Robert Goodman Accountants Blog

Made a tax loss? If you're a sole trader or individual partner, you may be able to apply the loss against other income like salary or investment income, or carry the loss forward to a future year. Learn what rules apply so you can start factoring losses into your business tax planning.

When you're starting a new business venture, it may take some time before the business becomes profitable. And there may be other situations where an established business operates at a loss in a particular year. So, what does this mean tax-wise? When your deductions in an income year are greater than your assessable income, you have a "tax loss". You generally can't receive a refund for a tax loss, but you can use it in other ways.

Using losses against other income

If you're a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary and wages from employment and income from personal investments.

But watch out: if the loss is "non-commercial", you can't use it immediately to offset your other income. Instead, you must defer it (explained below). To pass the non-commercial loss rules, you generally must meet two requirements. First, your adjusted taxable income must be less than $250,000. For these purposes, you ignore your business losses, but must add any reportable fringe benefits, salary sacrifice or personal super contributions, and total net investment losses.

Second, you must pass one of the following four tests, which are designed to measure whether your business activities are sufficiently "commercial":

  • your assessable income from your business activity is at least $20,000;
  • your business has made a tax profit in three out of the past five years (including the current year);
  • you use real estate valued at $500,000 or more in your business on a continuing basis; or
  • the value of "other assets" (excluding vehicles and real estate) you use in your business on a continuing basis is at least $100,000.

If you don't pass any of these tests (or fail the $250,000 income requirement), you must defer the loss for use in future. You'll be able to apply the deferred loss against future business income when the business starts making a profit, or alternatively against other income sources when you start satisfying the non-commercial loss rules. Your losses can be deferred indefinitely until this happens.

The Commissioner of Taxation can use his discretion to allow you to apply the loss in the current year, but only in "special circumstances" or where the nature of your business is such that there will be a lead time before the business activities become profitable or sufficiently commercial.

There are also special rules for primary production and professional arts businesses. If your income from other sources (excluding any net capital gain) is less than $40,000, you can use your business tax loss against that income and you don't need to worry about the non-commercial loss rules.

Offsetting future income

What if you satisfy the non-commercial loss rules but don't have income against which you can offset your tax loss?

Sole traders and individual partners can carry forward tax losses to a later year to apply against future income. While losses can be carried forward indefinitely, you must use them to offset income at the first opportunity.

If you operate through a trust or company, talk to your tax adviser about the rules that determine when you can use carried-forward losses. These rules look at things like whether there has been a significant change in ownership or control since the loss was incurred (and for some entities, whether it carries on the same or a "similar" business after the change).

Expecting a loss?

Whether you're setting up a new business or need advice about using existing tax losses, contact our office to begin a discussion about tax loss planning to help your business succeed.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

The small business CGT concessions are a great tool for business owners to transfer wealth into super. Here, we break down the two essential requirements you must first meet in order to access any of the concessions. Could your business qualify? It may be time to see your adviser to start planning your business retirement strategy.

Have you considered the powerful tax and superannuation planning opportunities that the small business CGT concessions can offer your business? These concessions allow you to reduce – or in some cases, completely eliminate – the capital gain from the sale of a business asset, whether it's held directly by your business entity or in another related structure.

What's more, the concessions also allow you to make extra super contributions – sometimes up to $1,515,000 – in connection with the sale of business assets. This is an attractive opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. However, there are two basic conditions you must meet before you can access any of the concessions.

Business size

The first requirement tests whether your business is "small" enough to qualify. There are two alternative tests: a turnover test and a net assets test.

The turnover test is met where you carry on a business and have annual "aggregated turnover" under $2 million.

This includes not just your business turnover, but also the business turnover of any entities that are "connected" or "affiliated" with you, which broadly means related entities that you control or influence. So, if you have another trust or company that carries on a separate business, its turnover will often be taken into account.

In terms of timing, you'll satisfy the test if your aggregated turnover last income year was under $2 million. Alternatively, it's also sufficient if your aggregated turnover this year is likely to be under $2 million, provided it was not $2 million or more in the previous two years.

What if you, the asset owner, don't carry on a business but passively hold the asset and it's used by another of your entities in its business? You can still qualify, provided that entity is sufficiently related to you and it passes the turnover test itself.

