Newsletter- June 2017

Finding Lost Money & End of Financial Year Approaching

Winter is here! It was a bit questionable as to whether or not a proper winter was coming, to Queensland at least, considering the very comfortable temperatures we've had up until the 1st of June. But now in true Queenslander style, since temps have dropped below the 20s we are all rugging up with pained expressions on our faces - a lot like John Snow (although he did die and get brought back to life by the Red Woman so that's understandabley gotta leave you feeling a little off). Or perhaps he does know something after all... It may not be as exciting for some as the budget, but I confess I am chomping at the bit for Game of Thrones Season 7 to come around - July 16, mark it in your calender!!!

From giphy.com

From giphy.com

Now to the serious business of tax.  

There have been the usual updates to laws and legislation which may impact your personal or your businesses' obligations and requirements for tax. We have compiled a selection of these important changes to assist you to stay up to date. 

Time to get out Nanna's blanket, get cozy and let your inner tax nerd loose.

This Newsletter will cover:

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout! 

The End of the Financial Year is Coming!

The end of financial year is almost here, so it's time to start thinking about your 2017 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2017.

  • Is there any income you are expected to receive that you may not have to recognise until next financial year?
  • If you have an outstanding investment loan, try to prepay some of the interest prior to 30 June 2017 (you will need to speak to your lender to determine if you can).
  • Are there any bad debts to write-off out of your receivables?
  • Are there any recently announced measures in the May 2017-18 Federal Budget you should come in and speak to us about? (Further information about these may be found below.)
  • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used – e.g. assets used in your business such as computer equipment, office furniture (desks and chairs) and kitchen appliances.
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Are there any repairs and maintenance on assets you should carry out prior to 30 June 2017 so you can claim the deduction in your 2017 return?

It is also a good time to review things that you usually just think about at the time you put them in place but don’t otherwise turn your mind to – e.g., do you have the right mix of debt and equity funding for your business to carry you through the next financial year.

To do! We can help you with these decisions. We know your business and have experience with other businesses similar to yours, so we can offer you advice about how to best prepare your business for the start of the 2017-18 financial year.

ASIC Lost Money Search

ASIC has created the ASIC Lost Money Search which helps people to find unclaimed money. Unclaimed money is money which has been lost from investments, bank accounts, life insurance policies, and shares, and is lost when a person moves and forgets to update their details with a financial institution or company.

It is estimated that there is approximately $1.1 billion lost.

To use the search you only require your name or original transaction number. Find the search tool and more information on unclaimed money, including how to claim it, here: https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money

From Gihpy.com

From Gihpy.com

Tax Integrity in the Black Economy

On 10 May 2017, the Chair of the Black Economy Taskforce, Mr Michael Andrew AO, welcomed the Government's release of the Black Economy Taskforce Interim Report and acceptance of early recommendations identified for action. 

The black economy refers to people who operate entirely outside the tax and regulatory system or who are known to the authorities but do not correctly report their tax obligations. 

The report recommends an initial policy package to tackle the black economy, including 35 early ideas for further public consultation. The report is the result of an important partnership between government agencies and the private sector and is the first step in building a 21st century black economy strategy to halt this growing threat. 

Reduction in The Company Tax Rate

As announced in the 2016-17 Federal Budget, the company tax rate will be progressively reduced to 25% over the next 10 years. However, the measure was amended by Parliament. The amended measure will apply as follows:

  • 2016-17 financial year: 27.5% for small businesses with an aggregated turnover of less than $10 million;
  • 2017-18 financial year: 27.5% for small businesses with an aggregated turnover of less than $25 million;
  • 2018-19 financial year: 27.5% for small businesses with an aggregated turnover of less than $50 million.  

From 1 July 2024 onwards, the corporate tax rate will progressively decrease every financial year, eventually falling to 25% in the 2026-27 financial year. If the amendments are approved by the House of Representatives, then the following rates will apply:

  • Commencing 1 July 2024: 27%
  • Commencing 1 July 2025: 26%
  • Commencing 1 July 2026: 25%. 

The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.

The changes to the company tax rate and turnover threshold are contained in the table below:

On 11 May 2017, the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 was introduced into the House of Representatives. This Bill proposes to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023-24 income year, as was originally intended in the 2016-17 Budget measure. The corporate tax rate will then be cut, for all corporate tax entities, to:

  • For the 2024-25 income year: 27%;
  • For the 2025-26 income year: 26%; and
  • For the 2026-27 income year and later income years: 25% (per the table above). 

The intention is the progressive extension of the lower 27.5% corporate tax rate to corporate tax entities with aggregated turnover of $50 million or more will commence from the 2019-20 income year.

At the time of writing, this Bill was before Parliament.

GST

1.       Uber loses GST battle with ATO: ordered to pay GST

Uber BV v Commissioner of Taxation [2017] FCA 110 

The Federal Court has held that services provided by an Uber driver providing uberX services constituted a supply of "taxi travel" within the meaning of s 144-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). The Uber driver was therefore required to be registered for GST. 

At the heart of this proceeding is the question of whether persons who are Uber drivers are required to be registered for GST purposes. 

Enterprises with a turnover of less than A$75,000 do not need to register for GST, but there is a special rule or exemption, created by s 144-5 in Pt 4-5(1) of the GST Act, which has the effect that taxi and limousine operators are required to be registered, regardless of turnover. That provision requires a person who is carrying on an enterprise to be registered for GST purposes “if, in carrying on your enterprise, you supply taxi travel" (s 144-5(1)). 

The phrase “taxi travel" is defined in s 195-1 of the GST Act as meaning “travel that involves transporting passengers, by taxi or limousine, for fares". 

The court said that the core issue is whether, in carrying on the enterprise of providing uberX services to passengers (who are known as “uberX riders"), uberX drivers (who are known as “uberX partners") supply “taxi travel" as defined. If so, they must register for GST purposes. 

The parties to the proceedings ultimately agreed that the core issue is encapsulated in the more specific question of whether the applicant is entitled to a declaratory order that he did not supply taxi travel within the meaning of section 144-5(1) of the GST Act. 

The applicant submitted that the terms “taxi" and “limousine" should take on their ordinary meaning, supporting a “trade or non-legal technical meaning". However, the Commissioner submitted that the applicant's reliance on what it claims are 15 characteristics of a taxi as supporting a “trade or non-legal technical meaning" of “taxi" was misdirected because the States and Territories do not adopt consistent nomenclature and impose requirements and restrictions that differ from jurisdiction to jurisdiction. For example, there are certain taxis where taximeters are not mandated, such as Pt VII of the Transport (Country Taxi-car) Regulations 1982 (WA) and reg 5 of the Country Taxi-Cars (Fares and Charges) Regulations 1991 (WA). 

The Commissioner submitted that the applicant's reliance on a regulatory concept of “taxi" was also misguided because in applying s 144-5 there is no basis for concluding that the Parliament intended the Court to embark on an analysis of the operation of, and difficulties in, the “taxi industry" and the perceived need for “regulatory intervention" in that channel. 

The court rejected the applicant's contention that the meaning of the phrase “taxi travel" was influenced by the “regulatory concept" of taxi. As such, the court declared the uberX services supplied by the driver constituted supply “taxi travel" within the meaning of s 144-5(1) (as defined in s 195-1) of the GST Act. The court also considered that the word “taxi" is sufficiently broad in its ordinary meaning to encompass the uberX service supplied by the applicant.

Note! If you earn income as an Uber driver, you should speak with us about your GST obligations, if any, that could occur as a result of this case. 

2.       GST on low value imported goods

The impending application of GST to low value goods has been mentioned previous newsletters (see our April Newsletter).

It is intended that from 1 July 2017, the changes to the GST rules will:

  • Make supplies of goods valued at $1,000 or less at the time of supply connected with Australia if the goods are, broadly, purchased by consumers and are brought to Australia with the assistance of the supplier and therefore subject to GST; 
  • Treat the operator of an electronic distribution platform as the supplier of low value goods if the goods are purchased through the platform by consumers and brought to Australia with the assistance of either the supplier or the operator; 
  • Treat re-deliverers as the suppliers of low value goods if the goods are delivered outside Australia as part of the supply and the re-deliverer assists with their delivery into Australia as part of, broadly, a shopping or mailbox service that it provides under an arrangement with the consumer; 
  • Allow non-resident suppliers of low value goods that are connected with Australia only because of these amendments to elect to be a limited registration entity and as such access the simplified registration and reporting system; and
  • Prevent double taxation by making importations of goods non-taxable importations if the supply of the goods is a taxable supply only as a result of these amendments and notice is provided in the approved form.

