TAX | NEWS | VIEWS & CLUES

Welcome to the August 2016 edition of the Spry Roughley Report.

Some interesting news this month, particularly from the Tax Office reminding us not to overlook our tax and Super Fund management obligations. In particular, if you hear of self-managed super funds with related party, limited recourse borrowing arrangements in place that sound too good to be true – they probably are! In such cases the parties have until 31 January 2017 to have them sorted or they will discover how punitive the tax regime can be on wilful breaches of the law in relation to superannuation funds.

In line with this theme, there are also State taxes that can be overlooked. In particular, one commonly overlooked aspect of NSW State taxes is the payroll tax-free thresholds. An employer entity is required to register for payroll tax as soon as the amount of monthly Australian taxable wages exceeds the payroll tax-free threshold. For smaller, yet growing businesses, this can creep up unexpectedly.

Payroll tax-free thresholds for the 2015-16 year are $63,525 for a 31 day month (pro-rated for months with lesser days), and $750,000 for a full year. The full year threshold is only available where the entity is not grouped with other businesses, they employ people for a full financial year and do not pay wages outside NSW. Wages for payroll tax purposes includes gross wages and salaries, bonuses, directors fees, most allowances, payment to certain contractors (generally substantially labour only contracts), superannuation contributions and fringe benefits. Ouch!

If you exceed the monthly or annual thresholds you are liable for payroll tax and need to register immediately.

A reminder that if you are registering on myGov to manage your Government interactions, be careful when advising the contact email address for notices in relation to your tax affairs. If you register your own email as the tax notice address that will cut us, as your agent, out of that loop and we will not receive any notices on your behalf. You can of course use your own email for advice in relation to social security matters and such-like and that will not change the tax notice procedure already in place. I guess the message is to be careful when advising myGov of which contact addresses to use on which matters.

Some interesting reading from the various bank economic publications regarding the housing boom in the Eastern States. They all seem to be predicting slower growth in both construction activity and prices, and that the contribution to the economy from the housing sector will ease. Contrasting with that is the loud promotion of Queensland investment property to investors in NSW and Victoria in particular. More sunshine is not necessarily correlated with good investment outcomes! I am buoyed however by the news that business confidence is apparently at a six year high and one hopes that is not dashed by more nonsense out of Canberra in our delicately balanced Parliament.

Read on for more technical news…..

• ATO small business benchmarks updated – The ATO has announced the latest benchmarks for small businesses.
• SMSF early voluntary disclosure service for contraventions – The ATO has introduced a new SMSF early engagement and voluntary disclosure service.
• New tax governance guide for SMSFs – The ATO has released a new tax governance guide that can be used by SMSFs.
• Property developer entitled to capital gain tax concession – A property developer has been successful in arguing that a property sold for a profit had been acquired as a capital asset.
• Superannuation concessional contributions caps must be observed – An individual has been unsuccessful in seeking to have excess super concessional contributions ignored.
• Help the kids buy homes, but watch for land tax – A father has been unsuccessful in a land tax dispute in arguing that he was a trustee in relation to homes bought for his adult children.

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

Liability limited by a scheme approved under Professional Standards Legislation

The ATO has announced the latest benchmarks for small businesses. Based on the data from 2014 income tax returns and business activity statements, the benchmarks cover over 1.3 million small businesses.

ATO Assistant Commissioner Matthew Bambrick said one of the great things about the benchmarks was that they gave a lot of small-business owners peace of mind.

"If a small business is inside the benchmark range for their industry and the ATO hasn't received any extra information that may cause concern, they can be confident that they probably won't hear from us", Mr Bambrick said.

Mr Bambrick said some small businesses outside the benchmark range may simply be incorrectly registered, or the business intent may have changed since starting up. "These types of small administrative errors can be easily fixed by checking the previous year's tax return to see which business industry code was used and then updating it in the next return and on the Australian Business Register", Mr Bambrick said.

