies in Asia or South America? It is one thing to identify businesses in foreign jurisdictions that are non-compliant, it may be an entirely different issue where actual enforcement is involved.

What are my GST obligations?

If you're confused or need help with your GST compliance obligations, we can help you sort everything out. If you are running a foreign business, we can provide you with more details of the changes coming in, the compliance involved and what you need to do. These new laws are largely untested, so you want to make sure you get it right.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.auSource: Thomson Reuters.   Brought to you by Robert Goodman Accountants. 

 

 

The government announced that it is introducing a one-off, 12-month amnesty for historical underpayment of super guarantee.

To access the amnesty, employers must pay all that is owing to their employees, including nominal interest. However, penalties for late payment will not be applied during the amnesty period.

Employers that do not take advantage of the amnesty will face higher penalties when they are subsequently caught – in general, a minimum 50 per cent on top of the SG Charge they owe.

In addition, throughout the amnesty period the government has stated that the ATO will continue its usual enforcement activity against employers for those historical obligations they do not disclose voluntarily. Subject to passage of the Bill, the amnesty will run for 12 months from Thursday 24 May. 

Want to take advantage of the amnesty period? 

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.auSource: Thomson Reuters.   Brought to you by Robert Goodman Accountants. 

Got clearance to sell your home?

Did you know that if you're selling your home you may need a capital gains withholding clearance certificate from the ATO? If you don't, you may find a chunk of the sales proceeds from your home going to the tax man. The online process to obtain the certificate is quick and simple. Make sure you don't get stung and get the certificate early.

In the market to sell your house? Before you call in the real estate agents and home stylists, you probably know that you'll need to have a contract of sale handy. Did you know that you may also need to get a capital gains withholding clearance certificate from the ATO? This certificate allows ATO to identify whether withholding is required from the sale of Australian property and applies to any property where the contract price is $750,000 or above.

In the current market conditions, the $750,000 threshold means the need to obtain the clearance certificate would apply to the majority of real estate sales in capital cities and some larger regional centres around Australia. If you're an Australian resident selling your home or investment property, applying for a certificate means that the purchaser will not have to withhold 12.5% of the purchase price. The online application process with the ATO is simple and requires only a few personal details, such as name, DOB, address, and TFN, in the case of an individual applicant.

For company applicants, name, TFN and ABN information are usually required. For trusts and superannuation funds, if the entity that has legal title to the asset is the trustee (in its capacity as either a company or an individual), then the trustee should apply for the clearance certificate using their own TFN or ABN (ACN can also be included as an attachment to the application).

It should be noted that even though the clearance certificate does not have to be provided to the purchaser until on or before the date of settlement (to ensure no withholding occurs), the online form should be lodged as soon as possible as it can take up to 14 working days to process.

If you're a foreign resident and you're selling a property in Australia, you do not need to complete a capital gains withholding clearance certificate as it doesn't apply to you and you will be subject to the 12.5% withholding. However, you can apply to the ATO for a variation of the withholding rate in certain circumstances or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding. 

Just signed a contract to purchase a property for over $750,000? You should check with your conveyancer or lawyer that the vendor has provided the capital gains withholding clearance certificate or a declaration specifying that withholding isn't required before settlement. Otherwise you must withhold 12.5% of the contract price of the property and remit the amount to the ATO upon settlement of the property.

Confused?

If you are selling your property, we can help you obtain your clearance certificate as well as outline any CGT consequences of such a sale and whether any exemptions are available. We can also help you determine whether you are a foreign resident if you're unsure. Before you embark on perhaps one of the biggest financial decisions of your life contact us to ensure everything is as safe as houses.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.auSource: Thomson Reuters.   Brought to you by Robert Goodman Accountants. 

2018 Federal Budget: Special Edition

By Thomson Reuters Tax & Accounting on 8 May 2018

On Tuesday, 8 May 2018, Treasurer Scott Morrison handed down the 2018–2019 Federal Budget, his third. In what is widely perceived to be an election Budget (and certainly the last full Budget before the next Federal election), the Treasurer forecast a return to a modest deficit of $2.2 billion in 2019–2020 and an increase to surplus in 2020–2021. In the lead-up, the Treasurer signalled the need to "exercise the restraint that has been so important in ensuring that we bring that Budget back to balance".

PERSONAL TAXATION

Personal tax rates: staged seven-year reform plan starting from 2018–2019

In the 2018–2019 Budget, the Government announced staged tax relief for low and middle income earners. The Government is proposing a major seven-year, three-step plan to reform personal income tax.

Step 1 will see a new, non-refundable low and middle income tax offset from 2018–2019 to 2021–2022, designed to provide tax relief of up to $530 for each of those years. The offset will be delivered on assessment after an individual submits their tax return, and will be in addition to the existing low income tax offset (LITO).

