2018 Federal Budget Wrap Up

Your Guide to the Federal Budget 2018

The Federal Treasurer Scott Morrison handed down his third Federal Budget on Tuesday 8 May 2018. With an upcoming election, this year’s Budget contains a few apparent sweeteners to woo voters.

But what does this actually mean for us? How does this affect the pockets of 24 million or so Australians who pay taxes in one of the highest taxed countries in the world?

Here we give you a breakdown of some of the Budget measures, what you need to know and how it impacts you.

This special edition 2018 Budget Newsletter will cover:

• Major Tax Measures At-A-Glance
• Key Financial Outcomes
• What is the Government Focusing On?
• The Budget Sweetener: Lowering Personal Taxes
• Small Businesses $20,000 Instant Asset Write-Off Extended
• Changes to Research and Development Incentives
• Major Crackdown on the Black Economy
• Key Tax Dates

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

But first, an overview…

This year's Budget is a blend of some 37 measures, but no single big-ticket item such as the bank levy of last year.

The measures range from those that impact individuals (personal tax cuts over the next 7 years; tightening ATO oversight of deductions claimed) and small businesses (extension of the current $20,000 instant asset write-off for small business entities) through to big businesses (broadening the definition of ‘significant global entity’ to ensure that Australia’s multinational tax integrity rules operate as intended).

For those wondering about superannuation, mercifully there were no major changes this year.

Major Tax Measures At-A-Glance

Key Financial Outcomes

• Budget expected to return to a modest surplus of $2.2 billion by 2019-20 and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
• Budget deficit forecast to drop to $14.5 billion in 2018-19, after hitting $18.2 billion in 2017-18.
• Unemployment will be 5.25% in 2018-19, down from 5.5% in 2017-18 and projected to fall to 5% in 2021-22.
• Inflation will be 2.25% in 2018-19, up from 2% in 2017-18 and projected to hit 2.5% in 2020-21.
• Revenue is estimated to be $486.1 billion in 2018-19, up from $456.2 billion in 2017-18 and projected to reach $537.9 billion in 2020-21.

What is the Government Focusing On?

This year’s Budget was all about building a stronger economy, more jobs and guaranteeing essential services that all Australians rely on.

Here is a list of the Government’s to-do’s and what actions they have promised to carry out.

The Budget Sweetener: Lowering Personal Taxes

Low and middle-income earners have emerged as the winners from the Budget. The Government unveiled their 7-year 3-phase plan, focusing on reducing the tax burden on individual taxpayers from 1 July 2018.

The sweetener is clearly a plan to introduce what the Government hopes will entice voters – adjustments to personal income tax rates. 80% of the taxpaying population (all those earning up to $87,000) will get some benefit from this change from 1 July 2018.

Change to Personal Income Brackets

In later years, the number of brackets will be reduced from five to four with the elimination of the 37% rate. The top rate of 45% will only cut in at $200,000.

Note! What remains unclear is the position for foreign residents and how they will be taxed.

New Low and Middle-Income Tax Offset

The Government has introduced a new Low and Middle-Income Tax Offset to deliver lower personal income taxes for low to middle-income earners through a 3-phase plan.

The benefit of the Low and Middle-Income Tax Offset is in addition to the existing Low-Income Tax Offset. This may result in a combined offset of up to $975 per year for some taxpayers from 1 July 2018.

What Are Your Savings Per Year?

Work-related expenses: hidden target in Budget

A strong theme in the narrative accompanying the revenue measures in this year’s Budget is the additional boost to funding being allocated to the ATO and related organisations. This is evident from a number of measures, including:

• Personal income tax measures to ensure individuals meet their tax obligations ($130.8 million)
• Delivering on debt collections and improvement in timeliness of debt collections ($133.7 million)
• Enhancing ATO enforcement against the Black Economy ($318.5 million)
• R&D measure providing additional funding to the ATO and the Department of Industry, Innovation and Science (amount not specified)
• Assorted other measures relating to aspects of superannuation and payroll and superannuation fund reporting.

The measure seeking to ensure individuals meet their tax obligations alone is estimated to raise some $1.1 billion over the forward estimates. This could be read principally as a reference to ensuring that taxpayers do not over-claim work-related expenses.

Medicare Levy Untouched

The Medicare levy will remain at 2%. In last year’s Budget, the Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019 but has decided not to go ahead with this.

Medicare Levy Low-Income Thresholds

The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase for the 2018-19 year.

What About Older Australians?

The Government will introduce a range of measures to enhance the standard of living of older Australians. These measures will commence on 1 July 2019.

• Expanding the Pension Work Bonus from $250 to $300 per fortnight (ie up to $7,800 a year)
• Pension Loans Scheme opened to all older Australians to include self-employed retirees who will be able to earn up to $300 per fortnight without impacting their eligibility for the pension
• Expanding the Pension Loans Scheme so that older Australians can use the equity in their homes to increase their incomes
• Changes to pension means test rules to help older Australians manage their life savings.

