Pay slips ensure that employees receive the correct pay and entitlements and help employers to keep accurate and complete
When are pay slips given?
Pay slips have to be given to an employee within 1 working day of pay day, even if an employee is on leave.
How are pay slips given?
Pay slips have to be in either electronic form or hard copy. Electronic pay slips must have the same information as paper pay slips.
What has to be on a pay slip?
Pay slips and the JobKeeper scheme
Under the JobKeeper scheme, eligible employees have to be paid at least the amount of the JobKeeper payment per fortnight
($1500). Pay slips for these periods need to show any extra amount the employer paid the employee to make sure they
received at least the amount of the JobKeeper payment for the period.
For more information, visit Pay & the JobKeeper scheme (https://coronavirus.fairwork.gov.au/coronavirus-and-australian-workplace-laws/pay-and-leave-during-coronavirus/jobkeeper-wage-subsidy-scheme/pay-and-the-jobkeeper-scheme) .
Pay slips have to cover details of an employee’s pay for each pay period. Below is a list of what to include:
– employer’s and employee’s name
– employer’s Australian Business Number (if applicable)
– pay period
– date of payment
– gross and net pay
– if the employee is paid an hourly rate:
– the ordinary hourly rate
– the number of hours worked at that rate
– the total dollar amount of pay at that rate
– any loadings (including casual loading), allowances, bonuses, incentive-based payments, penalty rates or other paid entitlements that can be separated out from an employee’s ordinary hourly rate. For example, a note could be included on a pay slip that the hourly rate incorporates the relevant casual loading.
– the pay rate that applied on the last day of employment
– any deductions from the employee’s pay, including:
– the amount and details of each deduction
– the name, or name and number of the fund / account the deduction was paid into
– any superannuation contributions paid for the employee’s benefit, including:
– the amount of contributions made during the pay period (or the amount of contributions that need to be made)
– the name, or the name and number, of the superannuation fund the contributions were made to.
Should leave balances be on a pay slip?
While it’s best practice to show an employee’s leave balances on their pay slip, it’s not a requirement. Employers do need to tell employees their leave balances if they ask for it.
Requests for pay slips
If as an employee, you don’t receive a pay slip, we encourage you to talk to your employer. Check out our online learning course on having difficult conversations (www.fairwork.gov.au/how-we-will-help/online-training/online-learning-centre/difficult-conversations-in-theworkplace-employee-course) for tips on how to approach your employer.
Employers who give proper pay slips are able to keep good records that can be easily found if needed.
What happens if pay slips aren’t given, or don’t have the right information on them?
Fair Work Inspectors can give employers a fine, called an infringement notice (www.fairwork.gov.au/about-us/our-role/enforcingthe-legislation/infringement-notices) , if they:
– don’t include the right information on a pay slip
– don’t issue pay slips at all or within 1 working day of paying employees.
It is unlawful for employers to give pay slips that they know are false or misleading.
Employers can also be penalised if we choose to take a matter to court (www.fairwork.gov.au/about-us/our-role/enforcing-the-legislation/litigation) . In some cases employers who have not given pay slips may have to prove to a court that they didn’t underpay an employee.
Best practice tips
– Issue pay slips in an easily printable format
– Make sure employees can access and print their pay slips in private
– Pay slips should be written in plain English that is simple to understand
Think a mistake might have been made?
Mistakes can happen. The best way to fix them usually starts with talking.
Check out our Help resolving workplace issues (www.fairwork.gov.au/how-we-will-help/how-we-help-you/help-resolving-workplace-issues/default) section for practical advice on:
– figuring out if a mistake has been made
– talking to your employer or employee about fixing it
– getting help from us if you can’t resolve it.
Help for small business
Find tools, resources and information you might need on our Small business page (www.fairwork.gov.au/Find-help-for/Smallbusiness/default) .
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ATO to ramp up ABN investigations and cancellations
As part of the ATO’s work to ensure the integrity of the Australian Business Register, it investigates the business activities of Australian Business Number (ABN) holders when it seems their ABN is no longer being used – for example, if business income isn’t being reported, or where the Australian Securities and Investments Commission (ASIC) deregisters a company. The ATO may then cancel the ABN where there’s sufficient evidence the business is inactive. An ABN will also be cancelled when the taxpayer themselves advises they’ve stopped their business activities, or when they lodge their final tax return.
The ATO is ramping up its focus on cancelling inactive ABNs over the coming months, saying it’s refined its models to help identify businesses that are no longer active or whose owners have forgotten to cancel their ABN when they ceased business.
If an ABN is cancelled and the holder is still running a business, or an ABN application is refused, the taxpayer can object to the decision within 60 days.
TIP: If your ABN seems to be inactive, the ATO may ask you for evidence that you’re setting up or still running a business. We can help you with putting together this information, or with applying to have your ABN reinstated if it’s incorrectly cancelled.
Fringe benefits tax: rates, thresholds and ATO focus for 2019–2020
The ATO has issued its annual rulings about rates and thresholds that apply for the new FBT year (1 April 2019 to 31 March 2020), including the benchmark interest rate, the cents-per-kilometre amounts for calculating the value of a fringe benefit from private use of a motor vehicle other than a car, the threshold for the FBT record-keeping exemption, state-by-state amounts for valuing housing benefits, and the the weekly amounts the ATO considers reasonable for food and drink expenses incurred by employees who receiving a living-away-from-home allowance.
Tip: We can help you reduce your business’s FBT liability with useful strategies like providing employee benefits that are tax-deductible or FBT-exempt, using employee contributions or providing cash bonuses.
The ATO will focus on monitoring a range of FBT issues this year, including looking for employers who fail to report motor vehicle fringe benefits or incorrectly apply exemptions for vehicles; identifying mismatches between amounts on FBT returns and the income amounts on the employer’s tax return; looking for incorrect classifications of entertainment expenses; monitoring issues around car parking fringe benefits; and following up with taxpayers who don’t lodge FBT returns on time.
Guidance on when a company carries on a business
With reduced company tax rates available for some businesses in recent years, and changes in eligibility for capital gains tax (CGT) small business concessions, it’s become increasingly important for us to understand how the law and the ATO deal with concepts like “small business entity” and “carrying on a business”.
New guidance is now available on the types of factors the ATO considers when deciding whether a company “carries on a business in a general sense”, and how the scope and nature of the business come into play when the ATO determines the tax consequences of a company’s activities and transactions.