The low and middle income tax offset will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000 of taxable income, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. From $90,001 to $125,333 of taxable income, the offset will phase out at a rate of 1.5 cents per dollar.

Step 2 will increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018. In 2022–2023, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645. The increased LITO will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000 from 1 July 2022.

Step 3: from 1 July 2024, the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.

The Government says this means that around 94% of all taxpayers are projected to face a marginal tax rate of 32.5% or less in 2024–2025.

Medicare levy, 2017–2018 tax rates unchanged

The Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019, but has decided not to proceed with this. Presumably the Bills to do this, which are currently before Parliament, will be removed. In an address on 26 April 2018 to the Australian Business Economists in Sydney, the Treasurer said that, due to the improving economy and fiscal position, the Government is "now in a position to give our guarantee to Australians living with a disability and their families and carers that all planned expenditure on the National Disability Insurance Scheme (NDIS) will be able to be met in this year's Budget and beyond without any longer having to increase the Medicare levy".

At the same time, it has been reported that Shadow Treasurer Chris Bowen has announced that Labor will not proceed with its proposal to increase the Medicare levy by 0.5% (to 2.5%) on those earning above $87,000.

The tax rates and thresholds for the 2017–2018 year remain unchanged.

BUSINESS TAXATION

$20,000 instant asset write-off for SBEs extended by 12 months

The Government will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2019. This applies to businesses with aggregated annual turnover less than $10 million.

The threshold amount was due to return to $1,000 on 1 July 2018. 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 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off or other simplified depreciation rules (eg 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 current "lock out" laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.

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 2019.

While the extension of the write-off will be welcomed, SBEs of course need to have the cash-flow to enable them to spend the $20,000 in the first place.

Anti-avoidance rules: family trust circular distributions

The Government will extend specific anti-avoidance rules that apply to other closely held trusts that engage in circular trust distributions to family trusts.

Currently, where family trusts act as beneficiaries of each other in a round-robin arrangement, a distribution can ultimately be returned to the original trustee in a way that avoids any tax being paid on that amount. The measure will allow ATO to pursue family trusts that engage in these arrangements and impose tax on such distributions at a rate equal to the top personal rate plus the Medicare levy.

This measure applies from 1 July 2019.

Deductions disallowed for holding vacant land

The Government will disallow deductions for expenses associated with holding vacant land. Where the land is not genuinely held for the purpose of earning assessable income, expenses such as interest costs will be denied. It is hoped this measure will reduce the tax incentives for land banking which limit the use of land for housing or other development.

The measure will apply to both land held for residential and commercial purposes. However, the "carrying on a business" test would generally exclude land held for a commercial development. It will not apply to expenses associated with holding land that are incurred after:

  • a property has been constructed on the land, it has received approval to be occupied and available for rent; or
  • the land is being used by the owner to carry on a business, including a business of primary production.

Disallowed deductions will not be able to be carried forward for use in later income years. Expenses for which deductions will be denied could be included in the cost base if it would ordinarily be a cost base element (ie borrowing costs and council rates) for CGT purposes. However, if the denied deductions are for expenses would not ordinarily be a cost base element, they cannot be included in the cost base.

This measure applies from 1 July 2019.

Partnerships: enhancing integrity of concessions

Partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.

The Government said this measure will prevent taxpayers, including large partnerships, inappropriately accessing the CGT small business concessions in relation to their assignment to an entity of a right to the future income of a partnership, without giving that entity any role in the partnership.

There are no changes to the small business CGT concessions themselves. The concessions will continue to be available to eligible small businesses with an aggregated annual turnover of less than $2 million or net assets less than $6 million.

These measures will apply from 7:30PM (AEST) on 8 May 2018.

TAX COMPLIANCE AND INTEGRITY

No tax deduction for non-compliant PAYG and contractor payments

Measures will be enacted to ensure that taxpayers will not be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying.

Similarly, the Government intends to remove deductions for payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG (again despite the withholding requirements applying).

These measures were recommended by the Black Economy Taskforce.

The revenue expectations linked with this expenditure is quite modest – "a small unquantifiable gain to revenue over the forward estimates period".

The measures will commence on 1 July 2019.

Cash payments limit: payments made to businesses

The Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services.

This measure will require transactions over a threshold to be made through an electronic payment system or by cheque. Logically it would seem that this threshold amount should be $10,000, but this is not spelt out in the Budget papers or the media release.

The rules will not apply to transactions with:

  • financial institutions; or
  • consumer-to-consumer non-business transactions.

This measure was recommended by the Black Economy Taskforce. It is designed to support other measures designed to counter the black economy. There is no revenue impact associated with it.

The limit will apply from 1 July 2019. The Government will consult further as part of the implementation process.

Reportable payments system extended: security providers, road freight transport and computer design

The Government will extend the taxable payments reporting system (TPRS) to the following industries:

  • security providers and investigation services;
  • road freight transport; and
  • computer system design and related services.