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SMSF early voluntary disclosure service for contraventions

The ATO has introduced a new self managed super fund (SMSF) early engagement and voluntary disclosure service. Each year, an approved SMSF auditor must audit a fund. The auditor is required to report certain regulatory contraventions to the ATO using the auditor/actuary contravention report. The ATO encourages SMSF trustees to voluntarily disclose regulatory contraventions, which they can now do using the ATO's SMSF early engagement and voluntary disclosure service. This service provides a single entry point for SMSF trustees to engage early with the ATO in relation to unrectified contraventions.

Before using this service, the ATO says trustees should engage with an SMSF professional to receive guidance about rectifying the contravention so they have a rectification proposal to include with their voluntary disclosure. Please contact us for further information.

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New tax governance guide for SMSFs

The ATO has released a new tax governance guide that can be used by SMSFs. The ATO has worked with businesses to design a guide to help private groups with tax governance. The guide also provides practical guidance about the key elements of SMSF governance. When managing an SMSF, trustees need to apply a high level of governance to meet the requirements of both the income tax and superannuation laws.

SMSF trustees can use this guide to develop an effective governance framework and to identify ways to improve existing governance practices within their SMSFs. Issues covered in the guide include:

• corporate governance and tax governance;
• starting your business;
• business expansion;
• funding and finance;
• philanthropy;
• succession planning;
• exiting a business;
• retirement planning (covering SMSFs and CGT small business concessions); and
• estate planning.

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Property developer entitled to capital gain tax concession

A taxpayer has been successful before the Administrative Appeals Tribunal (AAT) in arguing that a commercial property it acquired, developed and later sold for a profit of some $40 million had been acquired as a capital asset to generate rental income, and not for the purpose of resale at a profit. The AAT reached this decision despite indicating that the taxpayer was essentially involved in "property development" activities on a broad analysis of its activities. As a result, the AAT found that the profit of $40 million was assessable as a capital gain and entitled to the 50% capital gains tax (CGT) discount.

This case is a good example of the need to maintain contemporaneous documentation should there be a dispute with the ATO. The ATO has recently reiterated its focus on trusts developing and selling properties as part of their normal business and incorrectly claiming the 50% CGT discount.

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Superannuation concessional contributions caps must be observed

An individual taxpayer has been unsuccessful before AAT in seeking to have excess superannuation concessional contributions for the 2014 financial year ignored. In addition to having a full-time job, the individual also held a number of casual part-time jobs. To grow his retirement savings, he salary sacrificed super, but he did not check on his super balances. In June 2015, the individual was advised by the ATO that he had excess concessional contributions of around $11,000 for the 2014 financial year, an amount which was added back to his taxable income. He was therefore charged interest of $250. The AAT praised the individual's efforts to save for his retirement, but it said the circumstances did not amount to "special circumstances" in which it could invoke its powers to ignore the excess contributions.

The taxpayer's ultimate tax bill in this case would have been the same if he had stayed under the relevant cap, albeit the tax bill would have been met by PAYG deductions over time. Even so, this case is a good reminder for to monitor your super balances to ensure you don't have a tax burden caused by extra contributions being added back to your taxable income.

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Help the kids buy homes, but watch for land tax

A taxpayer has been unsuccessful before the Queensland Civil and Administrative Tribunal in a land tax dispute in arguing that there was a "constructive trust" in relation to three residential properties. The taxpayer, a father, had purchased the properties for each of his three adult children to live in. There were agreements that the children would pay their parents rent and, upon the death of both parents, as specified in mutual wills, the property would be left to the respective child. The Queensland Commissioner of State Revenue assessed land tax on the aggregate value of the three properties as at 30 June 2013 and 30 June 2014 respectively. The Tribunal affirmed the Commissioner's decision, holding that the taxpayer was the "owner" of the properties and it was not convinced that there was a "constructive trust". Therefore, it held the exemption under the Land Tax Act 2010 (Qld) to assess separately trust land did not apply. In this case, the Tribunal hinted at the possibility that in future assessments the taxpayer could, on sufficient evidence, persuade the Commissioner or Tribunal otherwise.

For parents looking to assist their adult children with buying homes, this case highlights the need to consider land tax implications. It is important to note that the land tax regimes differ from state to state. Please contact our office for assistance.

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