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Welcome to the August 2017 edition of the Spry Roughley Report.

There have been many changes coming into law since the announcements on Budget night.

One of the most significant and least understood areas of change is the taxation of foreign residents on the sale of real property. It also extends to transfers of shares and units in non-listed property rich entities.

From 1 July 2017, where a foreign resident sells a property with a contract price of $750,000 and above, a withholding tax of 12.5% applies. Previously the threshold was $2,000,000 and 10% withholding.

The default position is the withholding tax will apply unless a vendor has a Foreign Resident Capital Gains Withholding (FRCGW) Clearance Certificate. You must be an Australian resident to obtain the certificate.

The FRCGW Clearance Certificate must be provided at or before settlement. If you would like us to obtain your clearance certificate, please contact us. 

These provisions will also catch Australian residents who change tax residency. For example, if you move overseas for an extended period and are no longer an Australian tax resident, your home in Australia would lose main residence exemption from capital gains and become subject to the withholding regime. A double whammy!

Further to that, the NSW State Government has also decided to target foreign persons who own residential property with:

  • land tax surcharge of 0.75%; and
  • increased rate of Surcharge Purchaser Duty of 8% on acquisition.

These rates apply from 1 July 2017.

The land tax surcharge can catch a foreign person who is not an Australian citizen, but has been resident in Australia for many years. Their home, while exempt from land tax, can now be subject to land tax surcharge. There is no "grandfathering" of existing properties. This will be an unexpected cost and burden to many NSW residents.

There is considerable debate and confusion regarding the impact of these changes on discretionary trusts. If you have a trust beneficiary who is a foreign person, that is sufficient to make the entire trust a foreign person. It is possible to amend the trust, but extreme care is needed to ensure a resettlement of the trust does not occur.

The good news though is if you are an Australian citizen, you are exempt from these changes, even if living overseas. New Zealand citizens holding a special category visa and ordinarily a resident in Australia are also treated as not being a foreign person.  Barnaby will be pleased!

Residency and property are complex areas of law and matters of fact. As always, if you have any concerns please contact us.

For more news read on...

  • Tax cut for small businesses - Legislation has now passed to apply a 27.5% corporate tax rate from 1 July 2016 for small business entities (SBEs) with aggregated turnover of under $10 million. 
  • Instant asset write-off extended for small business entities - The Treasury Laws Amendment (Accelerated Depreciation For Small Business Entities) Act 2017 extends the period during which SBEs can access accelerated depreciation. The extension is for 12 months, ending on 30 June 2018.
  • ATO update on Manage ABN Connections - The ATO says feedback from tax professionals identified that further work is required to meet their needs. The ATO advised that the myGov login is therefore not currently available to access the Tax or BAS Agent Portals.
  • Work-related deductions denied - A pipe fitter has been denied deductions by the AAT for work-related expenses because the taxpayer was unable to produce adequate documentary evidence.
  • Super reforms - The Treasury Laws Amendment (2017 Measures No 2) Act 2017 sees changes to TRIS, CGT relief, pension cap and LRBA integrity rules come into effect from 1 July 2017.
  • Self-managed super funds - The 2017 SMSF annual return and instructions have been released. The key changes include the transitional CGT relief for super funds as part of the 1 July 2017 reforms, reporting on limited recourse borrowing arrangements (LRBAs) and early stage investor tax incentives.
  • Single Touch Payroll operative for early adopters - Single Touch Payroll (STP) is here. It had a "soft" or voluntary start on 1 July 2017. From that date, employers may choose to report under STP.
  • "Netflix" tax - From 1 July 2017, the supply of services, digital products or rights are connected with Australia (and so potentially liable to GST) if made to an Australian consumer by an overseas-based supplier. GST Ruling GSTR 2017/1 explains how overseas suppliers can decide whether a recipient of a supply is an Australian consumer.
  • GST draft guidelines - New draft guidelines have been issued explaining the low-value imported goods measures and how they apply to supplies made through electronic distribution platforms (EDPs) and redeliverers of offshore supplies.

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,

Shaun

Shaun Madders, Director

Spry Roughley Services Pty Limited



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Tax cut for small business: ATO will amend returns

For the 2016–2017 income year, the company tax rate for small businesses decreases to 27.5%. Companies with turnover of less than $10 million are eligible for this rate. The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies.

The reduced company tax rate of 27.5% will progressively apply to companies with turnover of less than $50 million by the 2018–2019 income year. The ATO says if a company lodged its 2016-17 company tax return early, and its turnover is less than $2 million, it will amend the return and apply the lower tax rate.

If the company's turnover is from $2 million to less than $10 million, the company will need to review its return and lodge an amendment if required.

Learn more about this...


Instant asset write-off extended for small business entities 

The Treasury Laws Amendment (Accelerated Depreciation For Small Business Entities) Act 2017 extends the period during which small business entities (SBEs) can access accelerated depreciation. The extension is for 12 months, ending on 30 June 2018.