If you are registered for GST and buy low value imported goods for your business from overseas, you will need to supply your ABN at the time of purchase so you won't be charged GST. 

If your business is not registered for GST, you will be treated as a consumer and unable to recover the GST charged by the overseas business. 

At the time of writing, the Bill containing these changes had not yet passed Parliament, though it is anticipated the Bill will pass shortly. A Senate Committee had also recommended the implementation date be deferred until 1 July 2018.

3.       GST on services and digital products: new rules to apply from 1 July 2017

The impending rules to impose GST on cross-border supplies of digital products and other services by Australian consumers has been mentioned in previous newsletters (see our April Newsletter).

Products affected include digital products such as streaming or downloading of movies, music, apps, games and e-books and services such as architectural or legal services. 

Non-resident businesses who supply these services and meet the A$75,000 annual turnover threshold will need to register for Australian GST.

To do! Come in and see us about the GST implications for you if goods and supplies you have been acquiring from an overseas business that you may have been using in your business become subject to GST.

4.       GST Accounting for food retailers made easier

There are five simplified accounting methods available to help work out the amount of GST food retailers are liable to pay at the end of each tax period. 

If you are a food retailer, you can find out more about the simplified accounting methods for food retailers to determine which one best suits your business.

FBT

1.       Fringe benefits change and tax offsets

The Government has changed the way fringe benefits will be treated for the calculation of several tax offsets from 1 July 2017. 

The meaning of “adjusted fringe benefits total” has been modified so that the gross rather than the adjusted net value of reportable fringe benefits is used. This change impacts the way a taxpayer's entitlement for certain tax offsets is calculated. The low income superannuation tax offset, the seniors and pensioners tax offset, the net medical expenses tax offset and the dependent tax offsets are all affected. 

Currently, the reportable fringe benefits amount is adjusted down for the purposes of calculating the adjusted taxable income for those benefits. 

Note! If you provide fringe benefits to your employees, speak with us to find out if this change impacts your business.

2.       New ATO videos on car fringe benefits and lifestyle asset fringe benefits

To help small business owners understand their fringe benefits tax (FBT) obligations, the ATO has produced the following videos that outline FBT obligations for employees who have been provided a business car or who have been given a reward beyond their usual salary: 

Superannuation

1.       Superannuation reform changes: what you need to know and do before 1 July 2017

The new superannuation tax laws substantially commence from 1 July 2017. Many of the measures require careful consideration for super fund members, trustees and their advisers. This includes a number matters that need to be considered prior to 1 July 2017, including:

  • Transfer balance cap for members who will have more than $1.6 million in pension accounts in retirement phase (including defined benefit pensions) – action will need to be taken before 1 July 2017 under the transfer balance cap measure to commute such pensions back to accumulation phase so that pension accounts do not exceed $1.6 million to ensure they do not incur excess transfer balance tax: LCG 2016/9.
  • Death benefit pensions – will be subject to the $1.6 million transfer balance cap (with a modified cap for child pensions) with any excess being required to be cashed out of the superannuation system. From 1 July 2017, whether a pension is auto-reversionary on death, has more significance: LCG 2017/D3.
  • Transition to Retirement Income Streams (TRIS) – consider the ongoing appropriateness of transition to retirement income streams and whether they should be continued or commuted post 30 June 2017. Some members may be in a position to convert their TRIS to a pension account in retirement phase if they have retired or satisfied a condition of release with a nil cashing restriction: LCG 2016/8.
  • Elections for transitional CGT relief (cost base reset) – there are different applications of the relief depending on whether the fund has used the segregated method or the proportionate method – this will need to be considered. Availability for funds that have used the segregated method will require action prior to 1 July 2017. However, a decision for funds that have applied the proportionate method may be deferred up to the date of the lodgment of the fund's FY2017 tax return: LCG 2016/8.
  • Valuations – consider whether it is prudent to obtain new or updated valuations to support any CGT relief elections (cost base reset) and the balance of any transfer balance accounts.
  • Defined benefit pensions – will generally be counted for the purposes of the transfer balance by the application of a special value for a lifetime pension, life expectancy and marked linked pension to the annualised first retirement phase pension payment following 30 June 2017, and generally 50% of a member's annual defined benefit pensions that exceed $100,000 will be taxed at marginal tax rates: LCG 2016/11.
  • Non-concessional contributions cap of nil for members with more than $1.6 million in total superannuation benefits across all funds (including defined benefits) – applies for each financial year commencing on 1 July 2017 with the total superannuation benefits measured at 30 June of the immediately preceding year. Considering liquidity issues for self-managed superannuation funds affected by a member's inability to make further non-concessional contributions from 1 July 2017 will be important.
  • Non-concessional contributions cap for members with less than $1.6 million in benefits – the non-concessional contributions cap will reduce from 1 July 2017 to $100,000 ($300,000 bring-forward rule). However, the current cap of $180,000 or $540,000 under the bring-forward rule remains available until 30 June 2017.
  • The concessional contributions cap – the concessional contributions cap will reduce to $25,000 from 1 July 2017. However, the current cap of $30,000 (or $35,000 for members aged 49+ at the end of the previous financial year) will be available until 30 June 2017.
  • Tax deductibility available for contributions made by employees – from 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary-sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
  • Different measurements – the $1.6 million transfer balance cap (relevant for determining an excess transfer balance of pensions in retirement phase) is measured differently from the $1.6 million total superannuation balance measure (which is relevant for the non-concessional contributions cap): LCG 2016/12.

To do! You should ask our advice on how these superannuation changes affect you. You should also consider if there are any impacts on the contributions you make to superannuation on behalf of your employees.

2.       Non-payment of the superannuation guarantee

The ATO recognises the importance of the Superannuation Guarantee (SG) to the community and its vital role in providing for people's retirement. 

The ATO website has calculators and guidance to help employees determine whether they are being paid enough SG. When the ATO recovers outstanding superannuation amounts from employers, payments are then sent to the employee's superannuation fund.

On 14 March 2017, the Senate Economics References Committee held a public hearing on the Committee's inquiry into the impact of non-payment of the superannuation guarantee. The transcript was released on 22 March 2017 and can be found on the Parliament website. 

Note! If you have any concerns about whether you are meeting your superannuation guarantee requirements, you should come in and discuss this with us.

3.       2017-18 Federal Budget measures on superannuation

a)       Integrity of Non-Arm's Length Arrangements

On Budget Night, the Government announced that from 1 July 2018 the non-arm's length income (NALI) provisions applying to superannuation fund earnings will be amended to consider expenses associated with a transaction.

b)       Integrity of Limited Recourse Borrowing Arrangements

On Budget Night, the Government announced that limited recourse borrowing arrangements (LRBAs) entered into after 30 June 2017 will be treated differently to improve the integrity of the superannuation system. 

The outstanding balance of a relevant LRBA will be included in a member's Total Superannuation Balance (TSB). 

Repayments of a relevant LRBA from a member's accumulation account that result in an increase in the value of a retirement phase account will become credits for Transfer Balance Account purposes.

4.       Common errors on SMSF annual returns

Trustees are reminded that it is now a requirement for all SMSFs to provide the ATO with your fund's superannuation bank account details. In addition, if your SMSF has an electronic service address (ESA) alias, you should include this information in your annual return. 

For more information, visit the ATO website. 

Tip! There are a lot of changes affecting superannuation – both for individuals and for business-owners – that you need to be aware of. It is always a good idea to book an appointment and have a chat with us to review all relevant aspects of superannuation.

AAT Disallows Taxpayer's Claim for Share Trading Losses

Spence v Commissioner of Taxation [2017] AATA 307

The Administrative Appeals Tribunal (AAT) has affirmed the Commissioner's decision to disallow the taxpayer's claim for share trading losses. 