Small Business $20,000 Instant Asset Write-Off Extended

The $20,000 instant asset write-off is being extended for another 12 months for businesses with an aggregated turnover of less than $10 million so that it will now expire on 30 June 2019.

The measure will improve cash flow for small businesses, providing a boost to small business activity and investment for another year.

The threshold amount was originally due to return to $1,000 on 1 July 2018. However, as a result of the Budget announcement, small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible (such as horticultural plants and in-house software).

On 1 July 2019, the threshold will reduce to $1,000.

Note! Don’t forget that purchases will only qualify if they total $19,999.99 or less!

The $20,000 Instant Asset Write-Off Explained

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it.

What About Assets Valued at $20,000 Or More?

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.

Changes to Research and Development Incentives

The Government is reforming the Research and Development Tax Incentive (R&DTI) to reward additional investment in R&D while also ensuring the integrity and fiscal affordability of the R&DTI.

For companies with aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.

The changes will apply for income years starting on or after 1 July 2018.

The measures include:

The R&D expenditure threshold — the maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will be increased from $100 million to $150 million per annum.

For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate.

Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.

Refundable R&D tax offsets from R&D expenditure on clinical trials will not count towards the cap.

Major crackdown on the Black Economy

The Government will introduce 3 new key measures targeting Black Economy activities and illegal phoenixing. These are:

• Limiting cash payments within Australia to $10,000
• Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
• Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry

These measures will be reinforced by the $318 million being given to the ATO over 4 years to implement new strategies targeting the Black Economy and phoenixing activities.

With the boost in funding from the Government, the ATO plans to improve data analytics and data matching, implement new "mobile strike teams", increase information sharing between government enforcement agencies and increase its audit presence.

The funding will commence on 1 July 2018.

Why the Crackdown?

This measure is in response to the Black Economy Taskforce findings that contractors in these industries have been identified by the ATO as being at higher risk of not complying with their tax obligations.

Under the taxable payments reporting system (TPRS), businesses are required to report payments to contractors to the ATO. This brings payments to contractors in these industries into line with wages which are reported to the ATO.

Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020. A new online form will make the reporting process easier.

Stay Compliant!

It is expected that the Government’s revenue bottom line will be better off by $3 billion over the forward estimates period and there will be an extra $2.5 billion in underlying cash receipts. These numbers suggest some robust enforcement from the ATO is coming to the Black Economy. All taxpayers need to ensure they are fully compliant with the law or they may find themselves entangled in these enforcement strategies.

Reforms to Combat Illegal Phoenixing

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. This illegal phoenix activity impacts the business community, employees, contractors, the Government and environment.

The Treasurer reinforced in his Budget speech that the Government is making sure small businesses don't get ripped off by other businesses who deliberately go bust to avoid paying their bills, with tough new anti-phoenixing measures.

Additional funding will be given to the ATO from 1 July 2018 to bolster compliance activities and better target those who participate in illegal phoenixing.

One Last Thing!

Talk to us about any questions you may have regarding what impact the Budget measures will have on your personal circumstances!

Key Tax Dates

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. "Tax Wise News- May 2018 Budget Edition", Tax Wise Business News e-newsletter, May 2018.

2018 May Newsletter

Welcome to our quarterly Tax Newsletter!

The race is on to get your 2017 financial year tax sorted, so if you haven't dropped by to see us please make it a priority. We have some great reminders below on what you can and can't claim for work- related expenses and what repair costs you can and can't claim on a rental property. Make sure you check them out to ensure you get your tax right.

Also in this newsletter, we have the basics on the tax implications of investing in Bitcoin, a reminder that dodgy arrangements could cost you your retirement savings and a few upcoming key tax dates to note. 

Please be aware that there have been some of changes to law and legislation that have been announced recently that applies now or is set to change come the new financial year. These changes may change your obligations and requirements for your business and/ or your personal tax and we feel it is important to give you the heads up.

Make yourself a cuppa, release your inner tax nerd and read on.

In this issue:

• ATO Cracking Down on Your Work-Related Expenses
• Claiming the Cost of Repairs on a Rental Property? What You Can and Can't Claim
• Investing in Bitcoin? Know the Tax Implications
• Are You Risking Your Retirement Savings?
• Key Tax Dates

If you have any queries or need to book an appointment, as always, please do not hesitate to holler!

ATO Cracking Down on Your Work Related Expenses

Did you know that the ATO scrutinises every tax return?

This year, the ATO is cracking down on taxpayers claiming incorrect ‘other’ work-related expenses. It’s important to make sure you don’t claim more than you are entitled to!

