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Welcome to the February 2018 edition of the Spry Roughley Report.

The 2018 year is now well under way. Wage rises are on the agenda, with a number of sectors looking for increases. The Australian cash rate is on hold at 1.5% for the foreseeable future, but our stock market is showing volatility driven by the activity in the US.

One of our clients has reported major delays to imports due to quarantine restrictions from a stink bug infestation. Shipments from Europe and the East Coast of the US are affected. Delays may be for several months due to the limited number of fumigators available. This will have serious repercussions for their business with expected stock outs, delays in servicing their customers and tightening of cashflow, leading to a decline in profitability.

Let's hope the situation gets urgent attention from the Department of Agriculture.

The ATO have provided further guidance on their view of what is "minor, infrequent and irregular" travel for the purposes of the FBT exemption. The ATO considers 750km private travel, in total, in a year as minor. There are further restrictions to that definition to consider as well, such as a single return journey for private purposes does not exceed 200kms. Clearly, the ATO continues to focus on car fringe benefits and the message is to keep a logbook to substantiate your business usage, even on utility and commercial vehicles, or you may have a hard time justifying your position.

Some of the announcements made in the 2017 Budget have now passed into legislation, specifically the Housing Affordability measures. Despite the long delay, the downsizing rules are very attractive in the right circumstances.

From 1 July 2018, for taxpayers aged 65 or over, the downsizing rules allow the opportunity to make a non-concessional contribution up to $300,000 per person ($600,000 for a couple) to superannuation from the sale proceeds of the family home, if the property has been owned for at least 10 years.

The biggest benefit is to boost your super balance and have earnings taxed at 15% (in accumulation phase) or 0% (in pension phase). Much better than personal tax rates.

This contribution is in addition to the non-concessional rules and provides an opportunity to boost your super balance. There is no age limit or work test associated with the contribution. For those with a total superannuation balance of $1.6M or more, the downsizing rules will allow you to contribute, which you would otherwise be prevented from doing.

The downsizing rules do not affect the $1.6M transfer balance cap, which means you can still only have $1.6M in pension phase (i.e. tax-free). Amounts above that will be in accumulation phase and earnings will be taxed at 15%.

Of course, the eligibility rules are quite specific with the proceeds coming from the sale of your home (i.e. your main residence and eligible for CGT exemption) that has been owned for over 10 years. The contribution must be made within 90 days of receiving the sales proceeds (usually on settlement).

There are a couple of issues to consider before utilizing these rules:

  1. Does the downsizing free up sufficient cash to make it worthwhile to contribute to superannuation?
  2. The contribution, as part of your superannuation balance, counts towards Age Pension tests whereas it was previously exempt as your home. If you need the Age Pension concessions, be careful of how you might be affected.

The new rules start from 1 July 2018, so if you are over 65 years of age, have owned your home for 10 years or more and are considering downsizing, these rules just might work for you.

Please read on for other news…

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,

Shaun

Shaun Madders, Director
Spry Roughley Services Pty Limited



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ATO guidelines: profit allocation within professional firms

The ATO has become aware that its guidelines on Everett assignments and the allocation of profits within professional firms are being misinterpreted for some higher-risk arrangements, including the use of related-party financing and self managed superannuation funds (SMSFs).

The guidelines have been suspended from 14 December 2017 to allow the ATO to consult with stakeholders on replacement guidelines.

Anyone considering new arrangements beginning after the cut-off date should contact the ATO to discuss the arrangement risk profile and the possibility of a private ruling.

Arrangements beginning before the cut-off date that comply with the guidelines and do not exhibit high risk factors shouldn't require action, but arrangements with high risk factors may be subject to ATO review.

The ATO encourages anyone who is uncertain about how the law applies to their existing circumstances "to engage with us as soon as possible".

Learn more about this...


Housing affordability measures now law 

Legislation has been passed to implement the 2017–2018 Federal Budget housing affordability measures. The following will start on 1 July 2018:

  • the First Home Super Saver (FHSS) Scheme, which allows individuals to use specific amounts from their super to buy or construct a first home; and
  • the option for individuals aged 65+ to make "downsizing" contributions of up to $300,000 to their super from selling a home they have owned for at least 10 years.

An exemption from meeting the FHSS Scheme "first home" requirement will be available for people suffering financial hardship. "Financial hardship" criteria are likely to include circumstances where someone has limited savings, is currently renting and had a past interest in a home that was in a cheaper real estate market or when the person was in a relationship that has since broken down.

Learn more about this...


Fringe benefits tax: employees' private use of vehicles 

The ATO has issued guidance for employers on determining an employee's private use of a vehicle.

Draft Practical Compliance Guideline PCG 2017/D14 should provide more certainty and transparency about the circumstances where the ATO won't apply compliance resources to investigating whether private vehicle use meets the car-related FBT exemptions.