The alternative test is the net assets test. You meet this test if the combined net assets of you and certain assets of your "connected" and "affiliated" (ie related) entities is no more than $6 million in total. Being a "net" assets test, you can subtract the liabilities related to the assets. You can also ignore assets like your main residence (provided it's not used to produce income), personal use assets, superannuation entitlements and shares or units in your related entities.

Asset requirements

The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an "active" asset. This means it must have been used or held in a business carried on by you or one of your "connected" or "affiliated" entities for the following time periods:

  • if you owned the asset for 15 years or less – for at least half the ownership period; or
  • if you owned it for more than 15 years – for at least 7.5 years.

What about property you hold in another structure and lease to your business? Property can be tricky because of a rule that specifically excludes assets where the asset owner's main use is to derive rent or other passive income. However, where the property is used by your "connected" or "affiliated" entity in its business, it will generally qualify as an active asset.

If you're planning to sell shares in a company (or interests in a trust), talk to your adviser about the special rules that apply to these types of assets.

Ready to explore your opportunities?

The small business concessions can provide significant tax and super benefits if implemented correctly. Contact our office to begin exploring the concessions for your business.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Tax relief for drought-stricken farmers

With the drought sweeping across the country, everyone is doing what they can to help. Farmers have been offered access to concessional loans, grants, and special allowances to help ease the immediate financial burden. While it is difficult to predict when the drought will break, for those who are in the process of navigating their way out of immediate financial strain, there are ways to future proof your farm or primary production business by taking advantage of various tax concessions.

As the ongoing effects of the drought sweeps across the nation, the financial effects are no doubt weighing heavily on the minds of farmers and other primary producers. While the government cannot make it rain, it is doing its bit to ease the financial strain by giving those affected by drought more time to pay their taxes, waiving penalties and interest charges, adjusting PAYG instalments, and promoting tax incentives.

Some of the immediate assistance measures include concessional loans and the farm household allowance in which lump sum payments of up to $12,000 can be paid to eligible farm households.

The allowance can also be in the form of fortnightly payments for a maximum period of 4 cumulative years at the same rate as the Newstart allowance. This allowance may be available to both the farmer and his/her partner provided certain conditions are met. An activity supplement of up to $4,000 to pay for study, training or professional financial advice may also be available to eligible households.

In addition to the immediate assistance, primary producers can also obtain ongoing benefits of various tax concessions including the instant asset write-off, immediate deductions for fodder storage assets, and income averaging to assist with cash flow.

Instant asset write-off

This financial year (from 1 July 2019 to 30 June 2020) is the last year you can get an immediate deduction for assets you've purchased that cost less than $30,000 (depending on the date of purchase), provided you're classified as a small business. From 1 July 2020, you can only obtain an immediate deduction for assets that cost less than $1,000. Make sure you make the most of this concession, if you're thinking of buying a water storage or other drought proofing assets, it may be wise to bring forward the purchase.

Fodder storage assets

In addition to the other assets that you can get an immediate deduction for, any structural improvement, capital repair, alteration, addition or extension to an asset or structural improvement that is primarily and principally used for storing fodder is immediately deductible in the year you incurred the expense. Increasing the capacity or changing the way the feed is stored will almost certainly provide an insurance policy for dry times and lessen the financial strain of having to purchase feed for livestock.

Income averaging

If you're an individual carrying on a primary production business, you can apply income averaging to account for what may be significant fluctuations year on year from environmental and other factors. This ensures that you will not be subject to an unreasonably high marginal tax rate one year when it is not representative of your income levels over a longer period.

Income averaging does not apply automatically when you start to carry on a primary production business. Some basic conditions must also be satisfied such as the business being carried on for 2 or more years in a row, and the basic taxable income in one year being less than or equal to the basic income in the next year.

When using income averaging, tax is still calculated on your actual basic taxable income at the usual rates, however, you will be entitled to a tax offset if the average income is less than the taxable income. Conversely, you may have to pay extra income tax if the average income exceeds the taxable income.

Here to help.