The ATO uses real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.

4 Quick Points to Remember When Claiming Work- Related Expenses

To claim work-related expenses, keep in mind these 4 points:

1.    You must have spent the money yourself.

2.    You were not reimbursed for the money spent.

3.    The expense must be directly related to earning your income.

4.    You must have a record to prove it.

Work expenses reimbursed to you by your employer are not deductible in your personal income tax return. The ATO can seek information from your employer if it suspects you have claimed as a deduction an expense for which you have already been reimbursed.

Tip! If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

11 Deductions You (Probably) Can't Claim

1.    Trips between home and work. Generally, you can’t claim a deduction for these because they’re considered private travel.

2.    Car expenses for transporting bulky tools or equipment, unless:

•   You need to use your bulky tools to do your job
•   Your employer requires you to transport this equipment
•   There is no secure area to store the equipment at work.

3.    Car expenses that have been salary sacrificed.

4.    Meal expenses for travel, unless you were required to work away from home overnight.

5.    Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.

6.    Everyday clothes you bought to wear to work (e.g. a suit), even if your employer requires you to wear them.

7.    A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.

8.    Higher education contributions charged through the HELP scheme.

9.    Self-education expenses when the study doesn’t have a direct connection to your current employment – your future or dream jobs don’t count.

10.  Private use of phone or internet expenses – only the work-related portion counts.

Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years, which is called depreciation.

Claiming the Cost of Repairs on a Rental Property? What You Can and Can't Claim

Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.

The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.     

Repairs vs Maintenance

Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).

Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).

Tip!

• If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax  deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
• If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim

Expenses that You Can Immediately Deduct

You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.

If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.

Expenses for which you may be entitled to claim an immediate deduction include:

• Advertising for tenants
• Body corporate fees and charges
• Council rates
• Water charges
• Land tax
• Cleaning
• Gardening and lawn mowing
• Pest control
• Insurance (building, contents, public liability)
• Interest expenses
• Property agent's fees and commission
• Repairs and maintenance
• Some legal expenses

Note! From 1 July 2017, travel expenses relating to a residential investment property are no longer deductible. Under new laws, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property.

You can only claim deductions if you are carrying on a business of property investing or are a corporate tax entity, public unit trust, managed investment trust, unit trust or partnership or super fund that is not an SMSF.

 

Expenses That You Can't Immediately Deduct

You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).

These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

Note! Improvement means work that:

•   Provides something new
•   Furthers the income-producing ability or expected life of the property
•   Changes the character of the item you have improved
•   Goes beyond just restoring the efficient functioning of the property

How this works!

Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.

The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure.

However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used.

Tip!  If you invest in a rental property, you'll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return.

Investing in Bitcoin? Know the Tax Implications

A bit confused about Bitcoin? What is it and what does tax have to do with it?

Here, we share a few key facts and the tax consequences that may arise if you are thinking about investing (or have already invested) in Bitcoin.

Note! Any reference to Bitcoin in this newsletter refers to cryptocurrency, or other crypto or digital currencies that have the same characteristics as Bitcoin.

Cryptocurrency (and Bitcoin) Explained

Bitcoin was the first cryptocurrency but now, it is just one of many types of cryptocurrencies. As at 2017, there were around 1,100 different cryptocurrencies in existence.

Cryptocurrencies are a type of global digital currency that uses encryption techniques to buy or sell items. Where traditional currencies are regulated by a central bank, Bitcoin is an unregulated currency. Each transaction is registered on a shared public ledger called a ‘blockchain’.

Tip! Be aware of tax scammers impersonating the ATO and demanding Bitcoin or other cryptocurrency as a form of payment for fake tax debts. Cryptocurrency operates in a virtual world, and once the scammers receive payment, it is virtually impossible to get it back.

Is Bitcoin Money or an Asset?

The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is treated as an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes.

Capital Gains Tax Implications

CGT ‘events’ are the different types of transactions that may result in a capital gain or capital loss. A CGT event happens when you dispose of your cryptocurrency.

Disposing of your cryptocurrency means:

•  Selling, trading or exchanging your cryptocurrency;
•  Converting it to Australian dollars; or
•  Using it to obtain goods or services.

If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.

What if You Acquire Bitcoin as a Personal Use Asset?

Personal use of cryptocurrency is not subject to income tax or GST in Australia.

Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption.

Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.

Note!

•   Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes.
•   All capital losses you make on personal use assets are disregarded.

What if You Acquire Bitcoin as an Investment?

If you acquire Bitcoin as an investment, it means you have kept or used your cryptocurrency in a profit-making scheme or in the course of carrying on a business.

The tax consequences are:

•   You may have to pay tax on any capital gain you make on disposal of the cryptocurrency;
•   You will not be entitled to the personal use asset exemption;
•   If you held the cryptocurrency for 12 months or more, you may be entitled to the CGT discount.

