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Federal Budget 2018-2019

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In what is likely to be the final Budget before the Federal Election, tax cuts are again being used to woo voters.

The centrepiece of the May 2018 Budget is a new 7-year personal tax plan consisting of a three-step process involving immediate tax relief, protection from bracket creep and simplification of the tax system.

Personal tax cuts

The initial change will commence on 1 July 2018, with immediate tax relief for those earning up to $90,000. However, the tax relief will not appear in weekly pay packets as it comes in the form of a tax offset, rather than a cut in tax rates. Under the plan, taxpayers on wages of up to $37,000 a year will gain a further tax offset of $200 on top of existing tax offsets. Taxpayers earning between $48,000 and $90,000 will receive the maximum $530 non-refundable Low and Middle Income Tax Offset, while for those earning over $90,000 the offset will taper off before reaching zero for those earning over $125,333. 

Eliminating bracket creep

The second part of the personal tax plan involves a move designed to eventually eliminate bracket creep for taxpayers. This involves raising the threshold at which the 37 per cent tax rate applies from $87,000 to $90,001 from 1 July 2018. 

Further threshold changes will be made in 2022-23, with the $37,000 bracket threshold rising to $41,001 and the $90,000 threshold being lifted to $120,001. The Low and Middle Income Tax Offset will disappear, while the Low Income Tax Offset will increase from $445 to $645. 

Changing the tax system

In July 2024, the 37 per cent tax bracket will be eliminated, leaving only four tax brackets. The threshold for the top marginal tax rate will rise to $200,001. Elimination of the 37 per cent tax bracket will result in all taxpayers earning between $41,001 and $200,000 paying a flat tax rate of 32.5 per cent. 

With these new thresholds, 94 per cent of workers will be in the same tax bracket, leaving only those earning over $200,001 paying the top marginal tax rate of 45 per cent. 

Medicare levy ditched

The Budget confirmed the Government would not be proceeding with the planned 0.5 per cent rise in the Medicare levy. The Medicare levy low-income threshold for singles will rise to $21,980 for 2017-18. 

Win for small business

The popular $20,000 instant asset write-off has received yet another lease of life, with another one-year extension announced in this year's Budget. Small businesses with a turnover of under $10 million will continue to be able to claim an immediate tax deduction for capital equipment purchases until 30 June 2019. 

GST reporting will also be streamlined, with the number of BAS GST questions reduced to three. 

Black economy crackdown

New measures will be introduced to further crack down on tax avoidance in the 'black economy', with the outlawing of cash payments of $10,000 and over to businesses for goods and services. 

From 1 July 2019, businesses will no longer be able to claim tax deductions for payments to employees such as wages if they do not withhold PAYG tax. This will also apply to contractor payments if the contractor does not provide an ABN and the business fails to withhold PAYG. 

Crackdown on R&D tax breaks

There will be a new crackdown on the existing research and development (R&D) tax incentive to stop companies claiming tax breaks for conducting 'business-as-usual' activities. The overhaul is designed to restore integrity to the scheme and should save $2 billion over the next four years. 

No deductions for holding vacant land

From 1 July 2019, tax deductions for any expenses associated with holding vacant land which is not genuinely held for earning assessable income will be disallowed. This will cover land held for residential or commercial purposes. 

Partnership rules tightened

From Budget night, partners that alienate income by creating or dealing rights to their future partnership income will no longer be able to access the small business CGT concessions. 

If you would like to discuss how any of these measures might impact your tax planning, please contact our office.

Practice Update May 2018

gst

GST withholding measures now law

Legislation has been passed to "clamp down" on GST evasion in the property development sector.

From 1 July 2018, purchasers of new residential premises and new residential subdivisions will generally be required to withhold the GST on the purchase price at
settlement and pay it directly to the ATO.

Property developers will also need to give written notification to purchasers regarding whether or not they need to withhold.

The new obligations are primarily aimed at ending the practice of some developers collecting GST on new properties before dissolving their business prior to remitting
such tax to the ATO.