If you are experiencing hardship due to drought, we can help contact the ATO on your behalf or assist with your application for farm household allowance to ease the immediate financial burden. Contact us today to start laying the ground work to take advantage of tax concessions and drought-proof your future.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

As a business owner you can deduct the cost of work trips you need to take for business. But what happens when you mix business with some hard-earned time for relaxation? Find out how major expenses like airfares and accommodation are treated when you take mixed-purpose business trips.

Do you sometimes take work trips for your business – perhaps to conferences, trade shows or interstate clients? When a trip is clearly for business purposes only, the rules for deducting your expenses are fairly straightforward.

You can claim airfares, taxis and car hire (and fuel). You can also deduct accommodation costs for overnight travel if the business requires you to be away from your permanent home overnight. Meals are also deductible when you're required to be away overnight.

But what happens when you've planned a holiday to coincide with your work trip, or while you're travelling for business you also catch up with family or friends?

It's important that you keep records to show which expenses are business-related and which are private.

Can I claim my full return airfares?

What is the tax deductibility of airfares when you combine business and private travel? Let's assume you travel to London for a two-week trade show and stay a few extra days for sightseeing. The ATO says that if the primary purpose of the trip is for business, you can claim the whole cost of the return airfares as a business deduction, as well as related costs like travel to and from the airport. In this London example, the additional sightseeing is just incidental.

If you're undertaking a significantly longer holiday so that the primary purpose of the trip is not just the business activity, you may need to apportion your airfares. And if the primary purpose is clearly private with some merely incidental work activities (eg you attend a half-day work event while you happen to be on an extended personal holiday), you generally couldn't deduct the airfares.

How is accommodation treated?

Your deductions for accommodation are limited to those nights that you're required to be away for the business purpose. This will depend on the facts of your trip. In the London example above, you couldn't deduct your accommodation costs for the few extra nights you stayed for sightseeing. (Similarly, any meals and transport around London would not be deductible for the days you spent sightseeing.) This is the case, even though you could deduct your full airfares.

On the other hand, if you have to be away for an extended period and some days don't involve work activities, you may still be able to claim your full accommodation costs. The ATO gives the example of being interstate for two full weeks to complete a project on-site for a client. Your accommodation costs on the middle weekend (when you're not working at the client's site) would still be deductible. Of course, private weekend activities like sightseeing, entertainment and having dinner with friends would not be deductible.

Watch out for these traps

The following expenses are not allowed as deductions:

  • Travel before you start carrying on your business.
  • Visas, passports and travel insurance.
  • The costs of bringing family members (eg a spouse) along with you.

Record-keeping requirements

Sole traders and partners must keep a travel diary if they travel for six or more consecutive nights. This must detail each business activity undertaken, the location, the date and time it began and how long it lasted.

If your business is run through a company or trust structure, the ATO says it's not compulsory to keep a diary, but it's strongly recommended. And if you're a company, be careful about your business paying for any private part of your travel as this could have consequences under the Division 7A "deemed dividend" rules about benefits for shareholders and their associates.

Travelling for business?

Don't attract unwanted ATO attention to your business. Talk to us to ensure you're getting the maximum deduction for your business trips while staying within the ATO guidelines.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Crowdfunding: is it income?

Crowdfunding has fast become the go to place for people in need of large amounts of money quickly, but is the money raised considered to be income and therefore taxable? Campaigns on various platforms range from the shameless (lavish weddings/honeymoons) to ground-breaking (new innovative products), and whether each campaign is taxable depends entirely on the circumstances of each case. Generally, if the campaign is related to running/furthering your business or is a profit-making plan, then any money received would be classed as income.

These days it feels like everything is being crowdfunded, you may have heard the ridiculous story of a man who wanted to raise US$10 for a potato salad and ended up with US$55,000 from complete strangers. Or perhaps you've heard stories of shameless couples who wanted to people to fund their lavish weddings or honeymoons? Crowdfunding has fast become the go to place for people in need of large amounts of money quickly, but is the money raised taxable?

If you're unfamiliar with crowdfunding, it is where individuals or businesses (ie the promoter) upload a description of the campaign (eg to fund a potato salad or a new invention) along with the amount they want to raise to a third-party internet platform (eg Kickstarter, GoFundMe, Indiegogo etc). Other netizens can then choose to support the campaign or cause through pledging money (ie contributors).

