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TAX | NEWS | VIEWS & CLUES
October has proven to be a very interesting month. For some lighter relief to the political machinations currently in play I recommend David Rowe's cartoons in the Australian Financial Review. The nonsense is laid bare! On a more serious note there have been a number of developments that you may be interested in. On superannuation - we are now subject to more timely reporting on pension balance caps than in prior years. Now, if a self-managed superannuation fund has any members with a balance in excess of $1million, and any member of that fund commences, adds to, or commutes any of their pension balance, then those changes must now be reported quarterly to the Tax Office as part of the new system to track transfer balance caps. This is the mechanism of ensuring that the maximum pension cap of $1.6 million is not breached. On borrowing – with the impact of the Royal Commission into our financial sector causing greater regulatory pressure on lenders, and banks in particular, combined with potentially tightening liquidity and increasing interest rates, one might now question the wisdom of interest-only loans. The refinancing risk is very real and we are seeing the banks declining deals they would traditionally have funded, so it may be prudent to re-visit such arrangements. This is particularly relevant where borrowing capacity is limited or for borrowings in superannuation funds with limited access to alternative capital sources. (I also note that most banks have withdrawn from lending for residential properties in superannuation funds so refinancing may be even more problematic there.) The alternative of "Principal and Interest" loans is that they run their stated term if repayments are met, and one is not ambushed with a potential refinancing at an inopportune time, sometimes resulting from the inverse correlation of interest rates and falling property prices. One doesn't want to be managing a falling security valuation for a fully-funded loan! Deja vu? On HELP/HECS - a new change that might catch some off-guard is for those with a Higher Education Loan Program debt - HELP (HECS), or Trade Support Loan - TSL Debt, who are travelling overseas for more than 6 months. You are now required to notify the Tax Office that you live overseas, or if you leave Australia to work overseas, for more than 6 months. These debts are now repayable from your world-wide income, subject to some thresholds, whereas previously, repayments were suspended whilst one was overseas. Although this came into effect from July 2017, not everyone is acting on these requirements and fines can be imposed for non-compliance. On contractors - the old chestnut of contracting was again in the spotlight in a case involving an electronics engineer contracting through a partnership with his spouse. The contractor relied on the "results test" and the contention that the Partnership was a "personal services business," to avoid the Tax Office claim that his income was from his personal services. The Tax Office assessed the taxpayer on the basis that the partnership income included personal services income attributable to the taxpayer, and the partnership did not satisfy the "results test" under the Act and was thus not a personal services business. We see similar arrangements to this from time to time and clients are sometimes surprised when we advise they will not withstand challenge. The interesting aspect to this case was the consideration of the "results test" – i.e. that at least 75% of the income was for "producing a result". On appeal, the Tribunal observed that in general, all engineers were engaged for the purpose of working towards successful completion of projects, but stated that performance obligations were typically neither possible nor practical to express at the time of contracting but only in the course of the work. Such independent consultants were typically engaged for the provision of their services, and the taxpayer's contention that it was a custom or practice that independent contractors were engaged to produce results was rejected. Further, the Partnership was irrelevant to the outcome, and the tax shortfall penalty of 50% for recklessness imposed by the Tax Office was affirmed by the Tribunal. (Douglass v FC of T [2018] AATA 3729. Beware of captive contractor arrangements! Finally, we provide a link to a Due Diligence Checklist that you might find useful in ordering your thoughts in assessing a business acquisition, or sale. Obviously each case will have its specific issues but sometimes a high level checklist is a worthwhile starting point to such considerations. Please see below for the latest technical and other updates this month:
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
Liability limited by a scheme approved under Professional Standards Legislation Claiming work-related expenses: ATO guides and toolkits This year, the ATO has launched its biggest ever education campaign to help taxpayers get their tax returns right. The ATO says the campaign, which is running throughout tax time, includes direct contact with over three million selected taxpayers, as well as specialised guides and toolkits for taxpayers, agents, employers and industry bodies. A key component of the campaign is simple, plain English guidance for people with the most common occupations, like teachers, nurses, police officers and hospitality workers. ATO Assistant Commissioner Kath Anderson says that last year work-related expenses totalled a record $21.3 billion, "and we have already flagged that over-claiming of deductions is a big issue". The most popular topics this year include car, clothing, travel, working from home, and self-education expenses, and the guides for tradies, doctors, teachers, office workers and IT professionals have been popular.
Illegal phoenix activity: public examinations in Federal Court matter More than 45 service providers, clients and employees of pre-insolvency advisors, as well as alleged "dummy directors" of phoenix companies, will be examined. Banking Royal Commission: possible super contraventions The Commission heard evidence about fees-for-no-service conduct and conflicts of interests which affect the ability of some super fund trustees to ensure that they always act in the best interests of members. Questioning during the hearings focused particularly on how trustees supervise the activities of a fund and respond to queries from the regulators. Executives were also quizzed about expenditure on advertisements and sporting sponsorships, and finally, the Commission turned its attention to the effectiveness of the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) as regulators. What's next? The Royal Commission's interim report is now due, and the sixth round of public hearings (10–21 September 2018) is investigating conduct in the insurance industry. The Royal Commission has released four background papers covering life insurance, group life insurance, reforms to general and life insurance (Treasury) and features of the general and life insurance industries. SMSF issues update: ATO speech ATO data analytics and prefilling help tax return processing The ATO has prefilled over 80 million pieces of data from banks, employers, health funds and government agencies to make tax returns easier for taxpayers and agents. The ATO's advanced analytics allow it to scrutinise more returns than ever before, and make immediate adjustments where taxpayers have made a mistake. Having a tax agent prepare and lodge your return is a tax-deductible cost. Why not let us handle your tax this year? Parliamentary committee recommends standard tax deduction, "push return" system In its inquiry, the Committee examined the ATO's points of engagement with taxpayers and other stakeholders, and reviewed the ATO's performance against advances made by revenue agencies in comparable nations. The inquiry asked what taxpayers should now expect from a modern tax service that is largely or partly automated. Australia's complex system for claiming work-related tax deductions, for example, was highlighted during the inquiry as being out of step with approaches in most other advanced nations, which have almost universally standardised their approach. The Committee concluded that under Australia's self-assessment model, more should be done to make tax obligations easier for taxpayers to understand and simpler to comply with. The report includes 13 recommendations to help achieve this goal. 12-month extension of $20,000 instant asset write-off The Bill makes changes to the tax law to extend by 12 months the period during which small businesses can access expanded accelerated depreciation rules for assets that cost less than $20,000. The threshold amount was due to revert to $1,000 on 1 July 2018, but will now remain at $20,000 until 30 June 2019. Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the extension, but reminded small businesses and family enterprises that the instant asset write-off is a tax deduction, not a rebate – your small business needs to make a profit to be eligible to claim the benefit. Cryptocurrency and tax: updated guidelines The ATO's guidelines on the tax treatment of cryptocurrencies have recently been updated, following feedback from community consultation earlier this year. The ATO received about 800 pieces of individual feedback and submissions, and has now provided additional guidance on the practical issues of exchanging one cryptocurrency for another, and the related recordkeeping requirements. The ATO as SMSF regulator: observations |
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