TAX | NEWS | VIEWS & CLUES

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

As we anticipate the arrival of 30th June in just under two weeks, and provided we are not distracted by the election; the possibility of another difficult Parliament; Bremain / Brexit; or what is happening in the US, then we are possibly thinking, "Have I done what needs to be done before 30th June to get my best tax outcomes?"

Guidelines and key reminders to consider in your own tax situation are:

• Do you have tax losses available? It may be a good time to take profits and realise those. You may be able to manage this by flowing dividends to the loss entity?
  Don't forget your available capital losses – very useful if you are thinking that some of your stocks are over-valued at the moment. That lets you take the profit now without the tax pain.
• Are you utilising the available family lower tax thresholds where that makes sense?
• Are you maximising your superannuation contributions – you had better get moving on that as the contributions must be in the fund by 30th June and clearing houses take time to process them.
• Have you paid your minimum pension amounts out of your superannuation fund for the year?
• Can you contribute a large lump sum as a non-concessional contribution? Remember the limit of $500,000 only applies to non-concessional contributions made after 1 July 2007.
• If you have trading stock you can change the method of valuation for tax purposes each year, for every item, choosing between cost, net realisable value and replacement price! You can legitimately use this if you need to increase or reduce taxable income this year. Obviously, you will also want to write down that obsolete stock as well.
• Small business – those with turnover under $2 million – instant asset write-off for assets costing up to $20,000 each!
• Have you considered adjusting for income received in advance?
• Have you reviewed the depreciable assets list to write off those no longer in use? It's amazing how assets accumulate on depreciation lists long after they were scrapped.
• Prepaying expenses can be very effective where that makes sense – e.g. tax deductible interest on personal investment loans for example.
• And an item that often confuses – the net medical expenses rebate only applies now for disability aids, carers and those in aged care facilities.

Timing is important. Dividends and trust distribution decisions need to be resolved before the 30th June to be unchallengeable. Your company loans situation may need to be managed to ensure that is compliant with tax rules in Division 7A of the Tax Act – basically being on commercial footing with specified minimum interest and repayments. Paying July 1st dividends can be very tax effective as an alternative to 30th June – a deferral of tax and potential interest savings on Division 7A loans!

Looking ahead, have you adjusted the motor vehicle reimbursement rate to employees to the Tax Office rate of 66 cents? If you are still using the higher previous rates then the tax situation for you and the employees gets complicated.

As your attention shifts to your 2016 tax return you may find the Tax Return Checklists included in this release helpful in collating the information needed to ensure your return is accurate. These are available in the following links:

Individual tax return checklist
Company, Trust or Partnership tax return checklist
Superannuation Fund tax return checklist

For more specific information on topics that may interest you, read on...

• Tax incentives to promote innovation - The Government is proposing to increase access to company losses, and allow faster depreciation for intangible assets.
• Car expenses and special arrangements for the 2016 FBT year - The ATO has released guidance about using the cents per kilometre basis for claiming car expenses.
• Holiday homes: tax considerations - The ATO has released guidance on what is meant by "genuinely available for rent".
• Individuals caught in "Panama Papers" leak- The ATO has advised that it is checking up on more than 800 individuals after a leak of taxpayer data in relation to a law firm in Panama.
• ATO safe harbour for SMSF borrowings - The ATO has released "safe habour" terms on which SMSF trustees may structure related-party LRBAs consistent with an arm's-length dealing.
• ATO's data-matching net widens - The ATO has released details of its various data-matching programs.

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

Innovative companies with an interest in getting involved in the "ideas boom" need to be aware of the Government's proposed tax incentives to help promote innovation. The Government has released draft legislation to implement more of the proposed tax measures announced as part of its National Innovation and Science Agenda (released in December 2015).

One of the tax measures will allow companies that have changed ownership to access past year tax losses if they satisfy a similar business test. Under the current law, companies that have changed ownership must satisfy the same business test to access past year tax losses. This measure is designed to encourage entrepreneurship by allowing loss-making businesses to seek out new opportunities to return to profitability.

Learn more about this...

Car expenses and special arrangements for the 2016 FBT year 

The ATO has released guidance about using the cents per kilometre basis for claiming car expenses and making fringe benefits calculations.