Continued ATO focus on holiday home rentals  house on beach

The ATO has recently advised that they are "setting their sights on the large number of mistakes, errors and false claims made by rental property owners who use their own
property for personal holidays".
 

While it confirms that the private use of holiday homes by friends and family is entirely legitimate, the ATO states that such use reduces a taxpayer's ability to earn income from
the property, and therefore impacts on (i.e., reduces) the amount of claimable deductions.

As a result, the ATO has reminded holiday home owners that:
  
They can only claim deductions for a holiday home with respect to periods it is genuinely available for rent.
They cannot place unreasonable conditions on prospective tenants/renters, set rental rates above market value, or fail to
advertise a holiday home in a manner that targets people who would be interested in it and still claim that the property
was genuinely available for rent.
Where a property is rented to friends or relatives at 'mates rates', they can only claim deductions for expenses up to the
amount of the income received.
Property owners whose claims are disproportionate to the income received can expect greater scrutiny from the ATO.

Payroll folderGet ready for Single Touch Payroll

Single Touch Payroll (or 'STP') is mandatory for 'substantial employers' (being those with 20 or more employees) from 1 July 2018.

All employers are required to count the number of employees on their payroll on 1 April 2018 to find out if they are a substantial employer (note that this can be done after 1 April, but they need to count the employees who were on their payroll on 1 April).

They must count each employee (not the full time equivalent), including full-time, part-time and casual employees, as well as those employees based overseas or absent or on leave (paid or unpaid).

Employers that are part of a company group must include the total number of employees employed by all member companies of the wholly-owned group.

However, employers don't have to include the following in the headcount:

any employees who ceased work before 1 April;
casual employees who did not work in March;
independent contractors;
staff provided by a third-party labour hire organisation;
company directors or office holders; or
religious practitioners.

Note that, although directors, office holders and religious practitioners are not included in the headcount, if the employer starts reporting through STP, the payment information of these individuals will need to be reported (because the payments are subject to withholding and are currently reported in the Individual non-business payment summary).

Employers don't need to send the ATO the headcount information, but they may want to keep a copy for their own records.

Once an employer becomes a substantial employer, they will need to continue reporting through STP even if their employee numbers drop to 19 or less (unless they apply for and are granted an exemption).

Editor: Please contact our office if you need any assistance regarding the new STP regime.

Employee denied deductions for work-related expensesreceipts on peg

An employee photographer has been denied deductions for travel expenses (when travelling with his family), and other purported work related expenses.

The AAT held that the travel expenses were primarily incurred for the purposes of a family trip or holiday and were therefore non-deductible, as they were private and domestic in nature.

Also, in relation to the taxpayer's reliance on bank statements in the absence of invoices and receipts, the AAT observed that "evidence of the mere transfer of funds, be it by way of bank transfer or by any other means, is not sufficiently informative of the actual character of an expense", so the other disputed expenses could not be claimed as allowable deductions.

keys on binderNew FBT rates for the 2018/19 FBT year

Editor: The ATO has released Taxation Determinations setting out the following rates for the FBT year commencing on 1 April 2018.

FBT: Benchmark interest rate
The benchmark interest rate for the 2018/19 FBT year is 5.20% p.a., which is used to calculate the taxable value of:

a loan fringe benefit; and
a car fringe benefit where an employer chooses to value the benefit using the operating cost method.

Example
On 1 April 2018, an employer lends an employee $50,000 for five years at an interest rate of 5% p.a., with interest being charged and paid 6 monthly, and no principal repaid until the end
of the loan.

The actual interest payable by the employee for the current year is $2,500 ($50,000 × 5%). The notional interest, with a 5.20% benchmark rate, is $2,600.
    
Therefore, the taxable value of the loan fringe benefit is $100 (i.e., $2,600 – $2,500).

FBT: Cents per kilometre basis
The rates to be applied where the cents per kilometre basis is used for the 2018/19 FBT year in respect of the private use of a vehicle (other than a car) are:

Engine capacity Rate per kilometre
0 – 2,500cc 54 cents
Over 2,500cc 65 cents
Motorcycles 16 cents

FBT: Record keeping exemption threshold
The small business record keeping exemption threshold for the 2018/19 FBT year is $8,552.