 Tip! You must keep records of:

•   The date of transactions
•   The value of the cryptocurrency in Australian dollars at the time of the transaction
•   What the transaction was for and who the other party was.

Claiming Deductions if You Are Carrying on a Business

Examples of businesses that involve cryptocurrency include:

•   Cryptocurrency traders
•   Cryptocurrency mining businesses
•   Cryptocurrency exchange businesses (including ATMs).

In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you receive money or property in the ordinary course of your business.

If these gains or profits are ordinary income, you may be able to claim deductions. Any capital gains you make are reduced to the extent that they are also ordinary income.

Note! Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income.

A Reminder to SMSF Trustees Investing in Bitcoin

While self-managed superannuation funds (SMSFs) are not prohibited from investing in Bitcoin and other cryptocurrencies, trustees are reminded that the investment must:

•   Be allowed for under the fund’s trust deed
•   Be in accordance with the fund’s investment strategy
•   Comply with regulatory requirements concerning investment restrictions

Are You Risking Your Retirement Savings?

If you’re planning for your retirement, don’t risk your nest egg by getting involved in arrangements that are at odds with tax and superannuation laws!

The ATO has identified a range of new arrangements that are directed towards minimising or avoiding tax. They are designed to help individuals and other related entities to minimise their tax bill by channelling money inappropriately through SMSFs.

If you are involved in an illegal arrangement, you can face severe penalties under tax and super laws. You could lose your retirement savings or your rights, as a trustee, to manage your own super fund.

Often these arrangements are structured in a way so that they appear to satisfy regulatory rules while minimising tax or even providing a tax refund. You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting.

Tip! Book in an appointment to get some independent advice from us before entering into ‘too good to be true’ arrangements!

Key Tax Dates

15 May 2018:  2017 income tax return due if lodging through a tax agent and your return was not due earlier. Tax to be paid as advised on the notice of assessment by 6 June.

21 May 2018:  April 2018 Monthly Activity Statement Due     

25 May 2018:  March 2018 Quarterly BAS due

5 June 2018: Obligation- 2017 income tax return due for individuals with a lodgement due date of 15 May 2018 if lodging through a tax agent provided you also pay any liability due by this date. This is a concessional arrangement provided to tax agents where individuals will not pay failure to lodge on time (FTL) penalties if they lodge and pay by this date.

30 June 2018: 2017 SMSF income tax return due (ATO extended deadline - usually 15 May)

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2018. ‘Taxwise Individual News, April 2018’, Tax Wise Business News e-newsletter, April.

2018 January to February Newsletter

2018 is well and truly underway as we arrive at the 3rd month of the year, March. Summer is done and dusted, and autumn has officially begun, though the temperature gauge strongly begs to differ with the official season change. How do the weeks fly by so fast?

This fast-passing New Year has already brought about some new and exciting changes to Della Nicholson Accounting. In January we said farewell to Senior Accountant Inger who, looking for a work sea change, has moved on to train future accountants. We wish her all the best in her future endeavours.

To the Della Nicholson Accounting Team we welcome three new staff members aboard:  Graduate Accountants Jake and Luke as well as a you-beaut Bookkeeper Toni. 

Fresh out of uni, showing enthusiasm and an eagerness to learn has seen Jake off to a great start to his accounting career.

With a couple years of experience already under his belt, quiet and hardworking Luke has fit in well with the fast pace working environment here.

Toni's years of experience and great attention to detail have seen her hit the ground running, taking over regular bookkeeping for a number of our clients. Her wry sense of humour has also been a great addition to the office.  So, if you are looking at outsourcing your bookkeeping please give us a call. 

The newly expanded Della Nicholson Accounting Team look forward to yet another busy year of helping our wonderful clients with all things tax. 

Also in this newsletter, we have a very informative Facebook piece titled "Why is my Facebook Page Reach Going Down?" written by the fabulous social media whizz Lauren from Sivacom.  If you have a business Facebook page, it is well worth the read as Facebook has made some pretty big changes to their feed/algorithm over January. Lauren has provided some great insight into why and how this is going to have a huge effect on the reach and engagement for businesses on Facebook and why you may see a drop in your page performance this year.  If you are needing anything social media wise, Lauren is your go to. With a wicked sense of humour, providing excellent service, Lauren makes social media easy to understand and simple to navigate for anyone. You can get in touch with Lauren through the Sivacom website or Sivacom Facebook page.

As is to be expected, many new changes have also occurred in the wide world of taxation since our last newsletter. These changes to laws and legislation may impact your personal or your businesses' obligations and requirements for tax, so we've put together some of these important changes in this newsletter to help keep you informed.

So take a seat, let your inner tax nerd take over, and read on.