There are several types of crowdfunding and each may attract different tax consequences for the promoter of the campaign. A large number of campaigns are what can be described as donation-based. This is where a contributor to the campaign pledges an amount of money without receiving anything in return. If you're a contributor in this case, you will not able to deduct an amount contributed in a crowdfunding campaign as a "donation" in your tax return unless the cause you've donated to is a Deductible Gift Recipient (DGR). An exception is if you carry on a business, and the cost of contributing to the campaign falls under business expenses such as sponsorship or marketing.

There are other campaigns which can be referred to as rewards-based in which the promoter provides a reward including goods, services or rights to contributors in return for their payment. An example of this may be differing levels of campaign-related merchandise that can be received depending on the amount pledged by the contributor. Usually, the acquisition of goods or services by the contributor is considered to be private in nature and not deductible.

As the promoter of a campaign (either donation-based or rewards-based), whether or not the money you receive is considered to be taxable depends on the circumstances.

In general, if the money received is to be used to further your business or is a profit-making plan, then it is considered to be income. Remember, the hurdle for something to be a profit-making plan is much lower than that of a business. Therefore, if you as a promoter launch a crowdfunded project with intention of making a profit, and then carry out the project in a business-like way, the money raised could very well be considered to be income.

The difference between whether or not the money is classified as income can be minor and will be determined by the facts in each case. For example, money received from crowdfunding the making of a movie may or may not be income for the promoter depending on factors such as: whether the promoter draws a personal salary from the crowdfunded income; whether the promoter will keep any of the funds raised; or whether the movie made will be widely distributed.

Want to find out more?

If you're thinking of starting a crowdfunding campaign or have already had success with one, we can help you deal with all the tax consequences, so you can concentrate on more important things, like making your business or project a success.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

If you have a business in addition to your main employment, the non-commercial loss rules could apply to you, which may prevent you from deducting your business losses against your other income. Depending on your business activity, as long as you satisfy certain conditions, your business will not be subject to the non-commercial loss rules. If your business does not satisfy these conditions, don't fret, you can also apply to the Commissioner for an exemption under certain circumstances.

Do you run a side business in addition to your main employment? This could be in primary production (ie a farm or winery), retail or any other profession, trade, vocation or calling, provided it is not in a role of an employee. If you do, you may be subject to non-commercial loss rules, which are designed to restrict losses from "non-commercial" business activities from being offset against income from other sources, say your employment income.

A "non-commercial" business activity in this context is any business where the deductions exceed the assessable income in any particular year. However, the non-commercial loss rules will not apply (ie you are able to offset losses from the business activity against other income) under the following circumstances:

  • the assessable income from the business for the year is at least $20,000;
  • the business made a profit (for tax purposes) in at least 3 of the past 5 income years including the current year;
  • the total value of real property (or interests in real property) used on a continuing basis to carry out the business is at least $500,000; or
  • the total value of other assets (excluding cars, motorcycles or similar vehicles) used on a continuing basis in carrying on the business is at least $100,000.

The above conditions only apply to those with an adjusted taxable income of less than $250,000.

Those with an adjusted taxable income of $250,000 or more are considered to be "high-income earners" and will have their deductions from the business quarantined to the business activity.

As such, they will only be allowed to deduct the loss when the business makes a profit. However, high-income earners and those that who do not satisfy the above conditions can still make a request to the Commissioner of Taxation to exercise his or her discretion not to apply the rules.

The Commissioner may exercise his or her discretion to not apply the non-commercial loss rules if:

  • the business was or will be affected by special circumstances outside of your control (eg natural disasters, unforeseen major accidents, government restrictions, illnesses affecting key personnel);
  • if you are not a high-income earner, and the nature of the business means you will not satisfy the conditions, however, the business is objectively expected to make a profit or pass one of the conditions within a commercially viable period for the industry; or
  • if you are a high-income earner, and the nature of the business is such that it has not and will not produce a tax profit for the year in question and there is an objective expectation that it will make a tax profit within a commercially viable period for the industry.

The exercise of discretion is based on an assessment of the facts in each case, as such, any application should be accompanied by supporting evidence of special circumstances, and/or evidence from independent sources including industry bodies, professional associations, and government agencies as to what a "commercially viable period" for the industry is.