This will extend the TPRS requirements already applying to the building and construction industry. The TPRS requirements will also be extended, from 1 July 2018, to the cleaning and courier industries under measures contained in the Treasury Laws Amendment (Black Economy Taskforce Measures No 1) Bill 2018.

The reporting requirements will apply from 1 July 2019, with the first annual report required in August 2020.

SUPERANNUATION

SMSF member limit to increase from four to six

The Budget confirmed that the maximum number of allowable members in new and existing self managed superannuation funds (SMSFs) and small APRA funds will be expanded from four to six members from 1 July 2019. This measure was originally flagged on 27 April 2018 by the Minister for Revenue and Financial Services, Kelly O'Dwyer.

The proposed increase to the maximum number of SMSF members seeks to provide greater flexibility for large families to jointly manage retirement savings. Given the growth in the sector to date, Ms O'Dwyer said the measure will ensure SMSFs remain compelling retirement savings vehicle. The Government is expected to ask the ATO to work with industry on the design and implementation of this measure. It is not expected to have a revenue impact.

Extra SMSF members to provide flexibility

Currently, s 17A(1)(a) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) requires an SMSF to have fewer than five members. In addition, each member must be a trustee of the fund (or a director of the corporate trustee). This seeks to ensure that all members are fully involved and equally responsible for fund decisions and investments.

The Government's proposal to allow up to six SMSF members may assist those with larger families to implement intergenerational solutions for managing long-term, capital intensive investments, such as commercial property and business real property. For example, allowing an extra two members provides an opportunity to improve a fund's cash flow by using the contributions of the younger members to make pension payments to the members in retirement phase, without needing to sell a long-term investment.

As each member must be a trustee of the fund, a decision to add extra members should not be taken lightly as it can add complexity to the fund's management and investment strategy. A change to the membership of an SMSF will alter the trustee arrangements which can impact who controls the fund in the event of a dispute. This is especially relevant in the event of the death of a member, as the surviving trustees have considerable discretion as to the payment of the deceased's super benefits (subject to any binding death benefit nomination).

Labor's dividend imputation policy

Allowing up to six SMSF members may assist some SMSFs to implement strategies to guard against Labor's proposal to end cash refunds of excess franking credits from 1 July 2019. SMSFs in tax-exempt pension phase are expected to feel the brunt of Labor's proposal, although an exemption was subsequently announced for SMSFs with at least one Government pensioner or allowance recipient before 28 March 2018.

To avoid wasting non-refundable franking credits, Labor's proposal would create an incentive for SMSFs in pension phase to add additional accumulation phase members (eg adult children) who could effectively make some use of the excess franking credits within the fund. That is, the excess franking credits would be used to absorb some of the 15% contributions tax in relation to the accumulation members. For example, the proposal to increase the maximum number of SMSF members from four to six would enable a typical two-member fund in pension phase to admit up to four adult children as members. If those adult children are making concessional contributions up to the maximum of $25,000 per year, the fund could use the excess franking credits to offset up to $15,000 (four x $25,000 x 15%) in contributions tax each year for the adult children.

This strategy would essentially replicate, to the extent possible, the position of large APRA funds under Labor's policy. APRA funds typically have more contributing members and diverse income sources (beyond franked dividends) that can usually fully absorb the franking credits.

As already noted, a decision to add additional members to an SMSF may add complexity to the management and control of the fund. This would require professional advice for the specific circumstances of the fund and its members.

Superannuation work test exemption for contributions by recent retirees

The Government will introduce an exemption from the work test for voluntary superannuation contributions by individuals aged 65–74 with superannuation balances below $300,000 in the first year that they do not meet the work test requirements.

Currently, the work test in reg 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) restricts the ability to make voluntary superannuation contributions for those aged 65–74 to individuals who self-report as working a minimum of 40 hours in any 30-day period in the financial year. The measure will give recent retirees additional flexibilities to get their financial affairs in order in transition to retirement. It will apply from 1 July 2019.

SMSF audit cycle of three years for funds with good compliance history

The annual audit requirement for SMSFs will be extend to a three-yearly cycle for funds with a history of good record-keeping and compliance.

The measure will apply to SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund's annual returns in a timely manner.

This measure will start on 1 July 2019. The Government said it will undertake consultation to ensure a smooth implementation.

Super fees to be capped at 3% for small accounts, exit fees banned

Passive fees charged by superannuation funds will be capped at 3% for small accounts with balances below $6,000, while exit fees will be banned for all superannuation accounts from 1 July 2019. These measures form part of the Government's Protecting Your Super Package.

The Minister for Revenue and Financial Services, Kelly O'Dwyer, said there were around 9.5 million super account with a balance less than $6,000 in 2015–2016. To avoid these small accounts from being eroded, the Government will cap the administration and investment fees at 3% annually, Ms O'Dwyer said.

