Welcome to the December 2019/January 2020 edition of the Spry Roughley Report.
Where has 2019 gone? This year feels like it has disappeared faster than previous years but perhaps that is just symptomatic of the rate of change in our lives – technological, political, societal and economic. Several of the issues I wrote about 12 months ago are still in play – the US/China trade war and Brexit to name a couple – and no doubt still will be in play well into 2020. This rate of change highlights to me the importance of our long standing relationships with clients and their key advisers, bankers and lawyers.
The outlook for 2020 is for "cautious optimism renewed". As always, these predications are qualified with many critical assumptions, but there are recent indicators of stabilisation in global manufacturing indices (PMI's) across a broad range of countries, along with a rebound in US jobs and housing data. Global growth is predicted to slow to 3% in 2020, with an upswing to 3.2% in the second half of the year, meaning there is growth opportunity for Australian exporters. For importers, a focus on foreign exchange management and product costing will be vital.
The Australian economy has been slowing for some time now and the latest economic data is mixed. The unemployment rate crept up to 5.3% in October and wage growth remained subdued, but November saw improvement in housing prices, building approvals and retail spending. The RBA held the cash rate steady at 0.75% at its December Board meeting, although there is an expectation of a further cut of 0.25% in 2020. The RBA have said the Australian economy is experiencing a "gentle turn" and that the "threshold for undertaking Quantitative Easing (QE) has not been reached". Specifically, Governor Phil Lowe said that the RBA would not resort to QE before the cash rate was at 0.25% and that any QE would likely involve buying government bonds rather than a wider range of securities. Australia will continue to have low inflation and low interest rates through 2020 into 2021, even with some optimism for improved growth during the next year.
The RBA is on the record stating it is reaching the limits of monetary policy and is looking at the Federal Government to stimulate the economy through fiscal policy. The Morrison Government has responded in part with the acceleration of almost $4B of infrastructure spending and financial support for drought and bushfire affected areas. On that front there is far more to do, especially in regard to water management policies.
Yes, we have our challenges, but I remain optimistic for what the future holds and confident in the capacity of Australian business owners to assess, respond and adapt to the situation.
A reminder that ASIC has released Regulatory Guide RG 270 on the obligation requiring companies and superannuation trustees to implement a whistleblower policy by 1 January 2020. This will affect public companies, corporate trustees of registrable superannuation entities and large proprietary companies (large proprietary company definition).
RG 270 sets out the mandatory components of a whistleblower policy including the types of matters covered by a policy; who can make and receive a disclosure; how to make a disclosure; legal and practical protections for disclosers; investigating a disclosure; and ensuring fair treatment of individuals mentioned in a disclosure. Failing to comply with this requirement is a strict liability offence attracting a penalty of $12,600. Essential reading for those affected!
For more technical matters, please read on:
- ATO debts may affect your credit rating – Businesses with tax debts need to be aware that the ATO will now be able to disclose the details of their tax debts to credit ratings agencies.
- Crowdfunding: is it income? – Crowdfunding has fast become a go-to strategy for people in need of large amounts of money quickly, but is the money raised considered to be income and therefore taxable?
- Non-commercial losses: do the rules apply to you? – If you have a business in addition to your main employment, the non-commercial loss rules could prevent you from deducting your business losses against your other income.
- Less tax for some working holiday makers? – A recent Federal Court decision on the "backpacker tax" is seen by some as a win for all working holiday makers. However, it has a much narrower application than some have reported.
- Tax relief for drought-stricken farmers– With drought sweeping across the country, farmers are being offered access to concessional loans, grants and special allowances to help ease the immediate financial burden.
- Super guarantee opt-out for high income earners – If you're a high-income earner with multiple employers, there's a good chance that you may unintentionally exceed the super concessional contributions cap in any year, which may cause excess contribution issues.
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.
Wishing you a very Merry Christmas and a prosperous New Year in 2020.
Shaun Madders, Director
Spry Roughley Services Pty Limited
Liability limited by a scheme approved under Professional Standards Legislation
Businesses with tax debts need to be aware that the ATO will now be able to disclose the details of their tax debts to credit ratings agencies, which could potentially affect the ability of the business to obtain finance or refinance existing debt.
Generally, only businesses with an ABN and debts over $100,000 and that are not "effectively engaged" with the ATO will be affected. The ATO is planning a phased implementation which will consist of undertaking education efforts before it targets companies, followed by partnerships, trusts and sole traders.
The aim of the laws, according to the government, is to encourage more informed decision-making within the business community by making large overdue tax debts more visible, and to reduce the unfair advantage obtained by businesses that do not pay their tax on time.
Are you unsure if you have a tax debt, or perhaps you need help with working out a payment plan with the ATO for your existing debt? We can help you with all of this and more.
Learn more about this...
Crowdfunding has fast become a go-to strategy for people in need of large amounts of money quickly, but is the money raised considered to be income and therefore taxable?
Crowdfunding is when an individual or business (the promoter) uploads a description of a campaign (eg to fund an activity, a project or a new invention) along with the amount they want to raise to a platform like Kickstarter, GoFundMe, Indiegogo or Pozible.