If you're a primary producer or a professional artist (eg authors, playwrights, artists, sculptors, composers, performing artists and production associates) and your income from other sources that do not relate to the business is less than $40,000 (excluding net capital gains), you can ignore all of the above, as the non-commercial loss rules will not apply to you. You will be able to deduct any losses from the business against your other income, but you should beware of the $40,000 threshold which may change from year to year based on your personal circumstances.

Still not sure?

If you get the bulk of your income from being an employee and run a business on the side, we can help you figure out if you're subject to the non-commercial loss rules. Alternatively, we can help you apply for the Commissioner to exercise his or her discretion in relation to any business activity you may run so you can start deducting the losses while building your business.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

The rules around Div 7A deemed dividends are complex and may have become more so with the release of a draft taxation determination from the ATO in relation to debts forgiven. Contrary to previous guidance, the draft determination now indicates only natural persons can forgive debts by reasons of natural love and affection. Therefore, private companies will no longer be able to use this exemption on debts forgiven. If your private company has previously used this exemption, beware as the Tax Office has indicated that it will apply this new view in any litigation matters.

Private companies that pay amounts of money, make loans, or forgives debts of shareholders or associates of shareholders, may be subject to Div 7A rules which are designed to ensure that income is not inappropriately sheltered at the corporate tax rate. Generally, these rules deem certain moneys and/or benefits (eg loans and forgiven debts) obtained from the private company by shareholders or their associates to be dividends.

There are exceptions where a private company is not taken to have paid a deemed dividend, for example, where a loan is on commercial terms or is fully repaid within a required timeframe. However, by and large, where a shareholder or their associate has obtained a benefit, then the benefit will be a deemed dividend and needs to be included in the assessable income of the shareholder or their associate.

The rules around Div 7A are complex and may have become a little more so with the release a draft taxation determination from the Tax Office in relation debts forgiven. Importantly, it changes the circumstances in which the exclusion for debts forgiven for reasons of natural love and affection can apply.

The term "natural love and affection" encompasses both its legal meaning (goodwill towards or emotional attachment to another person, particularly that of a parent to their children) and its ordinary meaning (strong emotions of caring, fondness and attachment that arise in consequence of ordinary human interaction).

Whether or not natural love and affection is present in a relationship can only be determined on a case by case basis, although relevant factors may include past dealings, existing relationships, and future intentions.

Previously, when a debt to a shareholder or associate was forgiven by a private company, it was not taken to have been "forgiven" if it was done so for the reasons of "natural love and affection". Therefore, the effect is that, if a private company had lent money to a shareholder/associate but then forgives that debt due to "natural love and affection", then the debt would not have been captured under Div 7A rules and any amount forgiven would not have been a deemed dividend.

With the release of the draft taxation determination, the Tax Office has taken a new stance and noted that the "natural love and affection" exclusion in relation to debts forgiven can only be used if the creditor is a natural person. In this new interpretation, a private company cannot forgive any debts due to natural love and affection as it is not a natural person but rather an entity. It then follows that more private company debt forgiveness would be captured under Div 7A after this change. Whilst this view is not final, it is highly likely that the final determination will express a similar if not the same view as the draft.

In the draft taxation determination, the Tax Office notes it will not devote compliance resources to debts forgiven prior to the withdrawal of previous guidance that expressed the view that companies can forgive debts for reasons of natural love and affection (ie 6 February 2019). However, if your private company has previously applied this exemption, you may need to be aware as the Tax Office is likely to apply this new view in private rulings or litigation matters.

Review your private company arrangements.

Now is the time to review your private company arrangements, including loans and benefits to shareholders and/or associates to ensure it does not fall afoul of the new Tax Office stance. If you're unsure about any arrangements, we can help, contact us today.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Trusts avoiding CGT alert

An alert has been issued over arrangements where trustees of unit trusts disposes CGT assets to an arm's length purchaser with no CGT consequences by exploiting restructure rollovers. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able avoid tax. The ATO notes it is actively reviewing such arrangements and that the anti-avoidance provisions may apply.

The Tax Office has recently issued an alert on its concerns over trusts avoiding CGT by exploiting restructure rollovers. Specifically, it is actively reviewing arrangements that supposedly allow a unit trust to dispose a CGT asset to an arm's length purchaser with no CGT consequences.

