Welcome to the September 2021 edition of the Spry Roughley Report.
With the end of lockdowns in Sydney and Melbourne in sight and some strong signalling on changes to the current compulsory hotel quarantine for international travellers, there is growing optimism amongst business owners that we are drawing to the end of the current COVID-19 Delta variant crisis.
Importantly, the Federal Government has confirmed that they will end COVID-19 support funding as vaccine targets are met so businesses currently receiving support should prepare for a period where Government funding will end by interstate and international travel restrictions and limitations will remain.
One COVID-19 government support measure that is continuing is the temporary full expensing of assets (instant asset write-off) which provides up-front tax deductions for new and second hand assets (depending on turn-over) in the year they are installed ready for use before 30 June 2023. Key questions arising from our recent work in this area have been around the choice to apply the write-off (yes medium and large businesses have a choice!), impact of deductions on tax instalments and cash flow planning for the change in timing of tax payments across the next 18 months. We are finding that most businesses are generally better to take the advanced deductions on offer now but plan for higher tax payments (instalments and balance payments) in the future.
With travel now back on the agenda we have been fielding several questions on tax effectively structuring payments made to employees who are travelling, living away from home or relocating for work purposes. The ATO's latest attempt to clarify the difference between each of these items and thus limit any tax benefit arising from valid deductions or exemptions was published in TR 2012/4 last month. In accordance with their latest practice the ATO has set-out a 'safe-harbour' for employers looking for certainty, although it does naturally sit on the conservative end of any interpretative scope.
Still on business, the 1 November 2021 changes to super choice is now just a month away. For employees commencing employment from 1 November 2021 and who have not nominated a super fund, businesses will need to first check that the employee does not have a stapled fund before making contributions to the employer default fund. Businesses can request and receive the information for employees via the ATO online services portals.
Our technical articles for the month cover single touch payroll changes (STP) previously flagged and now close to implementation, as well as some updates for individuals and investors on rental properties, sharing economy data reporting, and super changes now current in the 2022 financial year, read on for more detail.
- Single Touch Payroll update– From 1 January 2022, most employers will be required to send additional information through STP as part of Phase 2 of the rollout.
- Tax time 2021: rental property pitfalls – The ATO is again closely monitoring tax deduction claims in relation to rental properties.
- New sharing economy reporting regime proposed – The government is seeking to legislate compulsory reporting for sharing economy platforms to more easily monitor tax compliance and reduce the need for ATO resources.
- Reminder: super changes for the 2022 financial year – Individuals aged 65 and 66 can now access the bring-forward arrangement for non-concessional super contributions, the excess contributions charge is removed, and individuals can now re-contribute a COVID-19 super early release amount without hitting their non-concessional cap.
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.
Fergus Roughley, Director
Spry Roughley Services Pty Limited
Liability limited by a scheme approved under Professional Standards Legislation
Phase 2 coming soon
The ATO is expanding the information that businesses send through Single Touch Payroll (STP). From 1 January 2022, most employers will be required to send additional information such as the commencement date of employment and cessation date of employment for employees, their reasons for leaving employment and work type. The basic information about salary and wages and super liability information in Phase 1 of the STP rollout will also be further drilled down in Phase 2, moving away from just reporting the gross amounts.
According to the ATO, the Phase 2 report will also include a six-character tax treatment code for each employee. The code will be automatically generated by the STP software and is an abbreviated way of outlining the factors that can influence amounts withheld from payments.
STP was originally introduced in 2016 as a way for employers to report their employees' tax and super information to the ATO in real time. Most employers, regardless of the number of their employees, were required to start reporting from 1 July 2021.
Employers with a withholding payer number (WPN) have until 1 July 2022 to start reporting payments through STP, and small employers that make payments to closely held payees are exempt from reporting these payees through STP for the 2019–2020 and 2020–2021 financial years.
While the Phase 2 increase in information will be automatically taken care of in most STP software solutions, the increased stratification of reporting may require you to pay more attention to your business's payroll, to ensure all the information you enter into the system is correct.
Not sure how the STP Phase 2 changes might apply to your business? Contact us today for more information.
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This tax time, the ATO is again closely monitoring claims in relation to rental properties. The ATO has data-matching programs in place that collect detailed information about properties and owners for income years all the way from 2018–2019 to the 2022–2023. These programs expand the rental income data collected directly from third-party sources, including sharing economy platforms, rental bond authorities and property managers.
In the 2019–2020 financial year over 1.8 million taxpayers owned rental properties and claimed $38 billion in deductions. While most taxpayers do the right thing and are able to justify their claims, the ATO notes that over 70% of the 2019–2020 returns selected for review of rental information needed adjustments.
The ATO guidance makes it clear there's no intention to penalise property owners whose rental income or property costs have been negatively affected by COVID-19. We can help you report the right information in your return this tax time.
The most common mistake that rental property owners and holiday homeowners make is not declaring all their income, and their capital gains from selling property.
Another area of concern involves claims for interest charges on personal loans. For example, if you take out a loan to buy a rental property and rent it out at market rates, the interest on the loan is deductible. However, if you redraw money from that mortgage for personal use (eg to buy a car or pay off the mortgage of the house you're living in), then you can't claim interest on that part of the loan.
You should also be careful when claiming deductions for capital works. While the cost of repairs for wear and tear are immediately deductible if you're replacing or fixing an existing item (eg a broken toilet), the cost of upgrading the property or areas of the property is considered capital works and any deductions need to be spread over a number of years.
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The government is seeking to legislate compulsory reporting of information for sharing economy platforms in order to more easily monitor the compliance of participants, while at the same time reducing the need for ATO resources.
As the sharing economy becomes more prevalent and fundamentally reshapes many sectors of the economy, the government is scrambling to contain the fall-out. While there no standard definition of the term "sharing economy", it's usually taken to involve two parties entering into an agreement for one to provide services, or to loan personal assets, to the other in exchange for payment. Examples of platforms include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer, to name a few.
With the rapid expansion of various sharing economy platforms, the government's Black Economy Taskforce has noted that without compulsory reporting, it is difficult for the ATO to gain information on compliance without undertaking targeted audits. Putting formal reporting requirements in place will align Australia with international best practice.
The government has now released draft legislation for consultation to define the scope of compulsory reporting requirements in order to ensure integrity of the tax system and reduce the compliance burden on the ATO.
This new compulsory reporting regime would apply to all operators of an electronic service, including websites, internet portals, apps, gateways, stores and marketplaces. Any platforms that allow sellers and buyers to transact will be required to report information on certain transactions. However, the reporting requirement will generally not apply if the transaction only relates to supply of goods where ownership of the goods is permanently changed, where title of real property is transferred, or the supply is a financial supply.
Based on the draft legislation, platform operators will be required to report transactions that occur on or after 1 July 2022 if they relate to a ride-sourcing or a short-term accommodation service, unless an exemption applies. From 1 July 2023 all other categories of sharing economy platforms will be required to report, unless an exemption applies.
It's expected that only the aggregate or total transactions relating to a seller over the reporting period will need to be provided; that is, information will not need to be provided on a transactional basis.
The initial reporting is expected to be biannual (1 July to 31 December, and 1 January to 30 June) with electronic service operators required to report the relevant information by 31 January and 31 July respectively.
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The government's long-slated "flexibility in superannuation" legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute it without hitting their non-concessional cap.
Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year.
The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.
For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can now access a cap of up to $330,000.
Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.
Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.
Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can re-contribute to their super up to the amount they released, and those re-contributions will not count towards their non-concessional contributions cap. The re-contribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the re-contribution either before or at the time of making the re-contribution.
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