The guidance emphasises that it’s not possible to definitively state whether a company is carrying on a business, but it’s a question of fact that the ATO must decide on a case-by-case basis by looking at a range of indicators across the company’s features and activities. One key indicator is whether the company’s activities have the purpose of making a profit. The ATO accepts that where a profit-making purpose exists, it’s likely the other indicators will support a conclusion that the company carries on a business.
Super guarantee amnesty not yet law, but $100 million recovered
The ATO has recovered around $100 million in unpaid superannuation from employers since the 12-month super guarantee amnesty was proposed on 24 May 2018, even though the law hasn’t yet changed to put the amnesty in place.
At a Senate Economics Legislation Committee hearing in April, ATO Deputy Commissioner, Superannuation Mr James O’Halloran estimated that there has been a 10–15% increase in the number of employers coming forward to self-report unpaid super guarantee amounts in response to the announcement of the amnesty, despite it not yet being law. Mr O’Halloran said 19,000 employers have come forward within the normal super guarantee charge process for reporting unpaid contributions.
The Bill to implement the amnesty lapsed on 11 April when the Federal Election was called, so the ATO must keep applying the existing law. This means employers who make a voluntary disclosure of historical non-compliance won’t be entitled to the proposed concessional treatment, unless and until the amnesty is legislated by a future Parliament. The ATO has said if this eventually happens, it will apply the new law retrospectively to voluntary disclosures made up until 23 May 2019.
Tip: Employers who’ve missed a super payment or haven’t paid employees’ super on time must lodge a superannuation guarantee charge statement and, while the current law applies, pay all of the relevant amounts, including interest and administration fees.
Instant asset write-off with Budget changes now law
Changes to the instant asset write-off rules have now become law, including measures recently announced in the government’s Federal Budget.
The write-off has been extended to medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million), where it previously only applied to small business entities (with aggregated annual turnover of less than $10 million).
The second important change is that the instant asset write-off threshold increases to $30,000, where it was previously $25,000.
The changes apply from 2 April 2019 to 30 June 2020, and the write-off works on a per-asset basis, so eligible businesses can instantly write off multiple assets.
Rental deductions: ATO audits to double
The ATO has warned that it will increase its scrutiny of rental-related deductions this year. It says some people are still claiming travel to residential rental properties, but from 1 July 2017 taxpayers (aside from excluded entities) have no longer been permitted to claim tax deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
The ATO expects to more than double the number of its in-depth audits this year to 4,500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing.
Shortfall penalties reduced under new ATO initiative
The ATO has heard from community and tax professionals that people should have a chance to correct their mistakes when they get their tax wrong, provided there isn’t dishonest intent behind their errors, and is taking a new approach that seems to be having positive effects.
Under this new approach, if the ATO finds an error on a tax return or an activity statement during an audit or review, the taxpayer may be eligible for automatic penalty relief. This means the ATO will show the taxpayer where they made the error, won’t apply a penalty and will educate the taxpayer on getting it right in future.
In the first six months of the initiative, the ATO has assisted thousands of people and small businesses and individuals with errors on their tax returns or activity statements, and shortfall penalties for “failure to take reasonable care” and “not having a reasonably arguable position” have been reduced by 89.2% for individuals and 83.8% for small businesses.
How the ATO identifies wealthy individuals and their businesses
The ATO uses sophisticated data matching and analytic models, drawing on tax returns and referrals from other government agencies or the community, to identify wealthy and high wealth individuals and link them to associated businesses. Given the importance of this group to community confidence in the tax and super systems, the ATO says it has an ongoing focus on engaging with such taxpayers, letting them know what information the ATO holds about them, and offering assistance and services to help “get things right up front”. This early engagement is part of the ATO’s commitment to improving the client experience, increasing transparency and reducing red tape
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Things to get right this FBT season
Fringe benefits tax (FBT) returns will soon be due and as always, it’s vital to make sure you use the latest rates and rely on the correct information.
FBT rates have recently been updated for the year, and a range of other factors may be need to be considered, including using the best car parking valuations, correctly identifying which travel expenses are deductible, considering how FBT applies to your arrangements with employees and independent contractors, and making sure you keep within the entertainment benefits rules. Another issue to keep an eye on is employees’ private use of work vehicles.
Tip: We can provide advice on these matters and more, and help get your FBT return lodged on time.
Tax concierge service available to small businesses
The Small Business Ombudsman, Kate Carnell, has announced that taxpayers wanting an external review of an adverse tax decision by the ATO through the Administrative Appeals Tribunal (AAT) can now contact the office of the Australian Small Business and Family Enterprise Ombudsman for assistance.
From 1 March 2019, small business owners without legal representation can access an hour with an experienced small business tax lawyer at a significantly reduced cost, subsidised by the office of the Ombudsman. Lawyers can review relevant documents and provide advice on the viability of an appeal. And should an appeal progress, the Ombudsman’s case managers will help the small business owner through the process.
Small business taxation decisions will be finalised within 28 days from the date of a hearing at the AAT.
ATO small business benchmarks updated
The ATO has released its latest small business benchmarks, providing over 100 different industries with average cost of sales and average total expenses. Businesses can see clearly what the relevant benchmarks are for their industry. The benchmark data is drawn from over 1.5 million small businesses around Australia.
Business owners can use the benchmarks to gauge the strength of their business and keep an eye on their competition.
The benchmarks also help the ATO identify small businesses that may be doing the wrong thing and not properly reporting some or all of their income.
Tip: Using the business performance check tool in the ATO app is the quickest and easiest way to work out how your small business compares to the benchmarks. Search for “Australian Taxation Office” on the App Store or Google Play.
Early recovery of small business tax debts: ATO to be scrutinised
Minister for Small and Family Business Michaelia Cash has asked Australian Small Business and Family Enterprise Ombudsman Kate Carnell to look into the ATO’s practices in pursuing early recovery of tax debts from small businesses who are in dispute with the ATO.
The Minister said she was determined to make sure the ATO treats small businesses fairly.
“Early recovery can be devastating for a small business, and is particularly damaging when the small business disputes the recovery and then goes on to win the case,” she said.
The Ombudsman will look into the extent of the problem to gather a holistic picture of how current systems impact people running small businesses. The scrutiny will focus on historical cases and will not include live cases currently before the Administrative Appeals Tribunal.
Compensation for defective ATO administration: review announced
Mr Robert Cornall, a former Secretary of the Attorney-General’s Department, will lead a review of the Scheme for the Compensation for Detriment Caused by Defective Administration (the CDDA Scheme).