The taxpayer was issued notices of assessment for the 2007 to 2010 financial years as a consequence of the non-lodgment of returns for those years. The taxable income identified in those assessments arose from interest earned by the applicant in each year. The applicant lodged an objection to each of the notices of assessment and each of the notices of assessment of penalty. 

The taxpayer also claimed that he had lodged his income tax return in 2006 and claimed $21,000 as a share trading loss, which should have been carried forward for offset in subsequent years. 

The AAT held that the carried forward share trading losses from 2006 were not deductible as no tax return was lodged. The AAT also held that the taxpayer had adduced no concrete tangible evidence in support of his case. He had been asked to provide a summary of how the share trading losses were calculated. In response he provided the September 2013 spreadsheet which he used to support his position but that spreadsheet was not consistent with the records provided to the Commissioner by COMMSEC, CMC Markets and E*Trade as a result of the request for information arising from the exercise of the Respondent's powers under s 353-10 of Schedule 1 to the TAA. The taxpayer also made some errors in the calculations and attributed the wrong dates to some of the transactions in question.

Illegal Phoenix Activity – Protect Yourself and Your Business

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. You can avoid phoenix companies by knowing who you're going into business with. Information on how to protect your business can be found on the ATO website.

The ATO has released a short video highlighting some of the warning signs of phoenix activity. The ATO webpage has also been updated with tips on where you can go for help.

The ATO is working with other government agencies through the Phoenix Taskforce to stamp out illegal phoenix activity. This will maintain a level playing field for businesses and ensure fairness for all.

Single Touch Payroll Starts 1 July 2017

Single Touch Payroll is a government initiative to streamline how employers report their tax and superannuation information to the ATO. Employers will be able to report salary or wages, PAYG withholding and super information directly to the ATO at the same time as they pay their employees. 

Single Touch Payroll will become available for a small number of employers from 1 July 2017 and some of these employers may be your clients. 

For more information on what you need to know, visit the ATO website.

Improving the Transparency of Tax Debts

The Government has announced that from 1 July 2017 it will allow the ATO to disclose debt information to credit reporting bureaus of taxpayers that are not effectively engaged with the ATO to manage their debts. 

Taxpayers are encouraged to pay taxation debts in a timely manner to avoid it affecting their credit rating. 

Providing transparency of tax debts owed by disengaged taxpayers aims to influence taxpayer behaviour and reduce the unfair financial advantage gained by taxpayers that do not pay their tax on time. It will also help to provide visibility of tax debt information to other businesses (such as suppliers) and credit providers.

Taxpayers who effectively engage with the ATO to resolve their debt will not have it reported.

In conjunction with Treasury, the ATO is consulting with the community, including business, industry groups and associations (including the Australian Small Business and Family Enterprise Ombudsman), to ensure that the measure is implemented and administered effectively. 

Please note that this measure is not yet law and is subject to the normal parliamentary process. 

For more information, visit the ATO website.

To do! If you are concerned about debts you may owe the Australian Taxation Office, speak with us to discuss whether this proposed measure will impact you.

CGT Withholding and Indirect Australian Real Property Interests

If you purchase indirect Australian real property interests from a relevant foreign resident vendor, you will need to withhold from the purchase price. This applies to contracts entered into from 1 July 2016. 

Indirect Australian real property (IARP) interests are membership interests in an entity that, subject to exclusions, satisfies two tests:

  • Non-portfolio interest test
  • Principal asset test

Membership interests include shares and units in taxable Australian real property rich (over 50%) trusts or companies.

ATO Matters

1.       ATO focusing on cash businesses

The ATO is focusing on businesses that rely heavily on cash transactions. The ATO will be working closely with industry associations, tax practitioners and businesses to understand any issues they may have. The ATO will use up-to-date third-party data and sophisticated risk-analysis to identify who may not be doing the right thing or may need a bit more help.

Detailed information on the following topics can be found on the ATO website:

  • ATO's focus on cash businesses
  • Find out how the ATO is protecting honest businesses
  • Businesses in focus
  • If you have made a mistake
  • Results from past visits

2.       Using social media? Be aware of tax scams

If you use social media for your business, you may be a target for scammers. Learn what you can do to help keep you and your business safe. 

You can also check your online security practices by completing the ATO's online security self-assessment questionnaire.

3.       Small business benchmarks updated with the latest data

The ATO has updated their small business benchmarks with information from the 2014-15 financial year. The benchmarks are available for more than 100 industries.

4.       MyDeductions for sole traders

If you are a sole trader, the ATO app's myDeductions tool can help you with record-keeping.

Small Business Support in One Place

There are a range of government measures designed to help small businesses. You can find out what's available in one place using the filter at business.gov.au/smallbusiness

Help for Start-Ups and Budding Australian Entrepreneurs

On 28 February 2017, the Minister for Small Business, the Hon Michael McCormack MP, released a statement regarding the new products that are now available to help Australians who are starting a business for the first time. 

Government agencies, including the ATO, Australian Securities and Investments Commission (ASIC) and the Department of Industry, Innovation and Science, recently partnered with young small business owners to form a fix-it squad.  

If you are starting a business, you can download ASIC's First Business App or visit the Plan & Start page on business.gov.au for valuable information including: 

  • Checklists to help with setting up a business
  • Ideas for developing business networks, and
  • Advice about planning and setting goals. 

Tip! We can help you with what you need to do when starting a business, including ensuring you have all the right registrations in place and in particular, your tax registrations.

 

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2017. ‘Taxwise Business News, June 2017’, Tax Wise Business News e-newsletter, June.

References:

ASIC. "Find Unclaimed Money". Accessed June 1, 2017. https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money

 

 

Comment

Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.

2017 Federal Budget Wrap Up

Did you catch the Grand Final last Tuesday night? No not footy or any other sports, we’re talking about the accountant’s equivalent to a Grand Final- the 2017 Australian Federal Budget! If you happened to miss it, don’t fret, because we've got the juiciest tidbits right here for you to read. Now at your next dinner party you can impress your guests with your Federal Budget knowledge thanks to our little cheat sheet.

This special edition 2017 Budget Newsletter will cover: 

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

Overview

The 2017-18 Federal Budget (the Budget) was handed down on 9 May 2017.

The Budget primarily aims to boost the economy and households so that “we live within our means and are able to return the Budget to balance in 2020/21”.

The housing affordability crisis is being addressed with a package of tax, superannuation and other measures as the core focus of the Budget. The Budget introduces a new tax – the levy on banks. The Budget also includes a number of integrity measures to enhance the integrity of the tax and superannuation system.

The measures that are most likely to affect you follow below, along with information about other measures that you may need to know about. As always, to ensure you know exactly how you may be affected by one or more of these measures, you should make an appointment to see us about your specific circumstances.

Housing Affordability Measures

Support through the superannuation system

i)             For First Home Buyers – First Home Super Saver Scheme

Individuals will be able to make voluntary contributions into their superannuation of up to $15,000 per year and $30,000 in total, to subsequently be withdrawn and used for a first home deposit. The contributions can be made from 1 July 2017 and must be made within an individual's existing contribution caps.

From 1 July 2018 onwards, the individual will be able to withdraw these contributions and their associated deemed earnings for a first home deposit. The withdrawals will be taxed at an individual's marginal tax rate, less a 30% tax offset.

Under this new first home super saver scheme, both members of a couple can take advantage of this measure to buy their first home together. The scheme is intended to provide an incentive to enable first home buyers to build savings faster for a home deposit, by accessing the tax advantages of superannuation.

From Giphy.com

From Giphy.com

ii)            For Retirees - Superannuation Contributions from Downsizing

From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence. They must have owned their principal residence for at least 10 years. Both members of a couple will each be able to make a $300,000 contribution for the same home.

These contributions are in addition to existing rules and caps and are exempt from the age test, work test and the $1.6 million total superannuation balance test for making non-concessional contributions.

Changes for owners of residential rental properties

i)             Travel Expenses Related to Residential Rental Properties Disallowed

From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

This is an integrity measure to address concerns that many taxpayers have been claiming deductions for travel costs without correctly apportioning costs, or have claimed travel costs that were for private travel purposes.