Other people online (the contributors) can then choose to support the campaign or cause by pledging money.
Many campaigns are donation-based. This is where contributors pledge an amount of money without receiving anything in return. If you're a contributor in this case, you won't be able to deduct an amount contributed in a crowdfunding campaign as a "donation" in your Australian tax return unless the cause you've donated to is an endorsed or legislated deductible gift recipient (DGR).
Other campaigns can be rewards-based. In these cases, the promoter provides a reward, such as goods, services or rights, to contributors in return for their payments. For example, differing levels of campaign-related merchandise may be available. Usually, your acquisition of goods or services for making a contribution means the payment is considered private in nature and not deductible.
As the promoter of a campaign (either donation-based or rewards-based), whether the money you receive is considered to be taxable depends on the circumstances. Generally, if the campaign is related to running/furthering your business or is a profit-making plan, then any money received would be classed as income.
If you're thinking of starting a crowdfunding campaign or have already had success with one, we can help you deal with all the tax consequences, so you can concentrate on making your business or project a success.
Learn more about this...
If you have a business in addition to your main employment, the non-commercial loss rules could apply to you, which may prevent you from deducting your business losses against your other income.
Depending on your business activity, as long as you satisfy certain conditions your business will not be subject to the non-commercial loss rules. If your business doesn't satisfy these conditions, don't worry – you can also apply to the ATO for an exemption under certain circumstances.
A "non-commercial" business activity in this context is any business where the deductions exceed the assessable income in any particular year.
If you're a primary producer or a professional artist and your income from other sources unrelated to the business is less than $40,000, the non-commercial loss rules will not apply to you. You will be able to deduct any losses from the business against your other income, but you should be aware of the $40,000 threshold, which may change from year to year based on your personal circumstances.
If you get the bulk of your income from being an employee and run a business on the side, we can help you figure out if you're subject to the non-commercial loss rules. We can also help make a formal request to the ATO to allow you an exemption from the rules.
Learn more about this...
The working holiday tax rate (commonly known as the "backpacker tax") has generally applied from 1 January 2017 to individuals who have working holiday or work and holiday visas. In essence, the first $37,000 of "working holiday taxable income" is taxed at 15%, and then the balance is taxed at the standard rates applicable to residents.
Thus, working holiday makers are taxed at a higher rate on their first $37,000 than residents, because the holiday makers don't get the benefit of the Australian tax-free threshold ($18,200 for 2019–2020).
A recent Federal Court case centred on a British citizen who lived in Australia for almost two years. During most of that time she lived in the same share house accommodation in Sydney, and only left for short stints to travel to other areas. Essentially, the case came down to whether or not she was a resident of Australia and if so, whether the non-discrimination clause in the Australia–United Kingdom double taxation agreement prevented her from being taxed at the higher "backpacker" rate. The Federal Court found that she was an Australian resident for tax purposes, and she should not be taxed at the higher rate.
Some have seen this decision as a win for all working holiday makers, but it's likely to have a fairly narrow application. Coupled with the ATO still considering an appeal, this area of law is far from settled.
If you're unsure whether this decision affects you, we can help you work out whether you're a tax resident and may be eligible to pay less tax on your working holiday income.
Learn more about this...
With drought sweeping across the country, farmers are being offered access to concessional loans, grants and special allowances to help ease the immediate financial burden. While it is difficult to predict when the drought will break, for those who are in the process of navigating their way out of immediate financial strain, there are ways to future proof your farm or primary production business by taking advantage of various tax concessions.
Some of the immediate assistance measures include concessional loans and the farm household allowance, through which lump sum payments of up to $12,000 can be paid to eligible farm households.
The allowance can also be in the form of fortnightly payments for a maximum period of four cumulative years at the same rate as the Newstart allowance. This allowance may be available to both the farmer and their partner, provided certain conditions are met. An activity supplement of up to $4,000 to pay for study, training or professional financial advice may also be available to eligible households.
In addition to the immediate assistance, primary producers can obtain ongoing benefits of various tax concessions, including the instant asset write-off, immediate deductions for fodder storage assets, and income averaging to assist with cash flow.
If you're experiencing hardship due to drought, we can contact the ATO on your behalf or assist with your application for farm household allowance to ease the immediate financial burden.
Learn more about this...
Under the superannuation guarantee framework, employers are required to contribute a minimum percentage (currently 9.5%) of their employees' ordinary time earnings into superannuation. Employers that fail to do so will be liable for a penalty called the superannuation guarantee charge, payable to the ATO. If you're a high-income earner with multiple employers, this requirement has the very real chance of pushing you over the concessional contributions cap of $25,000.
To avoid this unintended consequence, laws have recently been passed so that eligible high-income earners with multiple employers can opt out of the super guarantee regime. From 1 January 2020, employees with more than one employer who expect their combined employers' contributions to exceed the concessional contributions cap can apply for an "employer shortfall exemption certificate" with the ATO.
It's a good idea to speak to your employers before deciding to apply for an exemption certificate, as it may impact relevant awards or your workplace agreements.
Learn more about this...