The CDDA Scheme allows Commonwealth Government agencies (including the ATO) to pay discretionary compensation when a person or an organisation suffers as a result of defective administration but there is no legal requirement to make a payment.
Mr Cornall’s review will consider the consistency of the ATO’s CDDA Scheme processes for small businesses, the timeliness of decisions, how effectively findings are communicated, how independent decision-making can be best achieved in future, and the adequacy of compensation for small businesses that have suffered an economic and/or personal loss as a consequence of the ATO’s actions.
Single Touch Payroll: low-cost solutions now available
Single Touch Payroll (STP) is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. STP reporting started gradually from 1 July 2018, and it will be required for all small employers (with fewer than 20 employees) from 1 July 2019.
A range of no-cost and low-cost STP solutions are now coming into the market. The solutions are required to be affordable (costing less than $10 per month), take only minutes to complete each pay period and not require the employer to maintain the software. They will best suit micro employers (with one to four employees) who need to report through STP but do not currently have payroll software.
Super guarantee amnesty not yet law: ATO will apply existing law
The ATO reminds businesses to be aware that under the current law, if they have missed a superannuation payment or haven’t paid employees’ super on time, they are required to lodge a superannuation guarantee (SG) charge statement.
Until law giving effect to the proposed superannuation guarantee amnesty is enacted, the ATO says it will continue to apply the existing law, including applying the mandatory administration component ($20 per employee per period) to SG charge statements lodged by employers.
The Bill containing the amnesty was still before the Senate when Parliament most recently concluded on 22 February 2019.
If it is eventually passed into law, the proposed amnesty will be a one-off opportunity for employers to self-correct their past SG non-compliance without penalty. It is intended to be available for 12 months from 24 May 2018 to 23 May 2019. The ATO will apply the new law (if it is passed) retrospectively to eligible voluntary disclosures made during this period.
ATO finds 90% error rate in sample of rental property claims
ATO Commissioner Chris Jordan has advised that as part of the ATO’s broad random enquiry program, its auditors have recently completed over 300 audits on rental property tax deduction claims and “found errors in almost nine out of 10 returns reviewed”.
The ATO is seeing incorrect interest claims for entire investment loans where the loan has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.
The ATO’s next area of focus will be rental income and related deductions, to help taxpayers report the right information, claim only the amounts they are entitled to, and “close the tax gap”.
Property used for storage an active asset for small business CGT concession purposes
The Administrative Appeals Tribunal (AAT) has decided that a property a small business owner used to store materials, tools and other equipment was an active asset for the purpose of the small business capital gains tax (CGT) concessions.
The taxpayer carried on a business of building, bricklaying and paving through a family trust. He owned a block of land used to store work tools, equipment and materials, and to park work vehicles and trailers. There was no business signage on the property.
After the property was sold in October 2016, the ATO issued a private ruling that the taxpayer was not entitled to apply the small business CGT concessions to the capital gain because the property was not an “active business asset”. However, the AAT concluded that the business use of the land was far from minimal, and more than incidental to carrying on the business. This meant the CGT concessions could be applied.
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Single Touch Payroll reporting for small businesses: get ready!
STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. For large employers (with 20 or more employees), STP reporting started gradually from 1 July 2018, and until now it has been optional for small employers.
ATO Commissioner Chris Gordon has said he wants to “reassure small business and give my personal guarantee that our approach to extending Single Touch Payroll will be flexible, reasonable and pragmatic”.
The basics of STP reporting
- With STP reporting, employers no longer need to provide payment summaries to employees for payments reported through STP. Payments not reported through STP, like employee share scheme (ESS) amounts, still need to be reported on a payment summary.
- Employers no longer need to provide payment summary annual report (PSARs) to the ATO at the end of the financial year for STP reported payments.
- Employees can view their year-to-date payment information using the ATO’s online services, accessible through their myGov account, or can ask the ATO for a copy of this information.
- Employers need to complete a finalisation declaration at the end of each financial year.
- Employers need to report employees’ super liability information for the first time through STP. Super funds will then report to the ATO when the employer pays the super amounts to employees’ funds.
- From 2020, the ATO will pre-fill some activity statement information for small to medium withholders with the information reported through STP. Employers that currently lodge an activity statement will continue to do so.
TIP: Contact us today for more information about STP for your business.
Super guarantee compliance:
time to take action
The government’s latest initiatives targeting non-compliance with superannuation guarantee (SG) obligations give businesses plenty to think about. With Single Touch Payroll on the way for small businesses, all employers should take time to review their arrangements for paying employees’ super.
The government is proposing a 12-month “amnesty” for employers to voluntarily disclose and correct any historical underpayments of SG contributions for any period up to 31 March 2018 without incurring penalties or the usual administration fee. This is provided the ATO hasn’t already commenced a compliance audit of that employer. Additionally, employers will be entitled to claim deductions for the catch-up payments they make under the amnesty.
Tip: It’s an important time for businesses to get their SG affairs in order. If you’re an employer with outstanding underpayments of SG contributions, we can assist with the process of making a voluntary disclosure to the ATO.
Proposed increase for small business instant asset write-off
Prime Minister Scott Morrison recently announced the government’s intention to increase the instant asset write-off already available for small businesses from $20,000 to $25,000. Mr Morrison also said that the instant write-off would be extended by another 12 months to 30 June 2020. These measures are expected to benefit more than three million eligible small businesses to access the expanded accelerated depreciation rules for assets costing less than $25,000.
Labor has previously proposed an “investment guarantee” giving all businesses an immediate 20% tax deduction from 1 July 2020 for any new eligible asset worth more than $20,000. This would be a permanent accelerated depreciation measure so that businesses could continue to take advantage of an immediate 20% tax deduction when investing in an eligible asset.
ATO warns about new scams
The ATO is warning taxpayers to be alert for scammers impersonating the ATO, using a range of new ways to get taxpayers’ money and personal information.
While the ATO regularly contacts people by phone, email and SMS, there are some tell-tale signs that you’re being contacted by someone who isn’t with the ATO. The ATO will never:
- send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
- use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
- request payment of a debt using iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
- ask you to pay a fee in order to release a refund owed to you.
ATO refers overdue lodgments to external collection agencies
The ATO has recently started referring taxpayers with overdue lodgment obligations to an external collection agency to obtain lodgments on the ATO’s behalf. External collection agencies will focus on income tax and activity statement lodgments, and referral to an external collection agency doesn’t affect a taxpayer’s credit rating.