This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

ii)            Depreciation Deductions Limited for Residential Rental Properties

From 1 July 2017, depreciation for plant and equipment costs will be limited to outlays actually incurred by investors in residential real estate properties.

This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax (CGT) purposes for subsequent investors.

Plant and equipment items typically include mechanical fixtures or items which can be “easily” removed from a property, such as dishwashers and ceiling fans.

These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of Budget night (including contracts already entered into at 7:30pm (AEST) on 9 May 2017) will continue to give rise to deductions for the asset, or the asset reaches the end of its effective life.

Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.

Encouraging investment in affordable housing

i)             Managed Investment Trusts Being Encouraged to Invest in Affordable Housing

Managed investment trusts (MITs) will now be able to invest in affordable housing and are being incentivised to do so by allowing investors to receive concessional tax treatment.

MITs allow investors to pool funds to invest in primarily passive investments and cannot carry on or control an active trading business. Non-resident investors are generally subject to a 15% final withholding tax rate on fund payments from an MIT where they are resident of a country with which Australia has an effective exchange of information treaty. Resident investors are taxed at marginal rates and their capital gains are eligible for the CGT discount.

From 1 July 2017, MITs will be able to acquire, construct or redevelop property for the purpose of providing affordable housing, but must satisfy the following conditions:

  • The MIT must derive at least 80% of its assessable income from affordable housing in an income year. Up to 20% of income may be derived from other eligible investment activities permitted under the existing MIT rules. If either of these requirements are not satisfied, non-resident investors will be liable to pay withholding tax at a rate of 30% of investment returns for that income year;
  • Qualifying housing must be provided to low to moderate income tenants;
  • Rent is to be charged at a discount below the private market rental rate; and
  • The affordable housing must be available for rent for at least 10 years. If a property is not held for rent as affordable housing for at least 10 years, net capital gains arising on its disposal will attract a 30% withholding tax rate.

This measure will apply to income years starting on or after 1 July 2017 and is intended to increase private investment in affordable housing. It is estimated to have an unquantifiable cost to revenue over the forward estimates period and the ATO will be provided $1.5 million to implement the measure.

ii)            Australian Resident Individuals Being Encouraged to Invest in Affordable Housing with an Increased CGT Discount

The CGT discount will be increased from 50% to 60% for Australian resident individuals investing in qualifying affordable housing.

The conditions to access the 60% discount are:

  • The housing must be provided to low to moderate income tenants;
  • Rent must be charged at a discount below the private rental market rate;
  • The affordable housing must be managed through a registered community housing provider; and
  • The investment must be held for a minimum period of three years.

This measure will apply from 1 January 2018.

The higher discount will flow through to resident individuals investing in affordable housing via MITs as part of the tax measure enabling such trusts to invest in affordable housing (see above).

CGT main residence exemption removed for foreign and temporary residents

Individuals who are foreign or temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm (AEST) on 9 May 2017.

Existing properties held before this date will be grandfathered until 30 June 2019.

Measures applying to foreign investors

i)             Expansion of Foreign Resident CGT Withholding Regime

The CGT withholding rate that applies to foreign tax residents will be increased from 10% to 12.5% from 1 July 2017.

Currently, the foreign resident CGT withholding obligation applies to Australian real property and related interests valued at $2 million or more. This threshold will be reduced to $750,000 from 1 July 2017, increasing the range of properties and interests that will come within this obligation.

ii)            Annual Levy for Foreign-Owned Vacant Residential Properties

Foreign owners of vacant residential property, or property that is not genuinely available on the rental market for at least six months per year, will be charged an annual levy of at least $5,000. The annual levy will be equivalent to the relevant foreign investment application fee imposed on the property when it was acquired.

The measure will apply to persons who make a foreign investment application for residential property from Budget night.

iii)           Foreign Ownership in New Developments Restricted to 50%

A 50% cap on foreign ownership in new developments will be introduced through a condition on new dwelling exemption certificates. The cap will be included as a condition on new dwelling exemption certificates where the application was made from 7:30pm (AEST) on 9 May 2017.

New dwelling exemption certificates are granted to property developers and act as a ‘pre-approval’ allowing the sale of new dwellings in a specified development to foreign persons (without each foreign purchaser seeking their own foreign investment approval). The current certificates do not limit the amount of sales that may be made to foreign purchasers.

The measure will ensure that a minimum proportion of developments are available for Australians to purchase.

iv)           Integrity Measure for Foreign Resident CGT Regime

The principal asset test in Division 855 of the Income Tax Assessment Act 1997 (Cth) will be applied on an associate inclusive basis for foreign tax residents with indirect interests in Australian real property. The test is relevant to determine whether a foreign resident's asset is a taxable Australian property.

This measure will apply from Budget night and is intended to ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.

Individuals

Medicare levy increasing from 2.0% to 2.5% in 2019

The Medicare levy will be increased from 2.0% to 2.5% of taxable income from 1 July 2019. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

Low income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.

All revenue generated by the Medicare levy will be used to support the National Disability Insurance Scheme (NDIS) and to guarantee Medicare. For example, $9.1 billion will be credited over the forward estimates period to the NDIS Savings Fund Special Account when it is established.

This measure is estimated to have a gain to tax revenue of $8.2 billion over the forward estimates period (across all heads of revenue, not just the Medicare levy).

Medicare levy — low-income thresholds to increase

The Medicare levy low-income thresholds for singles, families, and seniors and pensioners will increase from the 2016-17 income year.

The threshold for singles will increase to $21,655 (up from $21,335 for the 2015-16 year).

The family threshold will increase to $36,541 (up from $36,001 for the 2015-16 year).

For single seniors and pensioners, the threshold will increase to $34,244 (up from $33,738 for the 2015-16 year). The family threshold for seniors and pensioners will increase to $47,670 (up from $46,966 for the 2015-16 year).

The child-student component of the income threshold for all families will increase to $3,356 (up from $3,306 for the 2015-16 year).

The increases take into account movements in the consumer price index so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.

This measure is estimated to have a cost to revenue of $180 million over the forward estimates period.

Small Business

Small business CGT breaks to be tightened

Access to the small business CGT concessions will be tightened from 1 July 2017 to deny eligibility for assets which are unrelated to the small business.

Small business CGT concessions assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business.

However, some taxpayers have been able to access these concessions for assets which are unrelated to their small business by, for example, arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets of less than $6 million.

Instant asset write-off and other depreciation measures from 2015-16 Budget extended

To improve cash flow for small businesses and provide a boost to small business activity and investment, the Government is extending the $20,000 instant asset write-off for small business by 12 months to 30 June 2018. Businesses with an aggregated annual turnover of less than $10 million will be eligible for this concession.

Small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 provided they are first used, or installed ready for use, by 30 June 2018. Only a few assets are ineligible (such as horticultural plants and in-house software).

Depreciating 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% for 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 from the simplified depreciation rules will also continue to be suspended until 30 June 2018. These rules prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out.

From 1 July 2018, the immediate deductibility threshold, and the balance at which the pool can be immediately deducted, will revert back to $1,000.

Superannuation

LRBAs included in superannuation balance and transfer balance cap

From 1 July 2017, the use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap.

LRBAs can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

Related party transactions to increase superannuation reduced

Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.

The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.

Tax relief for merging superannuation funds extended

The current tax relief for merging superannuation funds will be extended until 1 July 2020.

Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017. The tax relief will be temporarily extended as the Productivity Commission completes a review into the efficiency and competitiveness of Australia’s superannuation industry.

Extending this relief should:

  • Ensure that member balances are not reduced by tax when superannuation funds merge;
  • Remove tax as an impediment to mergers; and
  • Facilitate industry consolidation, which should lead to better retirement outcomes through reduced costs.

GST

Purchasers of new residential properties to remit GST

From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of the settlement.

Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers have been failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. The new measure is an integrity measure to strengthen compliance with the GST law and will ensure the relevant GST amounts will be remitted.

Double taxation of digital currency removed

Starting on 1 July 2017, the GST treatment of digital currency (such as Bitcoin) will be aligned with the GST treatment of money. This measure will ensure purchases of digital currency are no longer subject to GST.

Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency as it is currently treated as subject to GST, and again on its use in exchange for other goods and services that are subject to GST.