IN THIS ISSUE:

• New Rules for Accessing the 27.5% Corporate Tax Rate from 1 July 2017
• When Does a Company Carry on a Business? ATO Releases Guidance
• Small Business Tax Concessions at a Glance
• Deductions for Small Business
• Safe Harbour Reforms for Company Directors
• Tax Consequences of Trust Splitting
• Government Cracks Down on Illegal Phoenixing
• Streamlined Reporting with Single Touch Payroll
• Lump Sum Payments for Healthcare Practitioners
• Superannuation Guarantee – New Measures Announced
• Understanding the Sharing Economy and Tax
• Industry Assistance Payments to Taxi Licence Holders
• FBT: Uber Case: Definition of ‘Taxi’ – ATO Technical Discussion Paper
• GST Determination – Simplified Accounting Methods (SAM)
• Reduction of Wine Equalisation Tax (WET) Rebate Cap
• Other Legislation That May Impact on You or Your Business
• Why is my Facebook Page Reach Going Down?

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

New Rules for Accessing the 27.5% Company Tax Rate from 1 July 2017

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 was introduced into the House of Representatives on 18 October 2017.

This Bill amends the Income Tax Rates Act 1986 (Cth) (Rates Act) to ensure that, from the 2017-18 income year, a company will qualify for the lower company tax rate for an income year if:

• No more than 80% of the company’s assessable income for that income year is ‘base rate entity passive income’; and
• The company’s aggregated turnover for the income year is less than the aggregated turnover threshold for that income year (for the 2017-18 income year, the threshold is less than $25 million).

These amendments will modify the requirements that must be satisfied for a company to qualify as a ‘base rate entity’ by replacing the ‘carrying on a business’ test with a passive income test. Under the passive income test, companies that are generating predominantly passive income (eg rent, royalties etc) will not be eligible for the lower company tax rate.

The purpose of this legislation is to ensure that passive investment companies cannot access the lower company tax rate that is otherwise available to small businesses. 

Currently, to qualify as a ‘base rate entity’ in order to apply the lower company tax rate, a company must be ‘carrying on a business’ as well as meet the relevant aggregated turnover threshold.

The Bill will apply prospectively from the 2017-18 income year.

An amount of assessable income is ‘base rate entity passive income’ which includes items such as:

• A distribution that is not a ‘non-portfolio dividend’;
• Franking credits attached to such a distribution;
• Interest income (as defined in the income tax legislation);
• A royalty;
• Rent; and
• A net capital gain.

When Does a Company Carry on a Business? ATO Releases Guidance

The ATO has released draft Taxation Ruling TR 2017/D7 Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? for consultation.

This draft Ruling provides guidance on when a company carries on a business within the meaning of section 23AA of the Rates Act.

A company will be a ‘base rate entity’ under section 23AA if it carries on a business and meets the aggregated turnover requirement. For the purposes of section 23AA, ‘business’ is defined in the income tax law to include 'any profession, trade, employment, vocation or calling', but excludes 'occupation as an employee'. 

The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that ‘Limited’ and ‘No Liability’ companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit. 

The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company's business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.

A variety of examples are included in the draft Ruling to assist a taxpayer to understand when a company may be ‘carrying on a business’.

Note! The issue of whether a company is ‘carrying on a business’ is relevant under the current law. However, if the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 becomes law, the draft Ruling will not be relevant from 1 July 2017 going forward. Come in and discuss with us whether your company may be eligible to access the lower company tax rate.

Small Business Tax Concessions at a Glance

The ATO has prepared a table that is available on their website which sets out at a glance all the tax concessions that may be available to small businesses. These include:

• Simplified depreciation rules (eg the instant asset write-off, accelerated depreciation for primary producers);
• Eligibility for the lower company tax rate;
• PAYG instalment concessions;
• Simplified trading stock rules;
• Simpler BAS;
• Accounting for GST on a cash basis; and
• The various small business CGT concessions.

Note! We can assist you to work out which of these concessions your small business may be entitled to.

Deductions for Small Business

The ATO has published answers to the most common questions taxpayers have been asking about deductions for small business. Find out more on the ATO website.  

Safe Harbour Reforms for Company Directors

The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 (the Bill) passed both the House of Representatives and the Senate on 12 September 2017 and awaits Royal Assent. 

The Bill amends the Corporations Act 2001 (Cth) to: create a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency; and Corporations Act 2001 and Payment Systems and Netting Act 1998 (Cth) to make certain contractual rights unenforceable while a company is restructuring under certain formal insolvency processes. 

The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, said that the Government has delivered on its commitment under the National Innovation and Science Agenda (NISA) to improve Australia's corporate insolvency system with the Bill receiving passage through Parliament. 

Ms O'Dwyer also said the Bill promotes a culture of entrepreneurship and innovation by providing a ‘safe harbour' for company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency. It also makes ‘ipso facto' clauses unenforceable during and after certain formal insolvency procedures. 