The Government will also ban exit fees on all superannuation accounts. Exit fees of around $37 million were charged to members in 2015–2016 to simply close an account with a super fund. The proposed ban on exit fees will also benefit members looking to rollover their super accounts to a different fund, or who hold multiple accounts and see exit fees as a barrier to consolidating accounts.

With nearly two million low and inactive accounts belonging to women, the Minister said these measures will help to protect the hard-earned super savings of women from undue erosion. These changes will take effect from 1 July 2019.

Superannuation insurance opt-in rule for younger and low-balance members

The Government will change the insurance arrangements for certain cohorts of superannuation members from 1 July 2019. Under the proposed changes, insurance within superannuation will move from a default framework to be offered on an opt-in basis for:

  • members with low balances of less than $6,000;
  • members under the age of 25 years; and
  • members with inactive accounts that have not received a contribution in 13 months.

These changes seek to protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of. The Minister for Revenue and Financial Services, Kelly O'Dwyer, said around 5 million individuals will have the opportunity to save an estimated $3 billion in insurance premiums by choosing to opt-in to this cover, rather than paying for it by default.

The changes also seek to reduce the incidence of duplicated cover so that individuals are not paying for multiple insurance policies, which they may not be able to claim on in any event. Importantly, these changes will not prevent anyone who wants insurance from being able to obtain it. That is, low balance, young, and inactive members will still be able to opt in to insurance cover within super.

In addition, the Government said it will consult publicly on ways in which the current policy settings could be improved to better balance the priorities of retirement savings and insurance cover within super.

The changes will take effect on 1 July 2019. Affected superannuants will have a period of 14 months to decide whether they will opt-in to their existing cover or allow it to switch off.

Want to find out more? 

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.auSource: Thomson Reuters.   Brought to you by Robert Goodman Accountants.

Home is where the GST is

With the real estate market hotting up for another year, many home buyers will turn their thoughts to newly constructed residential premises or subdivisions, but a recent Bill introduced may increase the costs and complexity of such purchases.

In a bid to tackle non-compliance of GST obligations from developers selling properties, the government has introduced a new measure that require buyers of new residential premises and subdivisions of potential residential land to make a payment of part of the purchase price to the ATO. This measure has been introduced in response to developers who sell properties at a price that reflects their GST obligations but dissolving their businesses before BAS lodgement to avoid passing the GST to the ATO.

The scale of the problems has grown significantly in the last decade and within the last 5 years these insolvent entities were responsible for around $1.8bn in debt written off, and at the same time claimed around $1.2bn in input tax credits. It is hoped that with the buyer remitting payment directly to the ATO instead of the developer as a part of the settlement process, less intensive compliance action will need to be taken and more GST revenue will flow into government coffers.

The proposed law does not apply to commercial residential premises or those new residential premises created through substantial renovation. It only applies to sales and long-term leases of new residential premises and potential residential land. Therefore, if you purchase such a property, you have an obligation to make a payment.

In a majority of cases, the payment to the ATO will need to be made on or before the date of settlement. The payment is dependent on the contract price for the property and differs based on whether or not the margin scheme applies. If the margin scheme does not apply, the purchaser must withhold 1/11th of the contract price. If the margin scheme does apply, the purchaser would usually have to withhold 7% of the contract price. This seems complicated, but in practice, the seller has to the responsibility to notify the buyer with the relevant details such as whether withholding is required and the percentage to withhold.

Example

Trevor enters into a contract to purchase a new apartment from MJ Builders Pty Ltd for $600,000. MJ Builders notifies Trevor that withholding is required and that the apartment is not subject to the margin scheme. It further advises that Trevor would be required to pay $54,546 (1/11th of the contract price) as the GST component to the ATO on or before the day of settlement.

Trevor's conveyancer makes the relevant payment to the ATO at settlement and notifies the ATO of the payment. Since Trevor paid $54,546 to the ATO, he does not have to provide this amount to MJ Builders, all he has to pay is the remaining $545,454 as consideration. MJ Builders will receive a credit for an amount of $54,546 in their next BAS and does not then have to make a payment of the amount when paying their net amount.

In theory, this measure is said to have little or no impact on developers or sellers. However, in reality, it is not known whether some developers may increase the costs of these new properties to cover the immediate cash shortfall they may experience. This coupled with an increase in complexity for buyers and their conveyancers could unintentionally lead to negative consequences for the housing market.

What's next?

If you're thinking of purchasing a new property it may be advantageous to get enter into a contract before 1 July 2018 so you do not have to deal with the uncertainty surrounding these proposed rules. However, these changes are complex so if you're unsure about what to do we're here to provide you with up-to-date advice for your purchase or potential purchase.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.auSource: Thomson Reuters.   Brought to you by Robert Goodman Accountants.