If your case is referred to a collection agency, the ATO will notify you in writing before phoning you or your authorised contact to negotiate lodgment of the overdue documents and request payment of any debt.
Tip: If your tax return or other ATO paperwork is overdue, don’t panic! We can help work out what you need to do next, and even make arrangements with the ATO on your behalf.
Government consultation on sharing economy reporting
The government has released a consultation paper seeking views on a possible reporting regime to provide information on Australians who receive income from sharing economy websites like Uber, Airtasker, Menulog and Deliveroo.
The ATO and other government agencies currently have limited information about the income of “gig workers” in the sharing economy, and the government’s Black Economy Taskforce recently recommended designing and implementing a compulsory reporting regime. Although there are a lot of issues still to consider, including costs and data privacy, a new regime could mean gig platforms, payment processors or even banks may soon need to report to the ATO and other agencies on gig workers’ income.
Extra 44,000 taxpayers face Div 293 superannuation tax
An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017–2018. This is because the Div 293 income threshold was reduced to $250,000 for 2017–2018 (it was previously $300,000).
Individual taxpayers with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their concessional contributions.
Taxpayers have the option of paying the Div 293 tax liability using their own money, or electing to release an amount from an existing super balance, which means completing a Div 293 election form.
Company losses “similar business test” Bill passes
Legislation originally introduced in March 2017 to supplement the “same business test” with a more relaxed “similar business test” has finally been passed.The test will be used to work out whether a former company’s tax losses and net capital losses from previous income years can be used as a tax deduction for a new business in a current income year. It also is relevant to whether a company joining a consolidated group can transfer its losses to the head company of the consolidated group.
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Tax clinic trial to reduce tax regulatory burden
To help reduce the regulatory burden on businesses, including the tax burden, the government has allocated $1 million to set up 10 tax clinics across Australia under a trial program based on the Curtin University Tax Clinic.
Each clinic will receive up to $100,000 for 12 months to support unrepresented individual or small business taxpayers by providing general taxation advice and helping them with their tax obligations and reporting requirements. The clinics, through identifying issues and building greater understanding of the tax system in operation, are also designed to improve the interactions that small businesses and individual taxpayers have with the ATO.
The clinics will cover advice, representation, education and advocacy, and will offer students training in the profession the opportunity to work with taxpayers, under the direct supervision of qualified tax professionals.
New “work test” exemption for recent retirees
The Federal Government has created a new opportunity for some recent retirees to make additional superannuation contributions. From 1 July 2019, a 12-month exemption from the “work test” for newly retired individuals aged between 65 and 74 years with a total superannuation balance below $300,000 means many older Australians will now have an extra year to boost their superannuation savings.
The work test requires that a person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made.
The contributions rules are complex, but with the right planning and advice you can maximise your contributions into superannuation at the right time.
Tip: You should also consider other measures that may be available to you, such as “downsizer” contributions (certain contributions of proceeds from the sale of your home) and “catch-up” concessional contributions (accessing unused concessional cap space from prior years).
ATO issuing excess super contributions determinations
The ATO has begun issuing determinations to people who exceeded their concessional superannuation contributions cap for the 2017–2018 financial year. These determinations will also trigger amended income tax assessments and additional tax liabilities. Individuals can elect for the ATO to withdraw their excess contributions from their super fund to pay any additional personal tax liability.
Tip: Concessional contributions include all employer contributions, such as the 9.5% superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.
You have 60 days from receiving an ECC determination to elect to release up to 85% of your excess concessional contributions from your super fund to pay your amended tax bill. Otherwise, you will need to fund the payment using non-superannuation money.
Reviewing the tax treatment of granny flats
The Federal Government has asked the Board of Taxation to undertake a review of the tax treatment of “granny flat” arrangements, recommending potential changes that take into account the interactions between tax laws and the social security rules. This request for review is in response to the 2017 Australian Law Reform Commission’s report Elder abuse: a national legal response.
Currently, homeowners may have to pay capital gains tax (CGT) where there is a formal agreement, for example, for an older parent to live with their child, either in the same dwelling or a separate granny flat. This may deter families from establishing a formal and legally enforceable agreement, leaving no protection of the rights of the older person if there is a breakdown in the informal agreement.
Resolving tax disputes: government to help small businesses
The Federal Government intends to make it easier, cheaper and quicker for small businesses to resolve tax disputes with the ATO. It will establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal (AAT) process to small businesses before they make an application. The government will also create a dedicated Small Business Taxation Division within the AAT.
Small business tax offset: avoiding errors when claiming
The ATO has provided new tips for avoiding common errors when reporting net small business income and claiming the small business income tax offset for unincorporated small businesses. These include tips on reporting amounts in the right sections of your tax return, providing all of the relevant information, and using net income (not gross income) in your calculations.
The offset (up to $1,000) is worked out by the ATO on the proportion of income tax payable on an individual’s taxable income that is net small business income. For 2018–2019 and 2019–2020 the rate of offset is 8%.
Tip: Not sure if you’re making the most of the tax offset for your small business? We can help – contact us today to find out more.
Home office running expenses and electronic device expenses
The ATO has released an updated version of Practice Statement PS LA 2001/6, its guidance on calculating and substantiating home office running expenses and electronic device expenses that are claimed as tax deductions.
The basic principles have been amended to emphasise that you must actually incur the expenses you claim, and that there must be a real connection between your use of a home office or device and your income-producing work. On the other hand, the requirement that your income-producing use must be substantial – not merely incidental – has been removed.
There is new information on what type of evidence you need to be keep, and the cents per hour rate you can claim for eligible home office running expenses has increased from from 45 cents to 52 cents per hour, effective from 1 July 2018.
Genuine redundancy payments: alignment with Age Pension age
The Federal Government has announced that it will amend the law to extend the concessional tax treatment for genuine redundancy payments and early retirement scheme payments to align with the Age Pension qualifying age.
Currently, an individual must be aged below 65 at the time their employment is terminated to qualify for a tax-free component on a genuine redundancy payment or an early retirement scheme payment.
Tip: Genuine redundancy payments are made when a job is abolished, and early retirement scheme payments are made when a person retires early, or resigns, as part of a scheme put in place by an employer.
Where an individual is under age 65 and meets the requirements of the Income Tax Assessment Act 1997, they receive tax-free a base amount of $10,399 (for 2018–2019), plus $5,200 for each whole year of service.
The government says it will amend the law to align genuine redundancy and early retirement scheme payments with the Age Pension qualifying age from 1 July 2019.