The safe harbour provisions will commence on Royal Assent. The stay on the operation of ipso facto clauses will commence from 1 July 2018 to provide time for businesses to adapt to the new settings.

The operation of the safe harbour will be subject to an independent review two years after commencement. 

The Government will shortly consult with key stakeholders on the Regulations to support the operation of the stay on ipso facto clauses. 

To do! Are you a company director? If so, you should talk to us about whether this legislation may impact you.

Tax Consequences of Trust Splitting

The ATO is developing guidance in relation to the tax consequences of trust splitting arrangements.

A trust splitting arrangement occurs when separate trustees are appointed over different assets of an existing discretionary trust. Each trustee is typically controlled by a different party.

The intention of trust splitting is to produce a structure where each trustee is able to deal with the assets it holds independently of the other trustees. In particular, the trustee is able to deal with the assets largely for the benefit of the controlling party.

Government Cracks Down on Illegal Phoenixing

The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, announced on 12 September 2017 that the Government is taking action to crack down on illegal phoenixing activity to ensure those involved face tougher penalties. 

The Government's package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity. 

The DIN will identify directors with a unique number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people. 

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers.  

The Government will consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including: 

• A next-cab-off-the-rank system for appointing liquidators;
• Allowing the ATO to retain tax refunds; and
• Allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.

The Government put out a discussion paper in October containing numerous ideas for how to combat phoenixing behaviours.

Streamlined Reporting with Single Touch Payroll

Previous newsletters have contained information about Single Touch Payroll, which is a reporting change for employers. It means employers will report payments such as salaries and wages, PAYG withholding and super information to the ATO directly from their payroll solution at the same time they pay their employees. 

For employers with 20 or more employees, Single Touch Payroll reporting starts from 1 July 2018. The first year will be a transition and penalties will not apply. 

The Government has also announced that it will expand Single Touch Payroll to include employers with 19 or less employees from 1 July 2019. This will be subject to legislation being passed in Parliament.

Therefore, if your business has 20 or more employees, Single Touch Payroll starts for you on 1 July 2018. If you have less than 20 employees, Single Touch Payroll will start for you on 1 July 2019 if the relevant legislation gets passed.

Lump Sum Payments for Healthcare Practitioners

If you are a healthcare practitioner, you may receive a lump sum payment when starting or amending an agreement with a healthcare centre operator. The ATO is concerned that some healthcare practitioners may be incorrectly treating these payments as proceeds from the disposal of a capital asset. This may result in underpayment of tax and expose you to later tax adjustments and penalties.

To do! If you have received one of these payments, talk with us to make sure you treat it correctly for tax purposes.

Superannuation Guarantee – New Measures Announced

The Government has announced a further package of reforms to give the ATO near real-time visibility over superannuation guarantee (SG) compliance by employers.

The Government will provide the ATO with additional funding for a Superannuation Guarantee Taskforce to crackdown on employer non-compliance. The package builds on legislation already announced to close a legal loophole used by unscrupulous employers to short-change employees who make salary-sacrifice contributions to their superannuation.

The package includes measures to:

• Require superannuation funds to report contributions received more frequently, at least monthly, to the ATO. This will enable the ATO to identify non-compliance and take prompt action;
• Update payroll reporting through the rollout of Single Touch Payroll (STP). This will reduce the regulatory burden on business and transform compliance by aligning payroll functions with regular reporting of taxation and superannuation obligations;
• Improve the effectiveness of the ATO's recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees' super accounts; and
• Give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay superannuation guarantee liabilities.

Understanding the Sharing Economy and Tax

The ATO has updated their sharing economy and tax web page to help you understand your clients' income tax and GST obligations, and how to avoid tax debts. Information includes: 

• Working in the sharing economy
• Income tax and GST in the sharing economy
• Deductions you can claim
• Ride-sourcing
• Renting out all or part of your home
• Renting out a car parking space
• Record keeping
• How to avoid a tax debt

Tip! If you participate in the sharing economy, you need to understand your tax obligations. Book an appointment with us if you are unsure about what your tax obligations are or whether you are meeting them.

Industry Assistance Payments to Taxi Licence Holders

The ATO is providing assistance to taxpayers who hold a taxi licence (including a car hire licence). 

If you hold a taxi licence (including a hire car licence) and you receive an industry assistance payment from your State Government in relation to the licence (excluding a licence surrender payment), it is probably not a capital receipt. It's more likely to be ordinary income. There are no GST consequences.  More guidance can be found on the ATO website.