SBEs will be able to can claim an immediate deduction for depreciating assets that cost less than $20,000, provided the asset is first acquired at or after 12 May 2015, and first used or installed ready for use on or before 30 June 2018. Depreciating assets that do not meet these timing requirements will continue to be subject to the $1,000 threshold.

SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $1,000 if the asset is first used or installed ready for use on or after 1 July 2018.

Learn more about this...


ATO update on Manage ABN Connections 

The ATO says feedback from tax professionals on the Manage ABN Connections identified that further work is required to meet their needs. The ATO advised that the myGov login is therefore not currently available to access the Tax or BAS Agent Portals. If a tax agent's client already has a myGov account linked to the ATO, Centrelink or Medicare, they can now use Manage ABN Connections to access government online business services.

Learn more about this...


Work-related deductions denied: lack of documenting evidence 

A pipe fitter has been denied deductions by the Administrative Appeals Tribunal (AAT) for work-related expenses. The AAT disallowed the claims because the taxpayer was unable to produce adequate documentary evidence.

Learn more about this...


Super reforms: changes to TRIS, CGT relief, pension cap and LRBA integrity rules 

The Treasury Laws Amendment (2017 Measures No 2) Act 2017 makes a range of technical amendments to the super reform legislation.

TRIS rules for becoming retirement phase pension

The amendments deem a transition-to-retirement income stream (TRIS) to be in retirement phase where the recipient of the income stream has satisfied a condition of release with a nil cashing restriction (eg retirement or attaining age 65). This means that a TRIS will stop being a pension (subject to 15% tax on fund earnings from 1 July 2017) and become a retirement phase superannuation income stream that qualifies for the earnings tax exemption once the recipient notifies the fund that a nil condition of release under the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) has been satisfied.

CGT relief for TRIS assets

The period in which an asset supporting a TRIS can cease to be a segregated current pension asset of a fund and still qualify for CGT relief will be extended to include the start of 1 July 2017.

Pension balance credit for LRBA repayments

The Act provides that an additional pension transfer balance credit will arise for certain repayments of a limited recourse borrowing arrangement (LRBA) by a self-managed superannuation fund (SMSF) that shifts value between an accumulation phase interest to a retirement phase superannuation income stream interest in the fund: new s 294-55 of ITAA 1997.

Pension transfer balance cap

The Act also makes the following changes to the $1.6 million pension transfer balance cap provisions.

Learn more about this...


SMSF annual return: key changes for 2016–2017 

The ATO has released the 2017 self-managed superannuation fund (SMSF) annual return and instructions. Key changes for 2017 include the transitional CGT relief for super funds as part of the 1 July 2017 reforms, reporting on limited recourse borrowing arrangements (LRBAs) and early stage investor tax incentives.

Learn more about this...


Single Touch Payroll operative for early adopters 

Single Touch Payroll (STP) is here. It had a "soft" or voluntary start on 1 July 2017. From that date, employers may choose to report under STP. For those who qualify (ie employers with 20 or more employees), STP will be mandatory from 1 July 2018.

For employers with 19 or fewer employees on 1 April 2018, their reporting obligations will not change. They will not need to start reporting through STP from 1 July 2018, but may choose to start using a payroll solution to take advantage of the benefits of STP reporting.

Learn more about this...


"Netflix" tax: who is an Australian consumer? 

From 1 July 2017, the supply of services, digital products or rights are connected with Australia (and so potentially liable to GST) if made to an Australian consumer by an overseas-based supplier. This is referred to as the digital import or "Netflix tax" rules.

GST Ruling GSTR 2017/1 explains how overseas suppliers can decide whether a recipient of a supply is an Australian consumer. It explains what evidence suppliers should have, or what steps they should take to collect evidence, in establishing whether or not the supply is made to an Australian consumer.

Learn more about this...


New draft GST guidelines issued 

Supplies through electronic distribution platforms

Draft Law Companion Guideline LCG 2017/D4 (the Draft) deals with how the ATO intends to apply the Netflix and low-value imported goods measures to supplies made through electronic distribution platforms (EDPs).

The draft guidance sets out a four-step approach for determining whether an EDP operator is responsible for GST.

Redeliverers and supplies of low-value imported goods

Draft Law Companion Guideline LCG 2017/D5 explains the measures in the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 (awaiting assent) that will make redeliverers responsible for GST on offshore supplies of low-value goods from 1 July 2018.

The Bill imposes GST on supplies of imported low-value goods, ie those worth less than A$1,000. Under the reforms, a redeliverer will be treated as the supplier if low-value goods are delivered outside Australia as part of the supply and the redeliverer assists with their delivery into Australia as part of, broadly, a shopping or mailbox service that it provides under an arrangement with the consumer.

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

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