As a result, both taxpayers and advisors who enter into these arrangements will be subject to increased scrutiny.

The arrangement consists of a trustee of a unit trust (transferring trust) selling a CGT asset with a large unrealised capital gain to an arm's length purchaser for an agreed price in the following way:

  1. transferring the asset to a trustee of a new trust (receiving trust) for the purchase price, which gives rise to a debt owing to the transferring trust;
  2. choosing rollover under Subdivision 126-G in relation to the transfer;
  3. the purchaser then subscribes to new units in the receiving trust equal in value to the purchase price; and
  4. the receiving trust subsequently repays the debt to the transferring trust with the funds received from the issue of the new units.

According to the ATO, the steps may be implemented in close succession or structured in stages as a part of a broad scheme. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able to transfer the underlying ownership to the purchaser and avoid the capital gain using the rollover provisions.

The specific aspects of the arrangements that concern the ATO include:

  • whether conditions for Subdivision 126-G rollover relief are met in respect of the arrangement;
  • the arrangement appears to be designed primarily to allow the transferring trust to exploit Subdivision 126-G rollover to disregards a capital gain that would otherwise be assessable to the trustee or beneficiaries of the trust;
  • the arrangement results in a change in the underlying ownership of the relevant asset without triggering a CGT taxing point, which is contrary to the intention of the Subdivision 126-G rollover;
  • the parties have entered into this arrangement in circumstances where a direct sale of the relevant asset by the transferring trust to the purchaser would have been simple, viable and commercially expected;
  • the commercial substance of the arrangement is a sale of the asset by a transferring trust to the purchaser, and the complex arrangement can only be explained by the tax advantage obtained by the transferring trust; and
  • the transferring trust receives (and the purchaser pays) the same total sum under the arrangement as if the asset were sold directly.

In light of the concerns, the ATO considers that Pt IVA anti-avoidance provisions may apply to these arrangements where they would otherwise qualify for rollover relief under Subdivision 126-G. While only a small number of cases have been detected so far, the ATO noted at least one case involved the sale of real property of several hundred million dollars.

Do you know your trust?

Trusts, whether they be unit, discretionary or family trusts, can consist of complex arrangements with each specific trust subject to particular rules. If you're a part of a trust, whether it be in the role of trustee or beneficiary, we can help you understand and implement strategies which won't catch the ATO's attention. Contact us today.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

ATO debts to affect your credit rating

Businesses with tax debts beware, the ATO will now be able to disclose the details of your tax debts to credit ratings agencies, which could potentially affect the ability of the business to obtain finance or refinance existing debt. Generally, only those businesses with an ABN and debts over $100,000 and are not "effectively engaged" with the ATO will be affected. Practically, the ATO is planning a phased implementation which will consist of education before targeting companies followed by partnerships, trusts, and sole traders.

The ATO now has another "stick" in its arsenal to get businesses to engage with it and manage outstanding tax debts. Laws have recently been passed that allow the Tax Office to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs).

The aim of the laws, according to the government, is to encourage more informed decision making within the business community by making large overdue tax debts more visible, and reduce the unfair advantage obtained by businesses that do not pay their tax on time.

The disclosure of these debts have the potential to affect the credit ratings of businesses and their ability to refinance existing debt, so only those businesses that meet certain criteria will be subject to this new disclosure rule. These criteria are:

  • have an ABN and is not an excluded entity (ie a DGR, registered charities, government entities, and complying superannuation entities);
  • has one or more tax debts of which at least $100,000 is overdue by more than 90 days;
  • is not effectively engaging with ATO to manage its tax debt; and
  • the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity's tax debt information.

When a business meets the above criteria, the ATO is required to notify the business in writing and give them 28 days to engage and take action before any debt is disclosed. In addition, tax debt information will only be provided to CRBs where they are registered with the ATO and have entered into an agreement detailing the terms of reporting.