FBT: Uber Case: Definition of ‘Taxi’ – ATO Technical Discussion Paper

In light of a recent Federal Court decision in the matter of Uber B.V. v. Commissioner of Taxation [2017] FCA 110 (Uber), and certain proposed changes to licensing regulations in a number of states and territories, the ATO has released Technical Discussion Paper TDP 2017/2 ‘Fringe Benefits Tax - Definition of Taxi'. 

TDP 2017/2 considers the definition of 'taxi' contained in the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) and the exemption from fringe benefits tax (FBT) for taxi travel undertaken to or from work or due to illness. 

The purpose of this paper is to facilitate consultation between the ATO and the community as part of the process of developing advice on the application of the FBT law. The ATO advises that all views in this paper are preliminary in nature and should not be taken as representing either an ATO view or that the ATO will take a particular view. 

GST Determination – Simplified Accounting Methods (SAM)

The Goods and Services Tax: Simplified Accounting Methods Determination 2017 for Retailers who sell Food – Business Norms, Stock Purchases and Snapshot Methods (F2017L01274) commenced on 28 September 2017. This determination repealed and replaced Simplified GST Accounting Methods Legislative Instrument (No 1) 2007. 

The determination provides eligible food retailers with a choice of using a simplified accounting method (SAM) to help them to work out their net amount. It does so by allowing them to estimate their GST-free trading sales and GST-free trading stock acquisitions for a tax period. The three SAMs are: 

• Business norms method;
• Stock purchases method; and
• Snapshot method.

The determination is substantially the same as the previous determination that it replaced. If you were eligible to use a particular SAM specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

Reduction of Wine Equalisation Tax (WET) Rebate Cap

In the 2016-17 Budget, the Government announced that it will address integrity concerns with the wine equalisation tax (WET) rebate by reducing the WET rebate cap and tightening eligibility criteria. 

The scheduled changes include:

• Strengthening the associated producer provisions, so that from 1 October 2017 the associated producer test applies at any time during the financial year;
• Reducing the WET rebate cap from $500,000 to $350,000 on 1 July 2018;
• Introducing tightened eligibility criteria for the producer rebate from 1 July 2018 with some transitional arrangements from 1 January 2018; and
• Creating a stronger link between rebate claims and the payment of WET by limiting entitlements to WET credits and changes to the quoting rules from 1 July 2018.

The changes were passed into legislation in August 2017.

Other Legislation That May Impact on You or Your Business

i)              Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017

The Bill extends the crowd-sourced funding (CSF) regime to proprietary companies, making a new funding source available for small businesses, while maintaining adequate investor protections through additional obligations on companies. The measure extends upon the Corporations Amendment (Crowd-sourced Funding) Act 2017 to enable proprietary companies to access CSF without transitioning to public company status. 

ii)             Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017

Choice of Fund for Workplace Determinations and Enterprise Agreements

• The Bill amends the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) to ensure employees under workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions. 

Salary Sacrifice Integrity

• The Bill also amends the SGAA to improve the integrity of the superannuation system by ensuring that an individual's salary sacrifice contributions cannot be used to reduce an employer's minimum superannuation guarantee (SG) contributions. 

iii)            Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

Further to the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, this Bill amends the Rates Act to:

• Progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023-24 financial year; and
• Further reduce the corporate tax rate in stages so that by the 2026-27 financial year, the corporate tax rate for all entities will be 25%.

To do! Chat with us to see if any of these Bills will impact on you or your business.

Why is my Facebook Page Reach Going Down?

Written By Lauren from Sivacom

We have just finished the first month of 2018 and already Facebook has implemented three major changes to the platform... so what does this mean for your business? Read on to get up to speed.

Change #1: 4.1.18

Mark Zuckerberg announces his personal challenge for this year is to "fix Facebook." His rationale behind this is to fix issues like "protecting our community from abuse and hate, defending against interference by nation states, or making sure that time spent on Facebook is time well spent."

Change #2: 11.1.18

Sweeping changes are implemented to the news feed ranking algorithm, with a priority on content that "sparks conversations and meaningful interactions between people." While simultaneously, showing less public content, i.e. content from businesses & brands that people tend to consume passively and that don't spark discussion. e.g. videos that get viewed with no further engagement, posts that are liked but don’t receive comment conversations, etc.

Change #3: 19.1.18

A second major update to the news feed is announced: "...to make sure the news people see, while less overall, is higher quality." So, starting next week in the US, and eventually internationally (brace yourselves, it will come to Australia sooner than you think), Facebook will look to prioritise the following;

• Trusted - Content from publications that the community rates as trustworthy
• Informative - Content that people find informative
• Relevant - Content that is relevant to people’s local community

So, if your content is engaged with consistently, i.e. deemed trustworthy by people using Facebook, you may see an increase in your distribution. However, if you score low on the public trust scale, you will inevitably see a decrease.

Let’s break it down...