GST on property developments involving government
The ATO says it is reviewing arrangements involving property developers acquiring land from government entities, specifically where the developer provides development works to the government entity as payment for the land.
The ATO is concerned that some developers and government entities are not reporting the value of their supplies under these arrangements in a consistent manner, resulting in GST being underpaid.
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Work-related tax deductions down for 2018
The ATO has reported a decline in the overall value of work-related deductions for tax time 2018. In his opening statement to Senate Estimates on 24 October 2018, Commissioner Chris Jordan said taxpayers appear to be taking extra care when claiming work-related expenses in their 2017–2018 income tax returns. This follows recent ATO awareness and education efforts to close the income tax gap for individuals.
ATO identifies 26,000 incorrect rental property travel expense claims
The ATO has identified 26,000 taxpayers who have claimed deductions during tax time 2018 for travel to their investment residential rental properties, despite recent changes to tax laws.
From 1 July 2017, investors cannot claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, subject to certain exceptions. An exclusion does apply for this restriction if the expenditure is necessary for the income-producing purposes of carrying on a business (for example, a rental property business), or if the costs are incurred by an “excluded entity”.
Small business corporate tax rates Bill is now law
The company tax rate for base rate entities will now reduce from 27.5% to 26% in 2020–2021, and then to 25% for 2021–2022 and later income years. This means eligible corporate taxpayers will pay 25% in 2021–2022, rather than from 2026–2027.
The new law also increases the small business income tax offset rate to 13% of the basic income tax liability that relates to small business income for 2020–2021. The offset rate will then increase to 16% for 2021–2022 and later income years.
The maximum available amount of the small business tax offset does not change – it will stay capped at $1,000 per person, per year.
GST reporting: common errors and how to correct them
Some businesses are making simple mistakes reporting their GST. The ATO reminds taxpayers that avoid the following common GST reporting errors:
- transposition and calculation errors – these mistakes often happen when manually entering amounts, so it’s important to double-check all figures and calculations before submitting your BAS;
- no tax invoice – you must keep tax invoices to be able to claim GST credits on business-related purchases;
- transaction classifications – it’s important to check what GST applies for each transaction; for example, transactions involving food may be GST applicable; and
- errors in accounting systems – a system with one coding error can classify several transactions incorrectly.
Government announces super refinements
The Government has announced it will amend the super tax laws to address some minor but important issues, as part of the ongoing super reforms. The changes include:
- deferring the start date for the comprehensive income product for retirement (CIPR) framework;
- adjusting the definition of “life expectancy period” to account for leap years in calculations, and amending the pension transfer balance cap rules to provide credits and debits when these products are paid off in instalments;
- adjusting the transfer balance cap valuation rules for defined benefit pensions to deal with certain pensions that are permanently reduced after an initial higher payment;
- correcting a valuation error under the transfer balance cap rules for market-linked pensions where a pension is commuted and rolled over, or involved in a successor fund transfer;
- making changes to ensure that death benefit rollovers involving insurance proceeds remain tax-free for dependants.
CGT on grant of easement or licence
Taxation Determination TD 2018/15, issued on 31 October 2018, considers the capital gains tax (CGT) consequences of granting an easement, profit à prendre or licence over an asset.
In the ATO’s view, CGT event D1 (creating contractual or other rights) rather than CGT event A1 (disposing of an asset) happens when any of the following rights are granted over an asset:
- an easement, other than one arising by operation of the law;
- a right to enter and remove a product or part of the soil from a taxpayer’s land (a profit à prendre); or
- a licence (which does not confer the exclusive right to possess the land).
First Home Super Saver scheme and downsizer super contributions: ATO guidance
In November 2018, the ATO issued a Super Guidance Note to provide people with general information about how the First Home Super Saver (FHSS) scheme works. The guidance note explains who is eligible to use the scheme, the kind of contributions that can be made and then released from super for buying a first home, how to apply to the ATO for a FHSS determination, and the requirement to purchase a house.
The ATO also issued guidance on the recently enacted downsizer superannuation contribution measures, which allow people aged over 65 to contribute the proceeds from selling certain property into their super.
ATO scam alert: fake demands for tax payments
Although tax time 2018 is over, the ATO has warned taxpayers and their agents to remain on high alert for tax scams. Scammers are growing increasingly sophisticated and hope to exploit vulnerable people, often using aggressive tactics to swindle people out of their money or personal information.
Be wary if anyone contacts you demanding payment of a tax debt that you didn’t know about. The ATO will never ask you to make a payment into an ATM or using gift or pre-paid cards such as iTunes and Visa cards, and will never you to deposit funds into a personal bank account.
TIP: Scammers have been known to impersonate tax agents as well as ATO staff. If you have any doubts about the legitimacy of a phone call or other communication, you can call the ATO directly (toll free) on 1800 888 540.
Government to establish $2 billion fund for small business lending
The Government has announced that it will establish a $2 billion Australian Business Securitisation Fund and an Australian Business Growth Fund to provide longer-term equity funding for small businesses.
Treasurer Josh Frydenberg has said some small businesses currently find it difficult to obtain finance on competitive terms unless it is secured against real estate. To overcome this, the proposed Australian Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.
ATO information-sharing: super assets in family law proceedings
Superannuation is often the most significant asset in a separated couple’s property pool, particularly for low-income households with few assets. Parties to family law proceedings are already legally required to disclose all of their assets to the court, including superannuation, but in practice parties may forget, or deliberately withhold, information about their super assets.
The Government has announced an electronic information-sharing mechanism to be established between the ATO and the Family Law Courts to allow superannuation assets held by relevant parties during family law proceedings to be identified swiftly and more accurately from 2020. This measure was included as part of a broader financial support package for women announced on in November.
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Transfer balance cap: ATO highlights admin issues
On 30 August 2018, ATO Assistant Commissioner Superannuation Tara McLachlan gave a speech on “Administration issues under the transfer balance cap” at the Tax Institute Sixth National Superannuation Conference.
TIP: The superannuation transfer balance cap is a limit on the total amount of super that you can transfer into retirement phase. The current cap is $1.6 million.
Ms McLachlan highlighted several issues regarding common superannuation events that will need to be reported to the ATO (such as the start of new pensions that began to be in retirement phase on or after 1 July 2017), multiple transfer balance events, excess transfer balance determinations and more.
Australian Small Business White Paper: tax reform a key
After more than 18 months of extensive research and consultation, the Institute of Public Accountants (IPA) and the IPA Deakin SME Research Centre have released the second edition of the Australian Small Business White Paper.