Editor: The ATO has also released Taxation Determinations setting out the indexation factors to value non-remote housing, and the amounts the ATO considers reasonable for food and drink expenses incurred by employees receiving a living-away-from-home allowance (LAFHA) fringe benefit, for the FBT year commencing on 1 April 2018.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.

Practice Update April 2018

New superannuation rates and thresholds released Yellow sign

The ATO has published the key superannuation rates and thresholds for the 2018/19 income year.
  • The Non-Concessional Contributions cap will remain at $100,000 (although transitional arrangements may apply), and the Concessional Contributions cap will remain at $25,000.
  • The CGT cap amount will be $1,480,000.
  • The Division 293 tax threshold will be $250,000.
  • The maximum super contribution base for superannuation guarantee purposes will be $54,030 per quarter.
  • The maximum superannuation co-contribution entitlement for the 2018/19 income year will remain at $500 (with the lower income threshold increasing to $37,697 and the higher income threshold increasing to $52,697).

The superannuation benefit caps for the 2018/19 income year include:

  • a low rate cap amount of $205,000;
  • an untaxed plan cap amount of $1,480,000;
  • a general transfer balance cap of $1.6m;
  • a defined benefit income cap of $100,000;
  • an ETP cap amount for life benefit termination payments and death benefit termination payments of $205,000; and
  • the tax-free part of genuine redundancy payments and early retirement scheme payments comprising a base limit of $10,399 and for each complete year of service an additional $5,200.

Super guarantee payable on 'public holidays' and 'additional hours'!

The Federal Court has held that superannuation guarantee contributions were payable with respect to the 'additional hours' and 'public holidays' component of annualised salaries paid by BlueScope Steel,
on the basis that these particular components formed part of ordinary time earnings ('OTE'). 

Under an enterprise agreement, primarily due to the specific working environment, the employees in question were required to be available (at short notice) 365 days per year and 24 hours per day,
including a requirement to work additional hours and public holidays. As such, the employees were paid an annualised salary, which was made up of a base rate, as well as a component which absorbed
all additional payments, such as penalty rates, allowances, public holiday loadings and pay-outs, and payment for additional hours worked outside the normal rostered hours.

However, when paying superannuation, adjustments were made to the annualised salary, so that the additional hours and public holiday components were not included by BlueScope Steel as OTE
for superannuation guarantee purposes.

typing on laptopDecision
The Federal Court did not agree with the employer's adjustments, instead finding that, under the circumstances, the 'additional hours' and 'public holidays' formed part of an employee's 'ordinary hours of work' and, therefore, were considered OTE for superannuation guarantee purposes.

This remained the case whether or not the employee actually worked the additional hours or the public holidays.  That is, the ordinary conditions of the employee's work required them to be available outside their rostered shifts and on public holidays (on short notice) and, as this was factored into their annual salary, they were considered ordinary hours for these particular employees.  

 

 

Inactive ABNs will be cancelled by the ATOabn logo

The ATO has recently advised that, in an effort to maintain accurate data, the Australian Business Register (or 'ABR') periodically checks its records for Australian Business Numbers ('ABNs') and
automatically cancels those that appear inactive.

Ultimately, a taxpayer's ABN may be cancelled if they: 
  • have told the ATO they stopped their business activity;
  • declared no business income in the last two years; or 
  • not lodged a BAS or an income tax return in more than two years. 
To avoid cancellation, the ATO has reminded taxpayers that they need to bring their lodgments up to date, and have reminded sole traders that, regardless of their income, they need to lodge the individual tax
return with the supplementary section, as well as the business and professional items schedule. 

