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TAX | NEWS | VIEWS & CLUES Welcome to the January 2018 edition of the Spry Roughley Report. Happy New Year! 2018 is shaping up to be an interesting year with discussions of corporate tax cuts, building pressure for wage growth and a change in the Tax Office compliance focus areas. The 2018 economic outlook for Australia remains mixed with most commentators expecting inflation to hold, increasing downward pressure on the A$/US$ exchange as the US continues to tighten its monetary policy, a predicted easing of commodity prices driven by easing Chinese demand, and moderation in the Sydney and Melbourne housing market. The commentators are divided on wage expectations. Big business seems to be linking corporate tax reform (rate cuts and share scheme incentives) with wage growth however the academics seem adamant that the issues are distinct and not correlated beyond short term bonuses and one-off adjustments. What is clear is that skilled industries will come under increasing wage pressure as demand for skilled employees rises and supply is restricted due to natural circumstances or the latest round of 457 and other work visa restrictions. On the other side, increasing supply in online retail will place further pressure on margins and the well-publicised changes in penalty rates are likely to dampen wage expectations in retail. Finally, the Tax Office is signalling that their increased compliance pressure on big business has been a success, with the statistics showing that the "tax-gap" (the difference between actual and expected tax collections) is in-line with other comparable developed countries and as a result, the Tax Office is turning their attention to individual tax payers. High-net wealth individuals (individuals who control $30m of net assets or more) should expect risk assessment and identification interviews with the Tax Office around their corporate structure and significant transactions in the next twelve months. For everyone else, the Tax Office have stated that the level of deductions being claimed for work related expenses is too high and they will be targeting individuals who have more deductions than their peer group. Read on for the usual mix of technical and other updates for December and January...
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, Fergus
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Consultation paper: combating phoenix activities The Federal Government has released a consultation paper proposing company and tax law reforms to combat phoenix activities. Phoenix activities involve stripping assets from a company that's in debt and transferring them to another company to avoid paying the first company's liabilities – that is, the new company "rises from the ashes" of the old one. The government is considering a range of ways to combat this type of activity, including setting up a hotline for phoenix reporting, adding phoenixing to the offences specifically prohibited under the Corporations Act 2001, making directors personally liable for companies' unpaid GST, and limiting the ability for sole directors to resign unless there is a replacement director or the company is wound up. New passive income test for lower corporate tax rate Under the Bill's changes to the Income Tax Rates Act 1986, calculations of a business's "passive income" would include:
At the time of writing, the Bill is still before the Parliament. When passed, it will apply from the 2017–2018 income year. The lower company tax rate of 27.5% is available in 2017–2018 for small businesses and corporate base rate entities with turnover of less than $25 million. You must also "carry on a business" to be eligible for the lower corporate tax rate – read on to find out more about what this means for companies. ATO guidance: what is "carrying on a business"? It's not possible to definitively state whether a company carries on a business, but the draft ruling says that ATO will consider a range of indicating factors. Specifically, a company is likely to be carrying on a business if it:
Wondering whether you can access the reduced corporate tax rate? Talk to us today to find out more about how the passive income and carrying on a business tests apply to your situation. Total superannuation balances and pension transfer balance account reports The ATO has recently agreed to modify the reporting obligation for total superannuation balances, recognising that some funds are not in a position to correctly report their correct accumulation phase value for 30 June 2017. The ATO has also set out when superannuation providers and life insurance companies must lodge transfer balance account reports. The ATO will use the reports to determine if individuals have exceeded their pension transfer balance cap. An administrative concession will be provided for self managed superannuation funds (SMSFs), allowing later reporting to help the funds transition to event-based transfer balance cap reporting. Super shouldn't be a "set and forget" arrangement. It's important to revisit your strategy and consider it carefully, especially in light of the wide range of super changes announced in this year's Federal Budget. Fringe benefits tax: should an Uber be treated as a taxi? The FBT exemption, introduced in 1995, currently only applies to travel in a vehicle that is state or territory licensed to operate as a taxi. However, with the Federal Court's decision on GST for Uber, and some recent state and territory moves towards licensing changes, the ATO has decided to review its interpretation of the definition of "taxi" in the FBT law. Any benefit arising from taxi travel by an employee is exempt from FBT if the travel is a single trip that begins or ends at the employee's workplace. Any benefit arising from an employee's taxi travel is also exempt from FBT if the travel is a result of the employee's sickness or injury and the journey is between the employee's workplace, residence and/or another place appropriate because of the sickness or injury. Tax treatment of long-term construction contracts Two methods of accounting are available: the basic approach (essentially the accruals method) and the estimated profits approach. Once a particular method is chosen, the ATO expects the taxpayer to apply it consistently for the entire contract. The same method should also be applied to all of the taxpayer's similar contracts. The draft ruling also deals with several accounting methods that the ATO does not consider acceptable for long-term construction contracts, including the completed contracts method (bringing profits and losses to account when the contract is completed). Foreign equity distributions to corporate entities Under the rules, a foreign equity distribution is treated as non-assessable, non-exempt income if the recipient is an Australian corporate tax entity that holds a participation interest of at least 10% in the foreign company making the distribution. The ATO's view is that a partnership or trust can hold a direct control interest in a foreign company for the purposes of the rules, so that an Australian corporate tax entity can have an indirect participation interest in the foreign company via the partnership or trust. |
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