“Numerous policy recommendations have been adopted from the first edition which was launched in 2015. However, we recognise that the state of our economy is reliant on the productivity, growth and prosperity of the small business sector, so this work must be ongoing”, said IPA CEO Professor Andrew Conway.
The Paper covers a range of topics, including productivity, regulation and workplace relations, and makes several tax reform recommendations relevant to small businesses and personal income tax.
ATO expects 200,000 to miss out on refunds by failing to lodge
The ATO expects that 200,000 people could miss out on a tax refund this year because they haven’t lodged a tax return.
Assistant Commissioner Kath Anderson has said that many salary and wage earners end up with a tax refund, but some are missing out because they fail to lodge on time.
Taxpayers had until 31 October to either lodge their own return, or ensure they are on an agent’s books, Ms Anderson said. Failing to lodge by the deadline can attract a penalty of $210 for every 28 days that the return is overdue, up to a maximum of $1,050.
TIP: Have you run out of time to sort out your tax return this year? We’re here to help – get in touch to talk about your options.
Black economy: electronic sales suppression tools now banned
Activities involving electronic sales suppression tools (ESSTs) and that relate to people or businesses with Australian tax obligations are now legally banned under recent changes to the law.
ESSTs come in many forms, such as:
- an external device connected to a point of sale (POS) system;
- additional software installed into otherwise-compliant software; or
- a feature or modification, like a script or code, that’s part of a POS system or software.
These tools generally misrepresent or hide income by deleting or changing electronic transaction information, and falsifying sales or POS records.
TIP: The ATO recognises some businesses may have bought POS software without knowing it contains suppression functions. There is a grace period to self-report without penalty. If you think you may be affected, contact us to find out more.
People and businesses may face penalties of up to $1 million if they produce, supply, possess or use an ESST or knowingly assist others to do so.
Super work test exemption for recent retirees
The Government has released draft legislation and regulations to provide a one-year exemption from the work test for superannuation contributions by recent retirees aged 65–74 who have a total superannuation balance of less than $300,000. This proposal was announced in the 2018–2019 Budget.
Currently, people aged 65–74 must pass the “work test” – working at least 40 hours in any 30-day period during the financial year – in order to make voluntary super contributions.
Bringing forward small business tax cuts by five years
The Prime Minister has announced that the Government will bring forward its planned tax cuts for small business by five years. The Labor Party has also indicated it supports bringing forward the tax cuts.
This means businesses with a turnover below $50 million will pay a tax rate of 25% in 2021–2022, rather than from 2026–2027 as currently legislated.
Corporate tax rates and small business tax offset changes
The Bill to accelerate the reduced tax rates for base rate entities has passed through Parliament and will soon become law. Under the new law, the corporate tax rate will reduce from 27.5% to 26% in 2020–2021, before being cut to 25% for 2021–2022 and later income years.
The new law also increases the small business income tax offset rate to 13% for 2020–2021. The offset will then increase to 16% for 2021–2022 and later income years.
TIP: A “base rate entity” is a company that receives less than 80% of its taxable income from “passive” sources such as dividends, franking credits, interest, royalties and rent.
Residential rental property travel expenses: ATO guidance
Since 1 July 2017, people, self managed super funds (SMSFs), “private” trusts and partnerships have not been permitted to claim non-business travel costs connected to residential rental properties as tax deductible. These costs also cannot form part of the cost base or reduced cost base of a capital gains tax (CGT) asset.
The ATO has released new guidance about this, including details about the legal meanings of “residential premises” and “carrying on a business”.
TIP: Not sure if you can deduct the costs of maintaining your investment rental property?
Talk to us today to work it out.
Tax on compensation received for inappropriate advice
On the heels of the banking and financial services Royal Commission, the ATO has published information about how tax applies for people who receive compensation from a financial institution that provided inappropriate advice and/or did not provide advice it should have. This can include compensation for the loss of an investment, or a refund of fees or interest.
Capital gains tax comes into play, and the compensation amount may count as part of your assessable income if it’s a refund of adviser fees that you’ve already claimed as a tax deduction.
TIP: Contact us if you’ve received compensation from your bank or adviser and need to know more.
ATO set to issue excess super contribution determinations
The ATO has started issuing excess concessional contributions (ECC) determinations for the 2017–2018 financial year. Superannuation fund members will receive these ECC determinations if they have made super contributions above the concessional cap amount for 2017–2018.
TIP: “Concessional” contributions are taxed at the reduced rate of 15% in your super fund, but there’s a limit to how much you can contribute at this rate ($25,000 for 2017–2018).
Fund members may also receive an amended income tax return assessment together with the ECC determination, and may need to pay additional amounts to the ATO. This is because any super contributions you make over the concessional cap need to be included in your assessable income for the financial year, and an interest charge applies.
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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
The ATO has announced that public examinations started in a Federal Court matter on 27 August 2018 in relation to a group of entities connected to a pre-insolvency advisor. The examinations will focus on the suspected promotion and facilitation of phoenix activities and tax schemes.
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
On 24 August 2018, the Royal Commission into banking, superannuation and financial services misconduct released the closing submissions, totalling over 200 pages, that set out possible contraventions by certain superannuation entities.
The evidence surrounding these alleged breaches was revealed during the fifth round of public hearings, when high-level executives of some of the largest superannuation funds were grilled about practices that may involve misconduct or fall below community expectations.
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.
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 Assistant Commissioners, Superannuation, Tara McLachlan and Dana Fleming recently spoke at the SMSF Association Technical Days in various capital cities. The speech was mainly about practical considerations to be taken into account when setting up a new self managed superannuation fund (SMSF) and during the first year of its operation. Other issues raised included SMSF registrations, annual return lodgements, SuperStream SMSFs and exempt current pension income and actuarial certificates.
ATO data analytics and prefilling help tax return processing
The ATO reports that a record number of tax returns have been finalised in the first two months of this year’s “tax time” period, thanks to prefilling of tax return data and the ATO’s correction of mistakes using analytics and data-matching. Over $11.9 billion has been refunded to taxpayers, and errors worth more than $53 million were detected and corrected before refunds were issued.
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.
TIP: 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
The House of Representatives Standing Committee on Tax and Revenue has tabled its 242-page report on taxpayer engagement with the tax system. This significant report covers issues that have also been canvassed in previous tax reform reviews such as the Australia’s Future Tax System Review and the Henry Review.
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 Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 has now passed through Parliament without amendment.
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.