Commissioner's speech highlights ATO's focus areas 

Recently, the Commissioner of Taxation highlighted the areas in which the ATO has recently increased its focus, including: 

  • undeclared income;
  • individuals' unexplained wealth or lifestyle;
  • incorrectly claimed private expenses;
  • unpaid superannuation guarantee; and
  • cash-only businesses and those with low usage of merchant banking facilities, with black economy visits to over 2,600 businesses across 8 locations in 2017.
The Commissioner also highlighted ongoing ATO concern with respect to the predicted 'work-related expense claim gap', which (at least by the ATO's estimates) could amount to being greater than the 'large
corporate tax gap' of $2.5 billion of lost revenue. 

No need to actually 'downsize' for 'downsizer contributions'

From 1 July 2018, individuals aged 65 or over may use the proceeds from the sale of an eligible dwelling that was their main residence to make superannuation contributions (referred to as 'downsizer contributions'),
up to a maximum of $300,000 per person (i.e., up to $600,000 per couple), without having to satisfy the age or gainful employment tests that usually apply.  

This measure was announced in the 2017/18 Federal Budget, and aims to provide an incentive for older Australians to 'downsize' their home.  

This, in turn, is expected to reduce pressure on housing affordability by freeing up stocks of larger homes for growing families.  

Importantly, it should be noted that there is no requirement for an individual to actually 'downsize' by acquiring a smaller property, or to even acquire another property at all.  

In this regard, all that is required is that the individual (or their spouse) 'downsizes' by selling their 'main residence'. 

The individual can then move into any living situation that suits them, such as aged care, a retirement village, a bigger or smaller dwelling than the one sold, a rental property, or living with family.

sign straight ahead

Also, the property sold does not need to have been the individual's (or their spouse's) main residence during their entire ownership of it, provided the property was owned for at least 10 years and was their main residence at some time during the ownership period.  Therefore, the sale of an investment property that at one stage was their main residence may enable an individual (or their spouse) to make downsizer contributions. 


Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.

Practice Update March 2018

Big changes proposed to eligibility for the CGT SBCs

The Treasurer has released draft legislation containing new "integrity improvements" to the CGT small business concessions ('SBCs') (i.e., including the 15-year exemption, the retirement exemption, the 50% active asset reduction and the small business roll-over).

light bulb with ideasDue to the government's "continued support for genuine small business taxpayers", it proposes making amendments so that the CGT SBCs can only be accessed in relation to assets used in a small business or ownership interests in a small business.

Predominantly, the amendments include additional basic conditions that must be satisfied for a taxpayer to apply the CGT SBCs to a capital gain arising in relation to a share in a company or an interest in a trust (i.e., a unit in a unit trust).

This integrity rule is designed to prevent taxpayers from accessing these concessions for assets which are unrelated to their small business, such as where taxpayers arrange their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

Under the proposed amendments, the measure would be backdated to apply from 1 July 2017. The proposed amendments, if enacted as currently drafted, will significantly restrict access to the CGT SBCs where taxpayers owning shares in a company, or units in a unit trust, seek to dispose of their interests in the entity. This will particularly be the case where such interests are held in an asset-owning entity (i.e., which holds and/or leases business assets across to a separate, yet related, business entity).

It is to be hoped that the more draconian aspects of these measures may be scaled back, but due to the retrospective nature of the proposed amendments (i.e., from 1 July 2017), caution is warranted with respect to the SBCs in relation to the disposal of shares or units.

 

ATO's focus on work-related expenses

This year, the ATO is paying close attention to what people are claiming as 'other' work-related expense deductions, so it's important when taxpayers claim these expenses that they have records to show:
  • box of receiptsthey 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.
If the expense is for work and private use, the taxpayer can only claim a deduction for the work-related portion.

Importantly, taxpayers are not automatically entitled to claim standard deductions, but need to be able to show how they worked out their claims. 'Other' work related expenses are expenses incurred by employees in relation to their work that are not for travel, clothing or self-education, such as home office expenses.

 

Taxpayer can't explain where she got the money to pay her expenses

The Administrative Appeals Tribunal has upheld amended assessments issued by the ATO to a beauty technician, based on the high volume of money passing through the taxpayer's various accounts when compared with the modest income she had included in her tax returns. For example, in the 2015 income year, the taxpayer had declared income of $61,842, but the ATO's analysis of her bank accounts, records of international money transfers, and casino data suggested she had spent $107,328.