According to the ATO, an entity's tax debts for the purposes of the disclosure rule includes income tax debts, activity statement debts (eg GST, PAYGW), superannuation debts, FBT debts and penalties and interest charges. An entity is considered to be effectively engaged with the ATO in respect of a tax debt if it:

  • has a payment plan in place and is meeting the terms of the payment plan;
  • has an active Pt IVC objection against a taxation decision to which its tax debt relates;
  • has an active review with the AAT or an active appeal to the Court against a decision to which its tax debt relates;
  • has an active reconsideration of a reviewable decision which may affect the quantum of a non-complying super fund's tax debt with the relevant regulator;
  • has an active review with the AAT of a reviewable decision which may affect the quantum of a non-complying super fund's tax debt; or
  • has an active compliant lodged with the Inspector-General of Taxation in relation to the tax debt that is, or could be, the subject of an investigation.

The practical approach to disclosure of tax debts were outlined by the ATO previously. It consists of a phased implementation approach, with the initial phase focusing on raising community awareness of the measure through newsletters, articles, forums and speeches. After the initial phase, it will begin firstly with companies that meet the disclosure requirements before moving onto other entities such as partnerships, trusts, and sole traders with ABNs.

Need help?

Unsure if you have a tax debt to the ATO and want to avoid having your credit rating affected? Or perhaps you need help with working out a payment plan with the ATO for your existing debt? We can help with all this and more, contact us today.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

$10,000 cash payment limit: the facts

The proposed $10,000 economy wide cash payment limit has understandably elicited some confusion among the general populous. Chief among them is to what extent will personal transactions be included in this limit. To dispel some of the confusion, the government has released information outlining the circumstances in which the limit would not apply in relation to personal or private transactions. While this proposal is not yet law, once enacted it will be a criminal offence for certain entities to make or accept cash payments of $10,000 or above.

To combat the use of cash in black economy activities, the government has introduced a law which will implement an economy-wide cash payment limit of $10,000. If enacted, the law will make it a criminal offence for certain entities to make or accept cash payments of $10,000 or more. Understandably this limit has created some confusion about what transactions may be captured and what it applies to.

Among other categories, payments that will not be subject to the $10,000 limit include those relating to personal or private transactions (excluding transactions involving real property). The exemption only includes payments that satisfy one of the following:

  • payments solely for supplies or acquisitions that are not made in the course of an enterprise;
  • payments that are made or received by an entity in circumstances where that entity reasonably believes that the payment is solely for supplies or acquisitions that are not made in the course of an enterprise;
  • payments that are made as or as part of a gift (not in the course of an enterprise); and
  • payments that are made or received by an entity as a gift (or part of a gift) in circumstances where that entity reasonably believes that the payment is not made or received in the course of an enterprise.

The term "enterprise" in this context has the same broad meaning as the GST Act, meaning that an entity will be undertaking an enterprise if, for example, it carries on a business (or in the form of a business), offers real property for rent, is a charity, political party (or candidate) or other recipient of gifts that are deductible for income tax, operates a super fund, or is the Commonwealth, a State or a Territory or an entity established for public purposes under an Australian law.

In essence, the only circumstance in which an entity will not be carrying on an enterprise is where the entity is acting in a wholly private or personal capacity.

Therefore, cash gifts to family members (as long as they are not donations to regulated entities such as charities) and inheritances are likely to be exempt. In other words, it is unlikely that you will be prosecuted for a criminal offence if you give your family members a lavish cash wedding gift or help your kids with a house deposit that happens to be over $10,000.

However, if you occasionally sell private assets (eg a used car) you may need to be careful and take reasonable steps to ascertain whether the other party is acting in the course of an enterprise. For example, if you sell your car to another individual and you believe the car will be acquired for private use after undertaking reasonable inquiries such as searching the Australian Business Register, then the exemption for personal/private transactions will apply.

On the other hand, if you did not undertake "reasonable inquiries", and incorrectly believe that the other party is not acting in the course of an enterprise, then it is possible you may be prosecuted for a criminal offence. In general, whether a belief is reasonable will depend on the circumstances of the transaction and the parties. However, a reasonable belief must be a belief about the facts and does not protect those ignorant of the law or the legal implications of the facts. In other words, you cannot claim that you didn't know about the rules surrounding the cash payment limit.

Want to find out more?

While the $10,000 cash payment limit is not yet law, if you have a business that deals mainly in cash, now would be a good time to transition into electronic payments. If you would like to understand how the proposed changes will affect either you or your business, and how to avoid falling afoul of the cash payment limit, we can help.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.