Eligible employers who rely on this guideline won't need to keep records to prove that an employee's private use of a vehicle is minor, infrequent and irregular.

The guideline includes specific eligibility conditions for employers and their employees' vehicle use. Talk to us about whether the new guidance applies to your FBT circumstances.

Learn more about this...


Tax consequences of trust vesting 

The ATO has issued a long-awaited ruling on trust vesting, including changing a trust's vesting date and the CGT and income tax consequences of vesting.

A trust's "vesting date" is the day when the beneficiaries' interests in the trust property become fixed. The trust deed will specify the vesting date and the consequences of that date being reached. Vesting does not, of itself, ordinarily cause the trust to come to an end or cause a new trust to arise. In particular, the underlying trust relationship continues after vesting while the trustee still holds property for the takers.

The key points in the draft ruling are that:

  • before vesting, it may be possible to extend the vesting date (by applying to a court or by the trustee exercising a power to nominate a new vesting date);
  • it is too late to change the vesting date once it has passed (and the ATO says it is unlikely that a court would agree to do so); and
  • continuing to administer a trust in a way that is inconsistent with the vesting terms can have significant CGT and income tax consequences.

Learn more about this...


Disclosing business tax debt information to credit agencies 

The Federal Government has released draft legislation and a draft legislative instrument that, when passed, will authorise the ATO to disclose a business's tax debt to registered credit reporting bureaus where the business has not effectively engaged with the ATO to manage the debt.

The draft legislation intends to place tax debts on a similar footing as other debts, to encourage timely payment or engagement with the ATO for businesses that want to avoid having their debt information affect their creditworthiness. Disclosure to credit reporting bureaus will only be permitted if the ATO has given the taxpayer at least 21 days' notice beforehand.

Learn more about this...


Taxing employee share scheme dividend equivalent payments 

The ATO has made a new determination that dividend equivalent payments made under an employee share scheme (ESS) are assessable to an employee as income when they receive the payment for or in connection with services they provide as an employee.

A "dividend equivalent payment" is a cash payment to an employee participant and beneficiary an ESS funded from dividends on which the trustee has been assessed in previous income years because no beneficiary of the trust was entitled to the income at the time.

A trustee that makes a dividend equivalent payment under an ESS must withhold an amount from the payment, even though the trustee is not the employee's employer.

The ATO offers a safe harbour from such payments being treated as income under specific circumstances. Get in touch with us to talk about whether your situation makes you eligible.

The new determination applies to dividend equivalent payments paid under the terms and conditions attached to ESS interests granted on or after 1 January 2018.

Learn more about this...


Superannuation integrity changes 

The Government has released a consultation paper and exposure draft legislation to give effect to the following superannuation taxation integrity measures it announced in the 2017–2018 Federal Budget:

  • the non-arm's length income (NALI) rules in s 295-550 of the Income Tax Assessment Act 1997 for related-party superannuation fund transactions will be expanded from 1 July 2018 to also include expenses not incurred that would normally be expected to apply in a commercial arm's length transaction (eg reduced interest expenses, brokerage, accountancy fees or legal costs); and
  • a member's share of the outstanding balance of a limited recourse borrowing arrangement (LRBA) will be included in the member's "total superannuation balance" for new LRBAs entered into on or after 1 July 2018.

The measures are designed to ensure that related-party transactions with super funds and LRBAs can't be used to circumvent the reduced contribution caps that apply from 1 July 2017. The changes should generally not affect LRBAs entered into with unrelated third parties for commercial rates of interest (and other expenses).

Learn more about this...


Guidance for SMSFs on transfer balance reporting 

The ATO has released further guidance on when SMSFs need to report events affecting their members' transfer balance accounts (by making a transfer balance account report, or TBAR) for the purposes of the $1.6 million pension cap.

From 1 July 2018, SMSFs that have any members with a total superannuation balance of $1 million or more must report events impacting that member's transfer balance account within 28 days after the end of the quarter in which the event occurs.

SMSFs where all members have total super balances of less than $1 million can choose to report events which impact their members' transfer balances at the same time that the fund lodges its annual return.

The guidance also covers reporting requirements for retirement phase income streams and commutations (including commutation authorities).

Learn more about this...

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  • Our firm is built on being attentive to and extensively knowledgeable about our clients so we can work with them to help them to both achieve their goals and protect them from risk. We are forward looking in our advice and always aim to be practical and right.
    - Martin Roughley, Managing Director
  • In business, there is so much going on and you don’t always have all the answers. That’s when you need to know who to call. Our clients call us.
    - Shaun Madders, Director
  • Going beyond the compliance and routine is what we do. By maintaining open and frank communication we are able to provide valuable insights and assist in driving the changes required to help our clients achieve their goals.
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