The Tribunal noted that, in cases like this, the ATO is effectively making an "informed guess" as to the taxpayer's income, but, provided there is a rational basis for the estimate, the ATO's assessment will stand, unless the taxpayer can:
  • demonstrate the assessment was excessive; and
  • establish what the correct (or more nearly correct) figure is.
hand with money notes
After hearing from the taxpayer and witnesses at the hearing, and after reviewing the documents, the Tribunal was not persuaded that the taxpayer had demonstrated that the Commissioner's assessments were 'excessive'. In particular, the taxpayer's explanation regarding her income and expenditure was not supported by the objective facts in the hearing, being:
  • the 'churn' through her bank accounts; 
  • the absence of contemporaneous records beyond the bank accounts (for example, she was always paid in cash without receiving pay slips); and 
  • the deficiency in corroborating evidence from other witnesses.
In addition to upholding the amended assessments, the Tribunal was also satisfied that the ATO's 75% administrative penalty on top of the tax payable was properly imposed.

 

Uber driver not an 'employee'

man crossed arms uber tshirtIn a recent case, an Uber driver's access to the Uber app had been terminated as a result of failing to maintain an adequate overall rating, and he applied to the Fair Work Commission (FWC) for an unfair dismissal claim against Uber. However, the FWC held that he was an independent contractor and not an 'employee', and therefore his application for unfair dismissal was dismissed.

Although this was not a tax case, it is obviously of interest to anyone involved in the 'gig economy', and it may have flow-on implications for other employment issues, such as super guarantee.

 

Government to fix a problem with reversionary TRISs 

The government has released draft legislation to ensure that a reversionary Transition to Retirement Income Stream ('TRIS') will always be allowed to automatically transfer to eligible dependants (i.e., upon the death of the primary recipient).

Currently, a reversionary TRIS cannot transfer to a dependant if the dependant has not personally satisfied a condition of release.
If this positive measure is legislated, it will apply to reversionary TRISs from 1 July 2017.


 

New small business benchmarks are available

coloured graph benchmarkThe ATO has updated its small business benchmarks with the latest data from the 2015/16 financial year.

In addition to helping businesses to see if they are performing within their industry average, the benchmarks are one of the tools the ATO uses to identify businesses that may be a higher risk. That is, they use the benchmarks to pick their audit targets, so please contact us if you would like us to check whether your data is inside or outside the average benchmark range for your industry.


 

coins stacked sml to large

Guide to the new Small Business Super Clearing House

The Small Business Superannuation Clearing House (SBSCH) joined the ATO's online services on 26 February 2018.

This is intended to streamline how businesses use the SBSCH, and will also include extra functionality, such as the ability to sort employee listings and payment by credit card. The SBSCH is a free service that businesses with 19 or fewer employees (or which are SBEs) can use to comply with their super obligations.




Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.

 

Practice Update February 2018

Further 'affordable housing' measures passed

Parliament has passed the legislation allowing first home buyers to save for a deposit inside superannuation through the First Home Super Saver Scheme (FHSSS), and also allowing older Australians to 'downsize' and then contribute the proceeds of the sale of their family home into superannuation.

house on palm of hand

From 1 July 2018, a first home buyer will be able to withdraw voluntary superannuation contributions they have made since 1 July 2017 (up to $30,000 each, with individuals being able to contribute up to $15,000 a year within existing caps), along with a deemed rate of earnings, to help buy their home.

Also, from 1 July 2018, when Australians aged 65 and over sell a home they have owned for at least 10 years, they may contribute up to $300,000 from the proceeds into their superannuation accounts, over and above existing contribution restrictions. Both members of a couple may take advantage of this measure, together contributing up to $600,000 from the proceeds of the sale into superannuation.


Consultation on 'protecting superannuation entitlements'

Following the recommendations of the Superannuation Guarantee Cross-Agency Working Group, the Government has released draft legislation "to protect workers' superannuation entitlements and modernise the enforcement of the superannuation guarantee".