From 1 July 2015, separate rates based on the size of the engine no longer apply. Taxpayers can use a single rate of 66 cents per kilometre for all motor vehicles for the 2015–2016 income year. The Tax Commissioner will determine the rate for future income years. However, the ATO acknowledges that there has been uncertainty about the correct rate to apply for the 2016 FBT year, and has advised of a special arrangement for 2016 whereby it will also accept 2016 FBT returns based on the 2014–15 rates (which are 65, 76 or 77 cents per kilometre depending on the engine capacity of the employee's car).

For future FBT years, which end on 31 March, the ATO said employers should use the rate determined by the Commissioner for the income year that ends on the following 30 June. For example, for the FBT year ending 31 March 2017, employers should use the basic car rate the Commissioner determines for the 2016–2017 income year.

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Holiday homes: tax considerations 

Australians who let their holiday homes for only part of the year should be aware of the ATO's compliance focus on excessive holiday home deduction claims.

The ATO has released guidance on claiming deductions in relation to holiday homes. If a taxpayer rents out their holiday home, they can only claim expenses for the property based on the proportion of the income year when the property was rented out or was genuinely available for rent. Notably, the new guidance indicates what is meant by "genuinely available for rent". According to the ATO, factors that may indicate a property is not genuinely available for rent include that:

• it is advertised in ways that limit its exposure to potential tenants (for example, the property is only advertised by word of mouth);
• the location of, condition of or accessibility to the property mean that it is unlikely tenants will seek to rent it;
• there are unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out; or
• interested people are turned away without adequate reasons.

Although it is always prudent to check things over before tax time, holiday home owners may particularly want to take the opportunity to review their circumstances and ensure that any deduction claims are made correctly before "the taxman cometh".

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Individuals caught in "Panama Papers" leak 

The ATO has advised that it is investigating more than 800 individuals after a leak of taxpayer data in relation to a Panamanian law firm.

Deputy Commissioner Michael Cranston said that since the completion of the offshore disclosure initiative "Project DO IT", the ATO has ramped up its compliance work to deal with taxpayers who have failed to disclose offshore income and assets.

Mr Cranston said the ATO has been analysing the latest data against information these taxpayers had reported and against the information the ATO already has. The information the ATO received regards some taxpayers who it had previously investigated, as well as a small number of taxpayers who disclosed their arrangements to the ATO under Project DO IT. The information also regards a large number of taxpayers who have not previously come forward, including high-wealth individuals, and Mr Cranston said the ATO is already taking action on those cases.

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ATO safe harbour for SMSF borrowings 

The ATO has released guidelines that set out the "safe harbour" terms on which trustees of self managed superannuation funds (SMSFs) may structure related-party limited recourse borrowing arrangements (LRBAs) consistent with an arm's-length dealing. The ATO generally takes the view that an SMSF may derive non-arm's length income (taxable at 47%) if the terms of an LRBA are not consistent with an arm's-length dealing. If an LRBA is structured in accordance with the ATO's guidelines, it will accept that the non-arm's length income (NALI) rules do not apply.

The ATO previously announced a grace period whereby it will not select an SMSF for review provided that arm's-length terms for its LRBA are implemented by 30 June 2016, or the LRBA is brought to an end before that date. Importantly, the ATO's guidelines require arm's-length payments of principal and interest to be made for 2015–2016 (including where the arrangement is brought to an end). If an LRBA does not meet all of the safe harbour terms, it does not mean that the borrowing is deemed not on arms'-length terms. Rather, trustees who do not meet the safe harbour terms will need to otherwise demonstrate that their arrangement was entered into and maintained consistent with arm's-length terms.

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• The ATO will acquire details of registered voters on the Commonwealth electoral roll from the Australian Electoral Commissioner. This data-matching program aims to identify taxpayers who are not registered with the ATO when they are required to be.
• The ATO will acquire data from businesses that it visits as part of its employer obligations compliance program during the 2016–2017, 2017–2018 and 2018–2019 financial years. This program aims to obtain intelligence to identify risks and trends about contractors who may not be complying with their taxation obligations.
• The ATO will acquire data relating to electronic payments made to merchants through specialised payment systems for the 2014–2015, 2015–2016 and 2016–2017 financial years. This data will be used to detect unreported income and to identify those operating a business but failing to meet their registration, lodgment and payment obligations.

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