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Welcome to the April 2014 edition of the Spry Roughley Newsletter

No doubt we are all feeling a bit uncertain as Hard Man Hockey jaw-bones us on the imminent budget cuts and we await the promised release of the Commission of Audit report later this week. Some clients are asking whether pre-emptive action is warranted, particularly around commencing self managed superannuation fund (SMSF) pensions for those aged over 55, before the May 13th Budget.

When the Commission of Audit report is released we may have greater insight into the possible spending measures however there is a history, and Government preference, for phasing in any changes to superannuation so that constituents are not suddenly disadvantaged. If we suspect any alternative we will email an update on that subject, but predicting Budget changes is really fraught.

In all the news about budgets, one item that may have been overlooked is that the interest rate on private company loans to shareholders and their associates is now down to 6.20% for the current year. Remember though that such loans must be repaid in principal and interest, equally over 7 years, or 20 years if fully secured by an appropriate mortgage security.

There are changes coming in relation to employers remitting superannuation contributions that will apply from 1 July, 2014 for those employing more than 20 persons, and from 1 July, 2015, for those employing less than 20 persons. All payments will need to be made electronically from those dates. The superannuation funds receiving such contributions will need to be appropriately set up to receive those electronic remittances through registered clearing houses. SMSF's are exempt for contributions being received from related employers. The catch in this is when a member of an SMSF receives employer contributions from non-related employers – think children working outside the family business for example – then the SMSF will need to take action before 30 June. I will write more on this during May.

In other news:

As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.

    Warm regards,

    Martin

    Martin Roughley, Director
    Spry Roughley Services Pty Limited


     

     


    Tax data net to be widened

    The government has proposed to improve taxpayer compliance through new third-party reporting regimes and has undertaken public consultation to seek feedback on possible policy issues. The proposal aims to improve taxpayer compliance by enhancing the information reported to the ATO by a range of third parties. The proposal is currently scheduled to commence from 1 July 2014 (although first reports would not be due to the ATO until after 1 July 2015).

    The government notes that some of the elements of the proposal can be implemented by the ATO, whereas other elements will require tax law changes. This would involve the creation of new third-party reporting regimes in relation to:

    • sales of real property;
    • sales of shares and units in unit trusts;
    • sales through merchant debit and credit services; and
    • taxable government grants and other payments.
    In respect of these transactions, the government suggests that the ATO would initially seek to receive annual reports and then seek to move to quarterly, monthly or real-time reporting. 

    Learn more about this...


    ATO compliance approach can be improved

    The government has released several reports prepared by the Inspector-General of Taxation, Mr Ali Noroozi, into the ATO's compliance approach to individual taxpayers.

    The Tax Inspector found that data-matching was generally positively received where the ATO uses it to assist individuals. However, he found that stakeholders were concerned that the data used by the ATO could be inaccurate and not sufficiently vetted before comparisons were made with taxpayer-reported information.

    In relation to the ATO delaying tax returns to check refund claims, the Tax Inspector recommended that the ATO improve its processes as well as communication with taxpayers. Among other things,
    Mr Noroozi thought the ATO could better differentiate potentially fraudulent claims from mere mistakes. The ATO could also improve the time taken to review cases, and provide clearer reasons for any adjustments made.

    Learn more about this...


    ATO complaints-handling report highlights issues

    The Australian National Audit Office (ANAO) has recently reviewed the ATO's complaints-handling processes. Although the ANAO found that the ATO's complaints-handling framework is well designed, it found that there are opportunities for the ATO to improve its practices, including by obtaining a better understanding of the issues that are the subject of complaints and the needs of the complainants themselves.

    It said there is scope for the ATO to:

    • improve reporting against complaints-handling timeliness measures;
    • implement a more coherent agency-wide quality assurance framework for complaints and other feedback;
    • restrict sensitive information about named ATO officer complaints from being included in records on the ATO's client relationship management computer system; and
    • implement measures to periodically check that ATO officers have not accessed client relationship records inappropriately.
    The ANAO made three recommendations, all agreed to by the ATO, which are aimed at improving the ATO's handling of complaints and its monitoring and reporting of performance in managing complaints. 