Cyptocurrency and tax: updated guidelines
The ATO says that for taxpayers carrying on businesses that involve transacting with cryptocurrency, the trading stock rules apply, rather than the capital gains tax (CGT) rules.
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
In the opening address to the Chartered Accountants Australia and New Zealand National SMSF Conference in Melbourne on 18 September 2018, James O’Halloran, ATO Deputy Commissioner, Superannuation, shared some observations and advice from the ATO’s perspective as regulator for the SMSF sector. He spoke about matters including the crucial role of fund trustees, the ATO’s activities to address behaviour that seeks to take advantage of SMSFs, what sort of SMSF events attract close ATO scrutiny, and issues relating to the use of multiple SMSFs to manipulate tax outcomes.
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Super sector must address trust deficit
In a speech to the Financial Services Council Summit on 26 July 2018, Australian Securities and Investments Commission (ASIC) Chair James Shipton said the superannuation sector must restore the “trust deficit” and be more mindful of the responsibilities that come with being the custodians of other people’s money. Mr Shipton said the super industry has been exploiting opportunities to make money from members, citing examples of conduct that could lead to poor member outcomes, including poor advice, treatment of customers and defensiveness when it came to transparency about fund operations.
Mr Shipton said there is an urgent need for super funds to invest in systems, procedures and policies that can quickly identify emerging conduct and systemic issues. A recent ASIC review of 12 banking groups found that it took an average of four years between an issue occurring and being identified internally for investigation, before a significant breach report was finally lodged with ASIC.
Call to boost instant asset write-off to $100,000
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has called for the $20,000 instant asset write-off for small businesses to be embedded in legislation and extended up to $100,000 every three years. Ms Carnell said increasing the instant asset write-off to $100,000 every three years would enable small businesses with higher costs for key equipment to participate.
These recommendations stem from the Ombudsman’s November 2017 paper, Barriers to investment: a study into factors impacting small to medium enterprise investment.
Tax return required for excess super non-concessional contributions
The ATO has reminded taxpayers that they need to lodge a tax return for any financial year in which they exceed their non-concessional contributions cap,and that making excess contributions may lead to having to pay extra tax.
The annual non-concessional cap for individuals is $100,000 (or $300,000 over three years for people aged under 65), provided you have a total superannuation balance of less than $1.6 million at 30 June of the prior year. The ATO determines if you have exceeded the non-concessional cap by looking at your date of birth and the information reported by your super funds and in your tax return.
Taxpayers who go over the non-concessional cap can withdraw the excess non-concessional contributions (plus 85% of the associated earnings). The full amount of the earnings (100%) are then included in the taxpayer’s assessable income (and subject to a 15% tax offset). If an individual does not withdraw the excess contributions they are taxed at the top marginal tax rate (plus the Medicare levy).
APRA’s response to Productivity Commission draft report
The Australian Prudential Regulation Authority (APRA) has released its submission in response to the Productivity Commission’s draft report on superannuation efficiency and competitiveness. APRA agreed with a number of the Commission’s findings and the direction of many, but not all, of the recommendations in the draft report.
However, APRA has rejected the Commission’s claim that APRA’s powers and role, and their significant overlap with the powers and role of the Australian Securities and Investments Commission (ASIC), have resulted in “confusing and opaque” regulatory arrangements, poor accountability and a lack of strategic regulation. APRA Deputy Chair Helen Rowell said APRA’s role is to administer the prudential and retirement income provisions of the Superannuation Industry (Supervision) Act 1993.
In that context, APRA is primarily responsible for ensuring that registrable superannuation entity (RSE) licensees manage their business operations to deliver quality member outcomes. By comparison, ASIC’s role is to oversee specific conduct obligations that apply to RSE licensees dealing with individuals in relation to disclosure, financial product advice and complaints.
Protecting Super Bill: Senate Committee report
The Senate Economics Legislation Committee has released its report on the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018, and has recommended that the Bill be passed.
The Bill, which is still before the Senate, contains the following measures to prevent the erosion of super balances:
- super fees capped at 3% per year for balances less than $6,000;
- exit fees banned for all super accounts, regardless of the balance;
- an insurance opt-in rule for:
- account balances less than $6,000;
- new members under age 25;
- accounts that have not received a contribution for 13 months; and
- inactive low-balance accounts (ie balance less than $6,000) will be transferred to the ATO.
First Home Super Saver scheme: ATO guidance
Law Companion Ruling LCR 2018/5, issued by the ATO on 15 August 2018, provides guidance on the First Home Super Saver (FHSS) scheme.
TIP: The FHSS scheme is designed to help eligible first-home buyers by allowing them to make voluntary superannuation contributions and then withdraw those amounts and associated earnings to use when purchasing a first home.
People who meet the eligibility criteria can access the scheme by applying to the ATO for a determination and a release authority. They must make superannuation contributions that are eligible for release under the scheme, namely voluntary concessional or non-concessional contributions that come within the relevant contributions cap.
There are limits on the amounts withdrawn ($15,000 per financial year and $30,000 in total, subject to the contribution caps).
ATO targeting car sharing platforms
The ATO has announced it will turn its attention to anyone earning income through car sharing platforms. ATO Assistant Commissioner Kath Anderson said there is evidence that some people who are undertaking sharing activities using third-party services such as Car Next Door, Carhood and DriveMyCar Rentals might not understand the taxation implications involved.
TIP: You must declare in your tax return any income you receive, and you cannot avoid tax by calling the car sharing a hobby.
While any car sharing expenses you claim as tax deductions must relate directly to the renting, hiring or sharing of your car, the Assistant Commissioner has said that most car sharers can legitimately claim deductions for costs like platform membership fees, availability fees, cleaning fees and car running expenses.
Delay in extending reportable payments to courier and cleaning services
The legislative logjam in Federal Parliament is affecting the implementation of a wide range of tax measures, and the ATO is having to implement some practical work-arounds.
In the 2017–18 Federal Budget the Government announced that from 1 July 2018, businesses that supply courier or cleaning services will need to report payments they make to contractors for courier or cleaning services. The payments must be reported to the ATO each year using the taxable payments annual report (TPAR). However, legislation to implement this is still before the Senate.
The ATO will not require TPARs to be lodged up until the law change is passed by Parliament. Taxpayers will be expected to keep sufficient business records to enable a TPAR to be prepared and lodged “as soon as is reasonably practicable after the law is enacted”.
GST: supplies of real property connected with Australia
GST Ruling GSTR 2018/1, issued on 22 August 2018, sets out the ATO’s view on when supplies of real property are connected with the indirect tax zone (Australia).