Removing double taxation on digital currencies will remove an obstacle for the financial technology (fintech) sector to grow in Australia.

Tax Integrity Measures

Multinational Taxation

i)             Tax Integrity Package — Multinational Anti-Avoidance Law Broadened

The Government will extend the scope of the multinational anti-avoidance law (section 177DA of the Income Tax Assessment Act 1936 (Cth)) to prevent the use of foreign trusts and partnerships in corporate structures to minimise Australian income tax.

With retrospective effect from its date of commencement on 1 January 2016, the multinational anti-avoidance law will be amended so that it applies to:

  • Corporate structures that involve the interposition of partnerships that have any foreign resident partners
  • Trusts that have any foreign resident trustees, and
  • Foreign trusts that temporarily have their central management and control in Australia.

The amendments will ensure the integrity of the original policy intent.

ii)            Tax Integrity Package — Banks Using Hybrids for Tax Minimisation

Integrity rules will be introduced to clamp down on aggressive structures used by banks and financial institutions for tax minimisation. The new rules will apply OECD hybrid mismatch rules to hybrid tax mismatches that occur in cross-border transactions relating to regulatory capital known as additional Tier 1 (AT1) by:

  • Preventing returns on AT1 capital from carrying franking credits where such returns are tax deductible in a foreign jurisdiction, and
  • Where the AT1 capital is not wholly used in the offshore operations of the issuer, requiring the franking account of the issuer to be debited as if the returns were to be franked.

Subject to transitional arrangements, the measure will apply to returns on AT1 instruments paid from the later of 1 January 2018 or six months after assent.

Transitional arrangements will apply to AT1 instruments issued before 7.30pm (AEST) on 9 May 2017 such that the measure will not apply to returns paid before the next call date of the instrument occurring after 7.30pm (AEST) on 9 May 2017.

This measure will strengthen the integrity of Australia’s tax system and seeks to implement the government’s decision, announced in the 2016/17 Budget “Tax Integrity Package — implementing the OECD hybrid mismatch arrangement rules”, in relation to regulatory capital.

Funding to address serious and organised tax crime

Currently, the ATO’s compliance work to target serious and organised crime in the tax system is funded to 30 June 2017.

The Government will provide $28.2 million to the ATO to allow them to continue with this work. This extends an existing measure by a further four years to 30 June 2021. This measure is estimated to have a gain to revenue of $408.5 million and a net gain to the budget of $380.3 million over the forward estimates period.

Bringing tax integrity in the Black Economy

The Government will introduce the following measures to bring integrity into the Black Economy:

i)              From 1 July 2018, the taxable payment reporting system (TPRS) will be extended to two high-risk industries — cleaning and couriers — to ensure payments made to contractors in these sectors are reported to the ATO. The first report will be due in August 2019

ii)             Additional funding of $32 million will be provided to the ATO for ATO audit and lodgement activities to better target Black Economy risks. This measure is estimated to have a net gain to the budget of $447.2 million over the forward estimates period. The revenue includes an additional GST component of $109.8 million which will be paid to the States and Territories

iii)            The manufacture, distribution, possession, use or sale of sales suppression technology will be banned. This technology allows businesses to understate their income and has been identified as a threat to the integrity of the tax system

from giphy.com

from giphy.com

Other tax changes

Major bank levy to be introduced

From 1 July 2017, a major bank levy (the levy) will be introduced for authorised deposit taking institutions (ADIs), with licensed entity liabilities of at least $100 billion.

The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities as at each quarterly reporting date mandated by the Australian Prudential Regulation Authority (APRA). This equates to an annualised rate of 0.06%.

The $100 billion threshold will be indexed to grow in line with nominal gross domestic product.

Liabilities subject to the levy will include items such as corporate bonds, commercial paper, certificates of deposit, and Tier-2 capital instruments. The levy will not apply to the following liabilities: additional Tier-1 capital, and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme. It will not be levied on mortgages.

Superannuation funds and insurance companies will not be subject to the levy.

The levy is forecast to raise $6.2 billion over the forward estimates period, net of interactions with other taxes (principally corporate income taxes). The levy is designed to assist with budget repair and to provide a more level playing field for smaller banks and non-bank competitors. It complements prudential reforms being implemented by the government and APRA.

To facilitate the introduction of the levy, the Australian Competition and Consumer Commission (ACCC) will undertake a residential mortgage pricing inquiry until 30 June 2018. As part of this inquiry, the ACCC will be able to require relevant ADIs to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates by those ADIs.

Skilling Australians Fund levy introduced

Businesses that employ foreign workers on certain skilled visas will be required to pay a levy that will provide revenue for a new Skilling Australians Fund from March 2018.

Businesses with turnover of less than $10 million per year (ie small businesses) will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

The levy will replace the current training benchmark financial obligations for employers of workers on Temporary Work (Skilled) (subclass 457) visas, which are being abolished, and permanent Employer Nomination Scheme (subclass 186) Direct Entry stream visas.

Additional resources for tax policy development and tax law drafting

i)             Tax Policy Development and Other Capabilities

The Government will provide $29.5 million over two years from the 2017-18 income year to Treasury to build capability to better support the Government on issues such as the development of taxation policy and forecasting of revenue, macroeconomic modelling and foreign investment.

ii)            Tax Law Drafting

The Government will provide $16.9 million to Treasury and $5.2 million to the Office of Parliamentary Counsel over four years from the 2017-18 income year to ensure dedicated drafting resources are available to progress financial services and taxation reform legislation.

Foreign investment framework to be clarified and simplified

The foreign investment framework will be clarified and simplified with effect from 1 July 2017. This will make foreign investor obligations clearer, and allow for more efficient allocation of Foreign Investment Review Board screening resources to higher risk cases.

The amended framework will allow the foreign investment framework to operate more efficiently by facilitating business investment and reducing unnecessary red tape by:

  • Refining the type of developed commercial property subject to the lower $55 million threshold by removing low sensitivity applications from the meaning of “sensitive land”;
  • Improving the treatment of residential applications by allowing failed off-the-plan purchases to be considered as “new”;
  • Overcoming limitations with the existing exemption certificate system for individual residential real estate purchases and amending the treatment of residential land used for a commercial purpose;
  • Streamlining and simplifying foreign investment business application fees, including legislating existing fee waiver arrangements;
  • Introducing a new exemption certificate that applies to low risk foreign investors;
  • Clarifying the treatment of developed solar and wind farms; and
  • Restoring the previous arrangement whereby companies with significant foreign custodian holdings (ie legal rather than equitable interest holders) are not subject to notification requirements.

These amendments are informed by stakeholder views and a public consultation process on options to improve the framework and make obligations clearer.

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2017. ‘Taxwise Business News 2017- 18 Budget Edition, May 2017’, Tax Wise Business News e-newsletter, May.

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Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.

Newsletter- May 2017

Superannuation Changes, Deductions, and Renting Out Rooms or Your Home

Welcome to our magnificent May Newsletter!

We've got some more morsels for you to munch and mull over during this exciting month. Why may you ask is May so exciting? Well apart from this newsletter which we know you will find riveting, May my friends is the month that our poli's roll out the Federal Budget.  To let you in on a little secret, this is akin to the AFL Grand Final or Kelly Slater in the flesh at Snapper Rocks for tax nerds across the land!  OMG, we are are having heart palpitations just thinking about it! Don't worry, we promise we will be doing a special Budget Newsletter so you too can share in the joy and hear what tax policies our illustrious leaders have dreamed up. Yep, we agree, it doesn't get much more exciting!  

So lets get serious...  

Once again, multiple changes to laws and legislation have been made that could impact your personal or your businesses' obligations and requirements for tax. So we've managed to compile the multitude of changes and give you a more manageable selection of these important changes so you can stay up to date. 

Time to put on your fuzzy slippers, grab a cup of tea and a biscuit or two... or three... and release your inner tax nerd once more.

