Technical Update March 2016
Written and accurate as at: Mar 02, 2016 Current Stats & Facts
ATO announces two important data matching protocols
The ATO has just announced that it is starting a new "asset" data matching protocol, and extending another CGT and rental protocol that has been running successfully for the last ten years.
Data matching on insurance taken out on certain assets owned by "wealthier" taxpayers
The ATO has advised that it is working with insurance providers to identify policy owners on a wide range of asset classes.
These include:
- marine;
- aviation;
- enthusiast motor vehicles;
- fine art; and
- thoroughbred horses.
It said that this will provide them with a more accurate estimate of taxpayers' wealth.
Editor: And therefore income. Taxpayers who have used untaxed monies to acquire such assets might be well advised to get on the front foot and disclose it to the ATO, rather than waiting for a call from the taxman.
They advise that they expect to receive 100,000 records where the different asset classes meet certain threshold amounts.
Property sales and rental income
The ATO has also advised that it is continuing its ongoing "Real property transactions 1985–2017 data matching program protocol".
It is undertaking this program to ensure that taxpayers are correctly meeting taxation obligations in relation to their dealings with real property, i.e., CGT on property sales and income tax on rental income.
For the period 20 September 1985 to 30 June 2017, data will be obtained from all State and Territory Revenue authorities, as well as many Finance departments, and Land and Residential Tenancies authorities.
The ATO will obtain the data on:
- landlords, properties, rental income, etc., from the rental bond authorities; and
- taxpayer details on property valuations, sales, purchases, etc., from the revenue and land titles authorities.
Number of records
It said that, based on current data holdings, it is estimated these records will identify approximately 11.3 million unique individuals.
Tax help for people affected by recent bushfires
The ATO has advised that, for people affected by the recent Victorian and Western Australian bushfires, refunds will be fast-tracked and they will have additional time to lodge income tax returns and activity statements.
No need to apply
The Tax Commissioner said taxpayers do not need to apply for a deferral or a faster refund.
“If your business or residential address is in one of the identified affected postcodes it will happen automatically. You can visit our website to see the new lodgment dates and check if your region is included. Further postcodes may be added as needed, so check our website for more information,” Commissioner of Taxation, Mr Jordan, said.
Warning to employers to withhold tax from some car allowances
The ATO has reminded taxpayers that, in relation to claiming car expenses, the one-third of actual expenses method and 12% of original value method were abolished from 1 July 2015.
The cents per kilometre method now uses a standard rate of 66 cents per kilometre for all cars, rather than a rate based on a car's engine size.
Employers should be aware that the ATO set the approved pay as you go (PAYG) withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015.
Employers should withhold tax from any amount above 66 cents for all future payments of a car allowance, as failure to do so may result in the employee having a tax liability when they lodge their tax return.
Employees, who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount, should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.
Editor: If this applies to your business, please contact our office if you need help with the calculations.
Taxpayer misses out on small business CGT concession
A taxpayer's claim that a related trust was entitled to the small business 15-year exemption* was rejected because a loan from his trust had to be included in the net value of his CGT assets.
Note (*): One of the requirements to get this concession is to satisfy the "maximum net asset value test" (MNAVT), whereby the net value of CGT assets of a taxpayer (and their connected entities and affiliates) must not exceed $6 million.
It was agreed between the ATO and the taxpayer that the total net value of the taxpayer's other assets in 2008 was $5.93 million.
The parties disagreed, however, as to whether an amount of $1.14 million shown as a loan in the 2008 balance sheet of the taxpayer's trust should be included as an asset – the taxpayer claimed that he was "statute-barred" from recovering the loan by the Limitation of Actions Act 1936 (SA).
If it was an asset, then the net value of the total assets for the purposes of the small business exemption exceeded $6 million, and the taxpayers were not entitled to CGT relief.
Decision
The Federal Court held that any action by the trust against the taxpayer to recover the pre‑1998 loan would be an action to recover "trust property", and the Limitation of Actions Act does not prescribe any limitation period in respect of claims of that kind.
Therefore, "the contention that the pre‑1998 loan was statute‑barred and did not have to be brought into account in the calculation of the MNAVT must be rejected".
