TAX | NEWS | VIEWS & CLUES

Welcome to the September 2015 edition of the Spry Roughley Report.

As I write I see the stock market is taking a dive today. My market monitor says the All Ordinaries index is below its medium term trend line and local sentiment is negative, along with world wide sentiment also turning bearish. Our markets are heavily influenced by world money flows and the current uncertainty is attributed to both the confusion as to what is happening in China and no-one knows how the US will or can claw back from the "greatest money printing of all time."

Views vary as to the appropriate investment strategy but all agree this is at least a "correction" in the stock market valuations, and much needed. The property market, particularly in Sydney, is clearly overheated with Banks now tightening lending. The commentators also agree that interest rates will stay lower for longer than previously expected, putting pressure on yields. However some see a strong medium term recovery in stock markets as investors seek out better yields against a back-drop of less attractive alternative investments for the boomer generation needing returns to fund their retirement.

There have been some interesting developments in relation to international tax exposures with the first ever automatic sharing of bank information with the US Internal Revenue Service this month. Details of 30,000 financial accounts with a total of over $5 billion have been reported – with the focus on US citizens and tax residents with Australian bank accounts. This programme is reciprocal and will be expanded to over 100 countries by 2017 for Australian citizens and tax residents as all tax authorities seek to tax undeclared income.

The pursuit of multi-national companies for perceived tax avoidance has progressed with Bills being introduced into Parliament. The good news for most tax payers will be that these measures only apply to significant global entities that have global income of more than $1 billion annually.

An interesting reminder about the importance of lodging BAS and IAS statements with the Tax office when due, even if they are not paid. In cases where the Directors can be pursued personally for the unpaid tax that should have been paid by the company, the exemptions available to avoid personal liability only apply if the company had notified the Tax Office of amounts due on or before the relevant due date for payment.

For other news …….

• Small business tax discount on the way– Legislation to implement the small business tax discount is currently awaiting formal enactment.
• Ride-sharing provider challenges ATO's GST view – Uber BV has commenced legal proceedings that aim to challenge the ATO's view on GST in relation to ride-sharing drivers.
• Crowdfunding for small proprietary companies: consultation – The Government is looking at ways to facilitate equity crowdfunding.
• SMSFs in pension phase need to exercise care – The ATO has identified a number of issues concerning SMSFs in pension phase.
• ATO data-matching: immigration visa holders – The ATO has announced that it will acquire details of visa holders, their sponsors and migration agents from the Department of Immigration and Border Protection.

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

Example: A person running a business as a sole trader has an annual turnover of $300,000 and taxable income of $75,000. Under the current law, the business would pay tax, at the owner's marginal tax rate, of around $16,000 in total. Under the proposed new law, the $16,000 tax bill on the business income would be reduced by 5%, or $800. While there is no change in the owner's tax rate, under the new law the owner would pay only $15,200 tax.

Legislation to implement the small business tax discount is currently awaiting formal enactment..
           

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Ride-sharing provider challenges ATO's GST view

Uber BV has lodged an application in the Federal Court to challenge the ATO's view on GST in relation to ride-sharing drivers.

In May 2015, the ATO released information on its website providing its view of the tax obligations of people providing services in the sharing economy.

The ATO was of the view that people who provide ride-sourcing (or ride-sharing) services were providing "taxi travel" under the GST law, and were therefore required to register for GST regardless of turnover, charge GST on full fare amounts, lodge BASs and report income in their tax returns. The ATO had given ride-sourcing drivers until 1 August 2015 to obtain their ABN and be registered for GST.

However, in a company statement, Uber argued that the ATO's position unfairly targets Uber's driver-partners. In the meantime, the ATO has maintained its view that people who provide ride-sourcing services are providing "taxi travel" under the GST law, and that it expects all ride-sourcing drivers to be registered for GST.

According to the ATO, although ride-sourcing drivers need to account for the GST on full fare amounts, they can also claim GST credits for relevant business expenses. The ATO says drivers must report income earned from providing ride-sourcing services; however, they can also claim deductible business costs. Please contact our office for assistance..

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Crowdfunding for small proprietary companies: consultation

Crowd-sourced equity funding (or equity crowdfunding) is an innovative form of fundraising that allows a large number of individuals to make small equity investments in a company.

The Government is looking at ways to facilitate equity crowdfunding and has released details of its proposed regulatory framework for public companies. However, a key part of the Government's public consultation is to also examine whether its proposed regulatory framework for public companies should be extended to proprietary companies.

The Government notes that proprietary companies are subject to limitations under the Corporations law on the way they can raise funds. These limitations make it difficult for proprietary companies to effectively use equity crowdfunding to raise funds from a large number of small shareholders. Accordingly, the Government is seeking views on way it could amend the law to make capital raisings by small proprietary companies more flexible. Public consultation closes on 31 August 2015.
           

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SMSFs in pension phase need to exercise care 

The ATO is of the view that most trustees of self managed super funds (SMSFs) do the right thing. However, it has identified a number of issues concerning SMSFs in pension phase, noting the growing number of people expected to receive a pension in the next 10 years.

The following gives a snapshot of some key issues identified by the ATO:

• Setting up and starting a pension: In the pension establishment phase, a fundamental and critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that the legislated rise in the preservation age came into effect from 1 July 2015 – this affects people born after 30 June 1960.
• Paying a pension: One of the most common reasons for an SMSF in the pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee has failed to pay the required annual minimum pension amount to a member.
• Ceasing a pension: The ATO is starting to see a range of issues related to what happens in the unexpected event of a pensioner's death. For example, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF's deed and the law?

The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). As the income of the SMSF is diverted to meeting the loan obligations of the fund, the ATO has found there can be insufficient funds remaining to make the required pension payments. There is also an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm's-length rules in an effort to try to overcome their liquidity issues. If you have any concerns, please contact our office for further information.

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ATO data-matching: immigration visa holders 

The ATO has announced that it will acquire names, addresses and other details of visa holders, their sponsors and migration agents for the 2013–2014, 2014–2015, 2015–2016 and 2016–2017 financial years from the Department of Immigration and Border Protection (DIBP). The purpose of the data-matching program is to ensure that taxpayers are correctly meeting their taxation obligations. It is estimated that records relating to one million individuals will be obtained.

The ATO has been data-matching visa data from the DIBP (and its predecessors) against ATO data holdings for a number of years. The ATO said this electronic data-matching has been very effective in assisting to mitigate compliance risks. According to the ATO, empirical evidence from earlier data-matching programs has confirmed an elevated level of risk within the subset of taxpayers who are first-time lodgers with DIBP links.
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