This Newsletter will cover:

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

P.S. An update from Della:

In March at Snapper Rocks on the Gold Coast, Della achieved one of her life long goals. That is, she found (definitely not stalked) pro surfer Kelly Slater, and managed to get a photo with him (well, at least a photo with him in it) at 2017 Quicksilver Pro before he hit the water and won the heat!  #ontheradar    

della meets kelly slater

della meets kelly slater

Mission accomplished ✔

Superannuation Reform Changes: What You Need to Know

1)    Earning less than $40,000

Change to spouse tax offset

From 1 July 2017, the spouse's income threshold will increase to $40,000. The current 18% tax offset of up to $540 will remain and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $40,000. As is currently the case, the offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.

New low income superannuation tax offset

From 1 July 2017, the new low income superannuation tax offset (LISTO) will be introduced and will replace the low income superannuation contribution (LISC).

Eligible individuals with an adjusted taxable income of up to $37,000 will receive a LISTO contribution into their superannuation fund. The LISTO will equal 15% of total concessional (pre-tax) superannuation contributions for an income year. However, this will be capped at $500.

LISTO is intended to support low-income earners and ensure they do not have to have more tax on their superannuation contributions than they would pay on their salary and wages.

2)    Part-time workers or time out of the workforce

Carrying forward unused concessional contributions

To improve flexibility in the superannuation system, from 1 July 2018, individuals will be able to make 'carry-forward' concessional superannuation contributions if they have a total superannuation balance of less than $500,000. Individuals will be able to access their unused concessional contributions cap for an income year on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which an individual will be able to access unused concessional contributions is the 2019-20 income year.

Change in eligibility for co-contributions

Currently, to receive a government co-contribution you must meet the following requirements:

  • Have made one or more eligible personal superannuation contributions to your superannuation during the income year;
  • Pass the two income tests (‘income threshold’ and ‘10% eligible income’ tests);
  • Be less than 71 years old at the end of the income year;
  • Not hold a temporary visa at any time during the income year (unless you are a New Zealand citizen or it was a prescribed visa); and
  • Lodge your tax return for the relevant income year.

From 1 July 2017, in addition to the above requirements:

  • You must have a total superannuation balance of less than the transfer balance cap ($1.6 million for the 2017-18 income year) at the end of the previous income year; and
  • You must not have contributed more than your non-concessional contributions cap.

3)    Making extra contributions to your superannuation

Changes to personal superannuation contributions deductions

From 1 July 2017, all individuals under age 75 will be able to claim a deduction for personal contributions they make to their superannuation funds. Currently only individuals who derive less than 10% of their income from employment can claim this tax deduction. However, this condition is being removed to bring more flexibility into the superannuation system and allow more people to utilise their concessional contributions cap. Note that all the other conditions are remaining.

Individuals will have to lodge a notice of their intention to claim the deduction with their superannuation provider should they wish to claim this deduction. Generally, this notice will need to be lodged before lodging your income tax return. You can choose how much of your personal superannuation contribution to claim a deduction for. 

Note that these amounts count towards an individual's concessional contributions cap and will be subject to 15% contributions tax in the fund. 

Certain untaxed and defined benefit superannuation funds will be prescribed, meaning members will not be eligible to claim a deduction for contributions to these funds. If a member of a prescribed fund wishes to claim a deduction, they may choose to make a personal contribution to another superannuation fund. Therefore, should you intend to make extra personal contributions, you will have to consider if your fund can receive them.

Note also that the government announced that it will retain the work test for individuals aged 65 to 74. 

Change to the concessional (pre-tax) contributions cap

From 1 July 2017, the concessional contributions cap is $25,000 for everyone. Prior to this, it was $35,000 for people 49 years and older at the end of the previous income year and $30,000 for everyone else. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down). 

Before 30 June 2017: If you would like to make extra concessional contributions, check how much concessional contributions have been made on your behalf to all your super funds since 1 July 2016, first estimate the amount of contributions that will be made on your behalf (eg by your employer) before 30 June 2017 or through an existing salary sacrifice arrangement, then work out the gap between these amounts and the amount of concessional cap that is relevant to you that remains before you make additional concessional contributions.

After 1 July 2017: If you would like to make extra concessional contributions, ensure that your concessional contributions made throughout the year from yourself, made on your behalf or through a salary sacrifice arrangement do not exceed $25,000.

Change to non-concessional (post-tax) contributions cap

From 1 July 2017, the annual non-concessional contributions cap will be reduced from $180,000 to $100,000 per year. This will remain available to individuals between 65 and 74 years old if they meet the work test. The cap is set at four times the concessional contributions cap (i.e. 4 x $25,000) and will be indexed in line with the concessional contributions cap. 

In addition, from 1 July 2017, your non-concessional contributions cap will be nil for the income year if you have a total superannuation balance greater than or equal to the general transfer balance cap (which is $1.6 million for the 2017-18 income year) at the end of June of the previous income year. In this case, if you make non-concessional contributions in that year, they will be treated as ‘excess non-concessional contributions’ and taxed at a much higher rate.

There is a ‘bring-forward’ arrangement for individuals under 65, who may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward the non-concessional contributions cap for a two- or three-year period. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future-year caps.

From 1 July 2017, the non-concessional contributions cap amount you can bring forward, and whether you have a two or three-year bring-forward period, will depend on your total superannuation balance at the end of June of the previous income year.

For 2017-18, to access the non-concessional bring-forward arrangement:

  • You must be under 65 years of age for one day during the triggering year (the first year); and
  • You must have a total superannuation balance of less than $1.5 million.

The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for an income year if your total superannuation balance is greater than or equal to the general transfer cap at the end of the previous income year.

4)    Earning close to or over $250,000

Change to Division 293 income threshold

Currently, individuals with income and concessional superannuation contributions greater than $300,000 will trigger a Division 293 assessment.

From 1 July 2017, the government will lower the Division 293 income threshold to $250,000. An individual with income, and concessional superannuation contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the lesser of:

  • The excess, or
  • The concessional contributions (except excess contributions).

The ATO will send an email or SMS to individuals who will receive their first Division 293 tax assessment or, who will receive it in myGov if they have linked their account to the ATO. These emails and SMS will only issue during peak assessment periods – you may have already received one in November 2016 or could do so between April and early June 2017. 

5)    Approaching retirement

Change to transition to retirement income streams (TRIS)

From 1 July 2017, the tax-exempt status of earnings from assets that support a Transition to Retirement Scheme (TRIS) will be removed. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.

TRIS are currently available to assist individuals to gradually move to retirement by accessing a limited amount of their superannuation. Where a superannuation fund member is currently receiving a TRIS, their fund receives the earnings on the assets used to support the TRIS on a tax-free basis.

Earnings on assets supporting transition to retirement income streams will now be taxed concessionally at 15%. This change will apply irrespective of when the transition to retirement income stream commenced. 

Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes. 

The intent of this change is to ensure that TRIS are used to support individuals who are still in the workforce and are transitioning out, rather than being accessed mainly for tax purposes.

Innovative retirement income stream products

Currently, there are rules restricting the development of new retirement income products. From 1 July 2017, the government will remove these barriers by extending the tax exemption on earnings in the retirement phase to innovative products, such as deferred lifetime annuities and group self-annuitisation products. The intent of the change is to provide greater choice and flexibility for retirees to manage the risk of outliving their retirement savings.

6)    For retirees

New transfer balance cap for pension phase accounts

From 1 July 2017, the superannuation transfer balance cap of $1.6 million will apply. This means there will be a limit on how much of your superannuation you can transfer from your accumulation superannuation account to a tax-free ‘retirement phase' account to receive an account-based pension income. 

The transfer balance cap will start at $1.6 million, and will be indexed in line with the consumer price index (CPI), rounded down to the nearest $100,000.

Individuals will need to track their own individual transfer balance cap. The amount of indexation you are entitled to will be calculated proportionally based on your available cap space. Only the amount of remaining cap space is indexed. Individuals will not be entitled to indexation if they exceed their transfer balance cap. However, you will be able to make transfers into the retirement phase so long as you have not reached your transfer balance cap.

Retirement phase income streams that started before 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017. New pension accounts starting from 1 July 2017 will count towards the transfer balance cap when they commence.

If you are currently in excess of your transfer balance cap, then you may have to remove the excess from the retirement phase account and pay tax on the earnings in excess of the cap. 