Reminder of small business tax cuts
The ATO has reminded taxpayers that, from 1 July 2015, a new two-tier company tax system took effect and applies to all companies.
This system sees the whole of a company’s taxable income subject to the following rates:
- 28.5% if the company’s aggregated turnover is below a $2 million threshold (i.e., a small business entity or ‘SBE’); or
- 30% if the company’s aggregated turnover is equal to or above a $2 million threshold.
Importantly, companies don’t need to do anything now – if identified as a small business, the new rate will be automatically applied to their PAYG instalments rate or on their next activity statement.
Editor: Note that a capped 5% tax discount, designed to broadly mirror the small business company tax cut, was also introduced for unincorporated small businesses from the 2016 income year. It will be delivered to individual taxpayers in receipt of small business entity income via the ‘small business income tax offset’.
ATO supporting small business to implement SuperStream
As the SuperStream rollout for small businesses continues, the ATO claims that it is helping employers in select industries who need support implementing SuperStream.
Editor: Employers with 20 or more employees were expected to be using SuperStream no later than 31 October 2015. Employers with 19 or fewer employees need to be using SuperStream no later than 30 June 2016.
The ATO has also stated: “With only two quarters left until SuperStream becomes mandatory, now is a good time for employers to adopt SuperStream and familiarise themselves with it before the deadline.
To check that your SuperStream option is ready, whether that be your payroll software, your super fund’s online payment system, or a clearing house, such as the ATO’s Small Business Superannuation Clearing House. You can also ask your accountant or bookkeeper for help."
Now is also the ideal time for employers to make sure they have all the information they need to use SuperStream correctly: “Importantly, you should collect the necessary employee identification data – being your employees’ TFNs and their funds’ unique super identifiers (USIs) – and enter it into your system ahead of the next quarterly due date on 28 April. That way, you have time to check that things are running smoothly before the deadline.
“Your employees can find their fund’s USI on their super statement or by calling their fund. You can also find these details using the Super Fund Lookup website – our online SuperStream checklist has the link.”
The ATO step-by-step checklist to help employers prepare can be found at www.ato.gov.au/SuperStreamChecklist
Guidance regarding the payment of death benefits
The Superannuation Complaints Tribunal, which can resolve disputes between large superannuation funds and their members, recently provided some guidance regarding the payment of death benefits from superannuation funds, possibly because the largest category of complaints the Tribunal determined at review last year (44.8%) was death complaints.
This guidance is reproduced below.
"There are some common misconceptions about superannuation death benefits that can result in unexpected outcomes for the beneficiaries of a death benefit, and may result in a complaint being made to the Tribunal.
The most common misconception, arguably, relates to the purpose of superannuation.
Broadly speaking, the purpose of superannuation is to provide income in retirement to members and their dependants; it does not form part of a person’s estate.
Accordingly, a superannuation death benefit should be paid to dependants and those who had a legal or moral right to look to the deceased member for financial support had they not died.
The ability of a superannuation fund to pay a death benefit directly to a dependant rather than to the estate has a number of advantages.
Firstly, it ensures that the benefit is paid directly for the benefit of the dependants and is not available to creditors who would be paid first from the assets of the estate.
Secondly, it can usually reach the beneficiaries quicker than if a grant of probate or letters of administration has to be obtained and the estate called in and distributed.
Thirdly, as a general rule, superannuation death benefits are protected from bankruptcy.
Therefore, even if the deceased member was bankrupt, or if the estate is insolvent, funds can be paid direct to the dependants to replace the income stream that may be lost as a consequence of the death.
However, if you would like to ensure that your superannuation is distributed a certain way then it is important to find out if your superannuation fund has the option for a binding nomination and if so, ensure you meet the requirements, including renewing your binding nomination every three years."
Note: The requirements for making a binding death benefit nomination for an SMSF are normally found in the trust deed of the fund, and may allow the nomination to be 'non-lapsing'.
Buyers to withhold tax for ATO when buying certain properties
Editor: Parliament recently passed legislation amending the taxation law to impose withholding obligations on the purchasers of certain Australian assets – generally property purchased from a non-resident. However, the changes will affect most purchases of property in Australia!