The draft laws extend Single Touch Payroll to all employers from 1 July 2019, and will require superannuation funds to commence 'event-based' reporting to the ATO of payments they receive for employees from their employer from 1 July 2018.

Combined, these measures (if passed as drafted) should provide the ATO with more timely information to support earlier detection and proactive prevention of non-payment of superannuation owed to employees.

The ATO will have a suite of enforcement and collection tools for employers who break the law, including:golden egg in nest

  • strengthened arrangements for director penalty notices and security deposits for superannuation and other tax-related liabilities;
  • the ability (for the first time) to apply for court-ordered penalties, including up to 12 months imprisonment; and
  • the ability to require employers to undertake training.

The Government's commitment to a Director Identification Number will also help identify those directors who are robbing their employees of their superannuation.

The Government introduced legislation last year to implement another recommendation by the Working Group to close a loophole that could be used by unscrupulous employers to short-change employees who use salary sacrifice arrangements, and will progress that legislation along with this broader compliance Bill.


ATO warning regarding small business record-keeping

According to the ATO, of all of the things that can cause small businesses to fold, "high on that list is poor record keeping".

More than half of the businesses they visited in their Protecting honest business campaign needed to improve their record keeping. 

Issues they found include businesses:light bulb with ideas

  • estimating their sales and income;
  • using the 'no sale' and 'void' button on cash registers when taking cash payments;
  • not keeping cash register tapes and not reconciling at the end of the day; and
  • paying their employees cash-in-hand.

They are writing to these businesses to recommend they attend one of the ATO's record keeping workshops, which cover why good record keeping is important and how it will save them time.


ATO data matching program – Visa Holders

The ATO will acquire information on holders of a Visa from the Department of Immigration and Border Protection for the 2017/18, 2018/19 and 2019/20 financial years.

It is estimated that records of 20 million individuals will be obtained over the course of the three year period. 

These records will be electronically matched with ATO data holdings to identify non-compliance with obligations under taxation and superannuation laws, as well as (for example) support compliance activities under Australia's foreign investment rules.


Review of rules for early release of superannuation

The Government has announced that Treasury will review the current rules governing early release of superannuation on grounds of severe financial hardship and compassionate grounds.

It will also review whether, and the circumstances in which, a perpetrator's superannuation should be available to pay compensation or restitution to victims of crime.

The review will not examine other general conditions of release for superannuation.

The Government also announced that it will transfer the regulatory role of administering the early release of superannuation benefits on compassionate grounds from the Department of Human Services to the ATO in 2018, to enable the ATO to provide a more streamlined service to members.


ATO extends due date for 2016/17 SMSF returns

numbers on paper calculator

The ATO will extend the due date for lodgement of self-managed superannuation fund (SMSF) annual returns for 2016/17 to 30 June 2018.

Deputy Commissioner James O'Halloran said "We recognise there are some major new considerations and decisions for SMSFs and their advisers to make in this first financial year of operation of the superannuation reforms that came into effect from 1 July 2017.

"We have therefore decided to extend the lodgement date for 2016/17 SMSF annual returns so that SMSF trustees and their advisers can focus on these important matters."


Taskforce to help digitise small business

The Government has established a Small Business Digital Taskforce, to be headed by entrepreneur Mark Bouris AM, to ensure more Australian small businesses can thrive in an increasingly digital economy.laptops leaning



Mark Bouris said: "When a business begins to digitise and use digital tools, it opens up new

 opportunities to grow, diversify revenue streams, find talent, access finance, work smarter and enhance the value of the business when it is time to sell. If you're not going digital, you should be."

Deloitte research has found that small businesses with advanced levels of digital engagement are 1.5 times more likely to be growing revenue, 8 times more likely to be creating jobs and 14 times more likely to be innovating.

The Taskforce will conduct a series of meetings, workshops and 'hackathons' with businesses over the coming months to explore impediments for business in engaging with digital technologies and how these impediments might be addressed.



Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.

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