Different tax rules will apply if you receive a capped defined benefit income stream as you usually cannot transfer or remove excess amounts from these pensions. These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including some self-managed superannuation funds (SMSFs). 

If you have to move assets out of your retirement phase account back into your accumulation account to be under the cap before 1 July 2017, capital gains tax (CGT) relief is available to your superannuation fund to reset the cost base(s) of these assets. CGT relief is available if your fund holds the assets between 9 November 2016 and 30 June 2017.

Removal of the anti-detriment payment

From 1 July 2017, the government will remove the ‘anti-detriment’ provision preventing superannuation funds from claiming a deduction in their own tax return for a top-up payment made as part of a death benefit payment where the beneficiary is the dependant of the person.

The top-up amount represents a refund of a member's lifetime superannuation contribution tax payments into an estate. Removing the ability of the superannuation fund to claim this deduction is intended to ensure consistent treatment of lump sum death benefits across all superannuation funds.

Superannuation funds may continue to claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti-detriment payments as part of a death benefit if the member dies on or after 1 July 2017.

To do! These changes to superannuation are significant and will affect individual taxpayers differently, depending at what stage of working life individuals are at – low income earners or high income earners, in or out of the work force for the time being, nearing retirement or in retirement. Be ‘SuperWise’ – you should speak with us to help determine how the changes impact on you, for example, whether you should take advantage of any of the changing caps now to top up your superannuation or reconsider how to plan for your retirement.

How will the changes impact you?

How will the changes impact you?

New Tools to Check Your Superannuation Entitlements

The ATO has released three new tools you can use to work out if you are eligible to be paid superannuation contributions from your employer, and how much. There is also a tool to report employers failing to pay super contributions.

  • The eligibility tool works out if you are entitled to super guarantee contributions.
  • The estimate tool calculates your estimated superannuation guarantee amount, based on quarterly earnings.
  • The complaint tool can be used to report employers who are not paying super contributions correctly.

Diverting Personal Services Income to Self-Managed Superannuation Funds

The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid income tax obligations as described in TA 2016/6 Diverting personal services income to self-managed superannuation funds.

Under these arrangements, an individual performs services for a client. The individual does not directly receive any, or adequate, remuneration for the services they provide. Instead, the client is instructed to pay fees or remuneration for the service provided by the individual to a company, trust or other non-individual entity. The relevant non-individual entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment. The purported outcome of the arrangement is that the income is either exempt from tax or taxed concessionally rather than being subject to tax at the individual's marginal tax rate. 

The ATO is aware that there have been many superannuation changes since July 2016 including extensive superannuation reforms enacted in November 2016. SMSF trustees and advisors have been required to understand how those changes impact their funds and to address them.  

The due date to contact the ATO in relation to TA 2016/6 has been extended to 30 April 2017.

If you have an arrangement as described in TA 2016/6 or a similar arrangement, please contact the ATO (email: SMSFStrategicCampaigns@ato.gov.au and put ‘TA 2016/6' in the subject line, include the SMSF trustee name(s), contact details and a time that is convenient for the ATO to call you so that the ATO can work with you to resolve any issues in a timely manner, and minimise the impact on you and the fund. 

from giphy.com

from giphy.com

Government Cracking Down on Superannuation Guarantee Non-Compliance

On 25 January 2017, the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, released a statement about the government's new multi-agency working group that will investigate and develop practical recommendations to deal with superannuation guarantee non-compliance.

Chaired by the ATO and comprising senior representatives from The Treasury, the Department of Employment, ASIC and APRA, the working group will identify the drivers of non-compliance, develop ways to improve compliance and policy options to ensure the law remains fit for purpose for Australia's $2 trillion superannuation system.

The final report of the working group was due at the end of March. At the time of writing, the report was not available.

Tip! You should ensure your employer is paying the right amount of superannuation guarantee on your behalf. If you are unsure of what the correct amount should be, book an appointment for our advice on this matter.

From gihpy.com

From gihpy.com

Deductions – Current Matters

1.    Deductions – what the ATO is paying extra attention to

The ATO has been paying extra attention to people claiming higher than expected deductions during TaxTime 2016.

Individuals should make sure their claims for work-related expenses are right by using the series of occupation guides or other general advice available on the ATO website, which can help people in specific industries understand and correctly claim the expenses they may be entitled to. 

If you use myTax to lodge your return, your claims are compared with the claims of taxpayers in similar occupations and with similar income, giving you a real-time warning if your claims are unusually high in comparison. 

You can visit the ATO to learn more about work-related expenses and the occupation guides. However, it is best to see us for advice if you are unsure what deductions you are entitled to or how much you can claim.

2.    Keeping track of deductions made easy

The ATO's myDeductions tool in the ATO app can help you keep track of your work-related expenses, car trip data, gifts and donations. You can record your expenses on the go using your phone or device. Come tax time, you can then email your deductions file to your tax agent to review, who can then advise you on your claims and lodge your tax return. 

You can also keep the file on record in case you need it later. If you use the upload feature in the app, your tax agent can access your data via the Practitioner Lodgement Service and check it before lodging.

3.    Work-related travel expenses not deductible

Re Reany and Commissioner of Taxation [2016] AATA 672

The Administrative Appeals Tribunal (AAT) has found that a first class sheet metal worker employed at an alumina refinery in Western Australia was not entitled to deductions for the cost of transporting his tools and equipment between his home and his workplace.

It is accepted that one exception to the general rule that the cost of travel between home and work is not deductible is where an employee is required by his or her employer to carry bulky tools or equipment from home to work and no secure storage is provided by the employer to the employee to store the tools and equipment at the worksite.

In this case, the evidence established that the taxpayer's employer provided him with a locker to store his tools and equipment at his primary place of work. The taxpayer said that it was his decision to take his tools and equipment home each night as he did not believe the storage lockers provided by the employer to be secure.

The AAT found that the taxpayer was not entitled to a deduction for any amount of his work related travel expenses as he was not required by his employer to carry his bulky tools and equipment from home to work. By his own admission, this was the taxpayer's own personal choice, arising out of his unsupported safety concerns.

Note! If you are in a similar situation and are claiming a deduction for the cost of travel from home to work because you are taking bulky tools home with you, you should come in and talk to us to confirm whether you are entitled to this deduction.

4.    Holiday homes – tax deductions

If you own a holiday home you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent. Even if you do not rent it out, there are capital gains tax implications when you sell it. 

The ATO has provided information and examples on the following scenarios, please visit their website

  • Holiday homes – not rented out;
  • Holiday homes – rented out;
  • Holiday homes that are not genuinely available for rent; and
  • Claiming deductions.

Renting Out a Room or Your House is Rental Income

Money you earn from renting out a room in your house is rental income. This applies to rooms rented by traditional means or through a sharing economy website or app. 

The ATO has examples on its website to help you understand how claiming deductions works when renting rooms, or your main residence, on an occasional basis.

To do! If you are renting a room out or your home out using a service like Airbnb or Stayz, you should talk to us to ensure you are not only declaring the right amount of income, but also claiming any deductions you may be entitled to for earning income this way.

from giphy.com

from giphy.com

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2017. ‘Taxwise Business News April 2017’, Tax Wise Business News e-newsletter, April.

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Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.

Newsletter - April 2017

Welcome to our 2017 Quarter Newsletter!

We have some exciting (okay, so only if you love tax) tidbits of information for you.

But seriously, there have been a lot of changes to law and legislation that has been announced recently that applies now or is set to change come the new financial year. These changes may change your obligations and requirements for your business and/ or your personal tax and we feel it is important to give you the heads up.

So kick back, grab a glass of wine and channel your inner tax nerd. 

This quarters newsletter will cover:

If you have any queries or need to book an appointment, as always, please do not hesitate to holler!

ATO Ramps Up Data Matching

As part of their data matching programs for credit and debit cards, online selling and ride sourcing, the ATO is collecting data from financial institutions and online selling sites.

The data will include:

  • The total amount of credit and debit card payments business received
  • Online sellers who have sold at least $12,000 worth of goods or services
  • Payments made to ride sourcing drivers from accounts held by the ride sourcing facilitator

The ATO matches this data with information they have from income tax returns, activity statements and other ATO records to identify any discrepancies.