The amendments impose a 10% withholding obligation on purchasers of 'Taxable Australian Real Property' (generally, this means an interest in Australian land) from certain foreign residents, as well as certain 'indirect Australian real property interests' (such as shares in companies that own a lot of land) and options to acquire such assets.
The amendments will generally apply where the contract to purchase an applicable asset is signed on or after 1 July 2016.
Tax Warning!
Where the land, or the interest in the land, is worth $2 million or more, the new law requires the purchaser to withhold 10% of the purchase price and send it to the ATO unless the vendor has obtained a 'clearance certificate' from the ATO and provided it to the purchaser prior to settlement.
This obligation arises regardless of whether the vendor is a foreign resident or not.
Example
On 1 August 2016, Harvey enters into a contract to purchase a residential property in an affluent Sydney suburb for $2.5 million, with settlement proposed to occur on 1 October 2016. He does not know whether the vendor is a foreign resident.
Despite many requests from Harvey’s lawyer, the vendor refuses to obtain a clearance certificate from the ATO to give to Harvey.
As Harvey is acquiring Australian land with a market value greater than $2 million and he has not received a clearance certificate from the vendor by the time settlement occurs, Harvey will be required to withhold and pay to the ATO $250,000, whether or not the vendor is an Australian resident.
GST implications when employer pays for a super fund's expense
An employer cannot claim an input tax credit where it pays an expense on behalf of a superannuation fund, as the supply is not made to the employer; but to the super fund.
However, if the fund is registered for GST, then it may be entitled to claim an input tax credit (or a reduced input tax credit if the requirements in Division 70 of the GST Act are otherwise satisfied).
For example, assume a super fund engages a legal firm to provide advice about its activities, but the employer connected with the super fund pays the legal fees associated with this advice.
Because the supply of the advice was made by the legal firm to the super fund, the employer is not entitled to an input tax credit (i.e., the employer has not 'acquired anything', even though it made the payment).
However, depending on the circumstances and whether the super fund is registered for GST, it may be entitled to a full or reduced input tax credit.
Editor: The rules relating to GST are more complicated for super funds than for other entities, so please phone our office if you would like discuss this important issue.
Taxpayer not a 'share trader' despite substantial share trades
Editor: In a recent case, a taxpayer undertook significant trades on the stock exchange and made losses, but was still found to be a 'share investor', rather than a share trader, meaning she could not deduct her losses against her other income (i.e., her losses were 'capital losses' that can only be offset against capital gains).
The Facts
The taxpayer (who otherwise worked as a child care educator and earned approximately $40,000 in wages) started trading shares in July 2010, utilising her (and her husband’s) savings of approximately $60,000 and a margin loan of initially $40,000.
During the 2011 income year, she made:
- 71 purchases to a value of $379,630; and
- 37 sales to a value of $215,019.
She made a loss on her share transactions during the 2011 income year to the order of $20,000, and she was seeking to claim that as a deduction.
The Decision
The Senior Member of the AAT considered the following factors in deciding that the taxpayer was not a share trader.
Factors in favour:
- the turnover was substantial, particularly having regard to her wages; and
- the taxpayer maintained a home office for the purpose of undertaking the share transactions.
Factors against:
- the share transactions were not regularly and systematically carried out throughout the 2011 income year – the bulk of the transactions took place in the first 6 months of the 2011 income year, with only 10 transactions of approximately $70,000 in the second half of the financial year.
- the activities were very basic and lacked sophistication to constitute a share trading business;
- there was no demonstrated pattern of trading, although it was accepted there was a business plan even before she later produced written evidence of this; and
- she had no skills or experience or prior interest in shares.
Inactive Trusts – ABNs to be cancelled
The ATO has advised that they will begin cancelling the ABNs of approximately 220,000 trusts, where there is evidence those trusts are no longer carrying on an enterprise.
Trust ABNs will be cancelled from February, where information available indicates that, for the last two years, the trust has not lodged BASs and/or trust income tax returns.
The ATO will send a letter if an ABN has been cancelled, including the reason for the cancellation, and a phone number to ring to get the ABN reinstated immediately if the recipient does not agree with the decision.
Editor: If you receive such a letter and think the trust should still be entitled to an ABN, let us know and we'll sort it out for you.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