It states that a supply of real property is connected with Australia if the real property, or the land to which it relates, is in Australia. The ATO stresses that the test is the physical land’s location, not the location of the interest or right over the land. The supply of a right to accommodation in Australia also constitutes the supply of real property connected with Australia.
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Business lending practices in spotlight at Royal Commission
Bank lending practices for small and medium enterprises (SMEs) were in the spotlight when the Financial Services Royal Commission (FSRC) held its third round of public hearings in late May. These hearings focused on the conduct of financial services entities providing credit to SMEs.
SMEs are an important sector of the economy – over two million SMEs account for more than 65% of private sector employment. The Royal Commission considered issues with SME lending practices by reference to case studies involving ANZ, Bank of Queensland, CBA, Westpac and Suncorp.
The next round of the Royal Commission’s public hearings focuses on issues affecting people in remote and regional communities, including farming finance, natural disaster insurance, and interactions between Aboriginal and Torres Strait Islander people and financial services entities.
Personal tax cuts now law
The legislation to enact the Government’s seven-year personal income tax reform plan, as announced in the 2018 Federal Budget, passed Parliament on 21 June 2018.
Under the plan, a new non-refundable Low and Middle Income Tax Offset (LMITO) will be available from 2018–2019 to 2021–2022, providing tax relief of up to $530 to low-income individuals for each of those years. The new offset will be in addition to the existing low income tax offset (LITO). The top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000 from 1 July 2018.
In 2022–2023, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will also increase.
The top threshold of the 32.5% bracket will then increase from $90,000 to $120,000 from 1 July 2022.
The legislation passed without amendments, although some had been raised in the Senate that would have prevented increasing the top threshold of the 32.5% bracket from $120,000 to $200,000 from 1 July 2024, removing the 37% tax bracket completely. This third step of the seven-year plan will now go ahead under the new tax law. And finally, taxpayers will pay the top marginal tax rate of 45% for taxable income exceeding $200,000.
GST property settlement online forms available
From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions must pay the related GST directly to the ATO as part of the settlement.
The ATO says property transactions of new residential premises or potential residential land that involve GST to be paid directly to the ATO on or before settlement will require purchasers or their representatives to use the following online forms:
- Form one, GST property settlement withholding notification, is used to advise the ATO that a contract has been entered into for new residential premises or potential residential land that requires a withholding amount. This form can be submitted any time after a contract has been entered into and prior to the settlement date.
- Form two, GST property settlement date confirmation, is used to confirm the settlement date and can be submitted at the time of settlement and when the payment has been made to the ATO.
Depending on which state or territory the property is acquired in, the purchaser’s representative can include a conveyancer or a solicitor.
Major ATO focus on work-related clothing and laundry this tax time
This tax time, the ATO will be closely examining claims for work-related clothing and laundry expenses. Clothing claims are up nearly 20% over the last five years and the ATO believes many taxpayers are making mistakes or deliberately over-claiming. Around a quarter of all clothing and laundry claims in recent years were exactly $150 – the amount claimable without a specific requirement to keep detailed records about the work-related clothing expenses.
TIP: The ATO has issued a stern reminder that the $150 threshold is not a “safe amount” that everyone can claim. We can help make sure your tax return claims are done right – contact us to find out more.
Advisory Board to help clamp down on the black economy
The Government is establishing a new Advisory Board to support its reform agenda to disrupt the black economy.
The term “black economy” refers to people and businesses who operate outside the tax and regulatory systems, or who are known to the authorities but do not correctly report their tax obligations.
The Advisory Board will include members of the private and public sector who will provide strategic advice and contribute to a report every five years about new threats emerging in the black economy.
The Government’s related actions to date have included a $10,000 limit on cash transactions, a comprehensive strategy to combat illicit tobacco, reforms to the ABN system, restricting government procurement to businesses that have acceptable tax records, and $315 million in additional funding to the ATO to increase its enforcement activity against black economy behaviour.
Superannuation system: Productivity Commission draft report
The Productivity Commission has released a draft report that recommends a range of changes to improve Australia’s superannuation system.
With default funds being tied to the employer and nsot the employee, many people end up with another super account every time they change jobs. Currently, a third of accounts (about 10 million) are unintended multiples, meaning that Australians pay excess fees and insurance premiums totalling $2.6 billion every year. According to the Commission, fixing these problems would lift retirement balances for members across the board – for example, a new workforce entrant today could earn around $407,000 more by the time they retire in 2064.
Tip: The end of the financial year is a good time to take a closer look at your super arrangements. Do you need to roll together accounts or change funds? Could you make salary sacrifices to reduce your tax payments and boost your retirement balance? Let us know if you’re considering these super questions.
SMSF compliance: don’t slip up
With the self managed superannuation fund (SMSF) annual return lodgment deadline upon us, minds should have already turned to meeting compliance requirements. The 2016–2017 financial year includes a few twists and turns which trustees should factor in to avoid late lodgment.
The major super changes from 1 July 2017 mean that SMSFs members with a pension balance of more than $1.6 million may need to consider reducing any excess, resetting CGT cost bases and getting actuarial certificates. This is in addition to the usual issues such as calculating taxable income and what expenses are deductible for the SMSF.
With all of these changes to be considered, the ATO has allowed an extension to lodge returns by 2 July.
Record keeping reminders
Good SMSF compliance hinges substantially on good recordkeeping. Some SMSFs have resolutions and minutes for every investment transaction while others don’t go into much detail at all. But what level of detail is really necessary? The answer lies in the fund’s trust deed, investment strategy and what is required by the tax and superannuation legislation.
For example, a fund with a single balanced option is unlikely to have to meet each time a contribution is made to decide where the money should go. In contrast, if the fund’s investment strategy is couched in broad terms and a member wishes to select specific investments as permitted by the fund’s trust deed, then documents indicating whether the selection is consistent with the overall investment strategy of the fund are likely to be worthwhile.
The superannuation law requires that some records must be retained for various periods. For example, the fund’s accounting records, annual returns and other statements must be kept for at least five years. Minutes of meetings for purposes such as reviewing the fund’s investment strategy, changes of trustees, member reports and storage of collectables and personal use assets need to be kept for at least
10 years. The fund’s trust deed and other essential documents should be retained if the trustees consider the fund may be subject to challenge.
Keeping records for an SMSF serves many purposes to provide a “corporate memory” for the fund, which may be required for compliance purposes as well as to protect trustees from any unfounded challenges.
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