Tip! If you need to correct a mistake you have made in your income tax return, call us and book an appointment to get it sorted. 

 

From Giphy.com

From Giphy.com

Attention All Uber Drivers! Ride Sourcing Data Matching

The ATO has designed a data matching program to track ride sourcing transactions to deal with compliance risk associated with the registration, lodgement and reporting of businesses offering ride sourcing services as a driver.

It is estimated up to 74,000 individuals (ride sourcing drivers) offer, or have offered, this service. 

The ATO will request details of all payments made to ride sourcing providers from accounts held by a ride sourcing facilitator's financial institution for the 2016-17 and 2017-18 financial years.

The ATO will match the data provided by the facilitator's financial institution against the ATO’s records. This will identify ride sourcing drivers that may not be meeting their registration, reporting, lodgement and/or payment obligations.

Where the ATO is unable to match a driver's details against ATO records, they will obtain further information from the financial institution where the driver's account is held.

The protocol has been prepared to meet the requirements of the Office of the Australian Information Commissioner's Guidelines on Data Matching in Australian Government Administration (2014) (the Guidelines). This will impact you if you offer ride sourcing as part of your business.

To Do! Let us know if you offer ride sourcing as part of your business so we can make sure we’ve got the correct information.

Easier Reporting With Single Touch Payroll

Single Touch Payroll is a government initiative to simplify business reporting obligations. 

In the September 2016 issue of TaxWise Business, they noted that the Budget Savings (Omnibus) Bill 2016 which contains the Single Touch Payroll rules, had been introduced into Parliament. This has now become law.

With the Single Touch payroll regime, employers will be able to report salary or wages, pay as you go (PAYG) withholding and superannuation information to the ATO from their payroll solution, at the same time they pay their employees. This will mean easier reporting obligations and more options for completing tax and super forms electronically. 

From 1 July 2017 Single Touch Payroll reporting will be available to all employers.  It will be mandatory for employers with 20 or more employees to report this way from 1 July 2018. 

FYI! Only employers with 20 or more employees must report this way under the law.

Further information is available on the ATO website: https://www.ato.gov.au/about-ato/about-us/in-detail/strategic-direction/simpler-reporting-with-single-touch-payroll/

To do! If you are an employer with 20 or more employees, you will need to revise your reporting to the ATO to ensure it complies with the requirements of the Single Touch Payroll regime.

‘Black Economy’ Taskforce

On 14 December 2016, Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP,  announced that the government had established a taskforce to crack down on the ‘Black Economy'.

Ms O'Dwyer said, “While there is no single, internationally-agreed definition, typically, the ‘black economy’ refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The ‘black economy’ can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods."

The ‘Black Economy’ Taskforce, to be chaired by former chair of the B20 anti-corruption taskforce, Mr Michael Andrew AO, will provide an interim report to government in March 2017.

Tackling the ‘black economy’ requires a whole of government approach and participants will include the Reserve Bank of Australia, the Australian Federal Police, ASIC, APRA, AUSTRAC, and the Departments of Human Services and Immigration.

In October 2017 the Taskforce will provide a final report which will include an overarching whole of government policy framework and detailed proposals for action to counter the ‘black economy’.

Targeted Amendments to Division 7A

In the 2016-17 Budget, the government announced it will make targeted amendments to improve the operation and administration of Division 7A of the Income Tax Assessment Act 1936. 

What is a Division 7A Loan?

Broadly, if you or an associate (in essence, related people or entities) have loaned money from your company and have not repaid it by 30 June or prior to the company lodging its tax return, then the loan may be subject to Division 7A of the ITAA1997.

Proposed amendments

The amendments will apply from 1 July 2018 and will introduce: 

  • A self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly;
  • Appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers;
  • Simplified rules regarding complying Division 7A loans, including in relation to loan duration and the minimum interest rate; and
  • A number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers. 

The proposed changes draw on a number of recommendations from the Board of Taxation's post-implementation review into Division 7A.

To do! This change may impact you if you have private loans from your business. In that case, you may want to book an appointment with us for advice regarding your situation.

From giphy.com

From giphy.com

ATO Issues Warning On Contrived Trust Arrangements

The ATO recently released Taxpayer Alert TA 2016/12 cautioning against arrangements that minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts. 

Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to improperly gain favourable tax breaks, or sometimes pay no tax at all. 

The ATO identified these arrangements through ongoing monitoring and reviews by the Trusts Taskforce, and continues to look for these arrangements using sophisticated analytics. 

The Trusts Taskforce was established in 2013 to undertake targeted compliance action against people involved in tax avoidance or evasion using trusts. Since this time, the ATO has raised $772 million in liabilities and collected $164.5 million. In addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation.

Goods Taken From Stock For Private Use

If you take items from your business’ trading stock for your own use, make sure you include the value of these items as part of your business’ assessable income.

To do this, you should record the actual value of the goods (excluding GST) or use estimates provided by the ATO if you are a sole trader or in a partnership. The ATO estimates are updated yearly and are available for the following industries:

  • Bakery
  • Butchery
  • Restaurant/café
  • Caterer
  • Delicatessen
  • Fruiterer/greengrocer
  • Takeaway food shop
  • Mixed business (including milk bar, general store and convenience store).

For more information on amounts the ATO accepts as estimates and small business benchmarks, visit the ATO’s website.

Note! If you are unsure how to treat stock used for private purposes in your account for tax purposes, book an appointment with us to discuss your obligations and options.

Top Cyber Security Tips

It is imperative that businesses keep all their business and client information secure. Lost or compromised data can be very difficult or very expensive to recover.

The ATO has released a list of tips on how to keep your business and client data safe from hackers and identity thieves:

  • Ensure your passwords are strong and secure
  • Remove system access from people who no longer need it
  • Ensure all devices have the latest available security updates
  • Do not use USBs or external hard drives from an unfamiliar source
  • Use a spam filter on your email account
  • Secure your wireless network and be careful when using public wireless networks
  • Be vigilant about what you share on social media
  • Monitor your accounts for unusual activity or transactions
  • Use a PO Box, or ensure your mail is secure
  • Do not download programs or open attachments unless you know the program is legitimate
  • Do not leave your information unattended – secure your electronic device
From giphy.com

From giphy.com

GST Matters

1) GST – applying to digital products and other services imported by consumers

In the 2015-16 Budget, the government announced that the application of the GST will be extended to cross-border supplies of digital products and other services imported by Australian consumers. 

This includes digital products such as streaming or downloading of movies, music, apps, games, e-books as well as services such as architectural or legal services.

Under the new law, overseas businesses will be required to pay GST on these sales from 1 July 2017.

If you have interactions with overseas businesses that supply digital products and services to Australian consumers, let them know they may be subject to the transitional rule for GST.

The transitional rule applies to businesses that:

  • Meet the registration turnover threshold of A$75,000; and
  • Supply digital products and services before 1 July 2017 and continue after this date. The portion after 1 July 2017 is subject to GST.

A simplified system will be available on the ATO website from 1 April 2017 for these businesses to electronically register, lodge and pay GST.

To do! Get in contact with us about the GST implications for you if goods and supplies you have been acquiring from an overseas business that you may have been using in your business become subject to GST.

2) GST on low value imported (physical) goods

In the 2016-17 Federal Budget, the government confirmed that from 1 July 2017, the GST will be extended to low value imports of physical goods imported by consumers. 

A vendor registration model will be used where non-residents with an Australian turnover of $75,000 or more will be required to register and charge the GST. 

An exposure draft outlining the proposed law changes and application was released for public comment. More information will be provided as this measure progresses.

3) Significant changes in GST cross border transactions have occurred- GST on services and digital products - e.g. Netflix

From 1 July 2017, GST will apply to cross-border supplies of digital products and other services imported by Australian consumers.

This includes:

  • Digital products such as streaming (like Netflix) or downloading of movies, music, apps, games and e-books
  • Services such as architectural or legal services.

The registration turnover threshold is A$75,000. If you meet this amount and make these supplies you will be required to register for GST.

GST and cross-border transactions between businesses

From 1 October 2016, certain transactions between overseas businesses and Australian businesses are no longer subject to GST.

Review your enterprise arrangements and consider whether you