    Learn more about this...


    No deduction for preparatory activities 

    Successful entrepreneurs are a creative and motivated bunch, but it generally takes several attempts to develop a successful business venture. Costs are quickly incurred in determining the viability of, and in pursuing, a business idea. However, careful consideration of the deductibility of such costs needs to be taken. If the idea is a winner and a new business venture is born, a deduction may be available. However, in other cases, the deduction may not be available.
     
    In one recent case, an individual was unsuccessful before the Federal Court in relation to his claims for deductions incurred in pursuing 14 business ventures on a 500-acre property. The Administrative Appeals Tribunal (AAT) had earlier found that although the man's operations met a number of criteria relevant in determining whether a business was being carried on, none of the activities had advanced much beyond the planning stage.
     
    The AAT held that the individual was not "carrying on a business" and that the claimed deductions were therefore not available. The Federal Court affirmed the AAT's decision.

    Given the breadth of examples covered in this decision, the decision is a useful reference point for taxpayers dealing with the issue of deductibility of costs incurred in preparatory activities associated with a business idea that is later abandoned or a business venture not yet generating income. Please contact our office for further details.

    Learn more about this...


    Penalty for late superannuation contribution

    The Federal Court has affirmed an excess superannuation contributions tax assessment issued to an individual after finding there were no "special circumstances" to warrant reallocating excess concessional contributions that had been received late via BPAY.

    The Court heard that the bookkeeper of the individual's employer had made two payments on 30 June 2009 via BPAY to the individual's superannuation fund, and that those payment were received by the fund on 1 July 2009. The Court also heard that the bookkeeper had mistakenly made an early payment to the individual's superannuation fund on 27 May 2010, which was meant for the following financial year.
     
    As a result of these payments, the total amount of funds received by the superannuation fund in the 2009–2010 financial year exceeded the individual's $50,000 concessional contributions cap for the year.
     
    The individual argued that there were "special circumstances" and that the Commissioner should reallocate the two late payments to the 2008–2009 financial year, and the 27 May 2010 payment to the 2010–2011 financial year.
     
    However, the Court said late BPAY payments did not amount to "special circumstances". Further, simple errors such as making a contribution too early also did not amount to "special circumstances". The Court was also of the view that the individual had been in a position to ensure that the contributions were made in the correct year.
     
    A taxpayer who has contributed above his or her concessional or non-concessional contributions caps can apply to the Commissioner to exercise his discretion to disregard or reallocate excess contributions for a financial year. However, it should be noted that the discretion is not easy to obtain.
     

    Learn more about this...


    ATO eye on dividend stripping

    The ATO has released details of "dividend access share" arrangements that it considers to be dividend stripping schemes under the tax law anti-avoidance provisions. These arrangements aim to allow ordinary shareholders of a private company and/or their associates to derive the economic benefit of significant profits accumulating in the private company in a substantially (if not entirely) tax-free form.
     
    These arrangements involve a number of features, but principally include the company issuing a new class of shares to another entity (eg another company controlled by the original shareholders) for nominal consideration, and the company declaring and paying fully franked dividends on the new class of shares of an amount approximately equal to the accumulated profits in the company. The ATO says these arrangements generally result in a reduction or elimination of the taxation liabilities that would normally arise with the payment of dividends (that is, if those dividends were paid to the company's ordinary shareholders).
     
    The Commissioner is of the view that under such circumstances, he can exercise his power to cancel all or part of the tax benefit obtained from these schemes.
      

    Learn more about this...

     

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    Our firm is built on being attentive to and extensively knowledgeable about our clients so we can work with them to help them to both achieve their goals and protect them from risk. We are forward looking in our advice and always aim to be practical and right.

    – Martin Roughley, Managing Director

    In business, there is so much going on and you don’t always have all the answers. That’s when you need to know who to call. Our clients call us.

    – Shaun Madders, Director

    Going beyond the compliance and routine is what we do. By maintaining open and frank communication we are able to provide valuable insights and assist in driving the changes required to help our clients achieve their goals.

    – Fergus Roughley, Director