Longevity

Facebook has a goal to ensure that users perceive the platform as a “here for the long haul” platform. To keep users coming back for more, they have to enjoy the experience, e.g. it should deepen their relationships and time spent with friends, family, work mates and the greater community.  In order to keep individual feeds relevant for the 2.07 billion users, the algorithm has to return relevant content ... to you, and you, and you and so on and so forth!

Signals

To achieve this hefty goal, they need to keep tweaking the algorithm recipe to stop people gaming the system and with over 100,000+ weights/points/signals that go into making up the news feed ranking algorithm (of which we are only aware of around 30), keeping on top of your content game is going to make all the difference.

Fixes

You would have heard the cries of “Fake News” and “Clickbait”, plus the horrible cases of cyber bullying. In order to address these issue, and maintain positive sentiment, Facebook is looking to reduce the overall news you receive in your feed by around 20%, with the new changes bringing trustworthy, relevant and informative information direct to your feed.

Engagement - Facebook users began to consume content passively, including video, but this doesn’t work for Facebook. Facebook wants high engagement, which means they now reward content that delivers high back and forth conversation. The reason this is so important to them, is because it keeps people on the platform longer.

Experience

Facebook's Head of Video, Fidji Simo, recently announced that the platform is testing "Watch Parties." This means that members of select existing groups will be able to share video experiences, as selected by the admin or moderator of the group. Think of it like watching live broadcast video simultaneously with your friends!

So, what does all this lead to? Facebook is looking to compete with the likes of YouTube, Netflix, Amazon, Hulu, etc. So basically, the more platform users that consume their video content, the more they can monetise!

The end goal for Facebook is that they want to win more of the exclusive streaming rights for major events around the world, think Golden Globes, Academy Awards, Formula 1 and so much more!

To recap, as a business you are going to need to step up your content game and your advertising spend if you want to remain “Trusted, Informative and Relevant” in the eyes of Facebook and its users.

Why not make 2018 your year to shine and deliver the information your prospects and clients truly want to engage with - ask questions, solve problems, deliver in interesting formats and most of all spend the time getting to really know your audience...

If you need any help with the above, we got you covered. Visit www.sivacom.com.au today and have a chat with Lauren, our social media specialist, no pressure. Sometimes just talking it through with someone can help put you on track!

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2017. ‘Taxwise Business News, November 2017’, Tax Wise Business News e-newsletter, November.

Sivacom (Facebook). 2018. "Facebook Did What Now?", Sivacom Business Facebook Page, Januray, 24, 2018. https://business.facebook.com/notes/sivacom/facebook-did-what-now/1003057039842087/

Spring Tax Newsletter- November 2017

Tax Time 2017 is well under way and so is the beautiful summer weather. Days are getting longer, the sun is shining, flowers are blooming and we're back to wearing shorts again. Whoo Hoo!

Now, I'm betting that the burning question for many of you is "when do I get my refund?". The good news is the answer to that question, and many more, are waiting for you below.  

Yet again, there have been many changes to laws and legislation which may impact your personal or your businesses' obligations and requirements for tax. We've put together some of these important changes in this newsletter to help keep you informed.

So take a seat, let your inner tax nerd surface, and read on.

In This Issue:

• When Do I Get My Refund?
• Claiming Work-Related Expenses?
• myDeductions - a Record Keeping Tool
• Housing Tax Deductions: Disallowing Travel Deductions and Limiting Depreciation Deductions
• ATO Warning on Holiday Rental Properties
• Changes to Capital Gains Withholding Rules for Foreign and Australian Residents
• Housing-Related Superannuation Measures
• Superannuation - Key Rates and Thresholds
• Do the Super Changes Affect You?
• Superannuation Changes to Be Aware of
• Tax Incentives for Early Stage Investors
• Stop! Scammer Time!
• Claiming the HECS-HELP Benefit
• Notice of an Update to ATO Data Matching Program
• Changes to Medicare Levy and Medicare Levy Surcharge
• GST on Low Value Imported Goods – Summary of Reforms
• ATO Announcements
• What's New For Small Businesses?
• Taking Care of Business
• ATO Protecting Honest Business
• GST
• Changes for Employers of Working Holiday Makers
• Superannuation Matters for Businesses
• Streamlined Reporting with Single Touch Payroll
• Changes to Tax Withholding Amounts
• The ATO's Compliance Approach to Employers
• Changes to PAYG Instalment Conditions

If you have any queries or need to book an appointment, as always, don't hesitate to give us a shout!

When Do I Get My Refund?

The ATO started full processing of 2016-17 tax returns on 7 of July 2017. They began to pay out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt. 

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible.

Go to this timeline to view the key dates for Tax Time 2017.

When do I get my refund?

Claiming Work-Related Expenses?

The ATO is paying attention to people who are over-claiming work-related expenses. 

To get your deductions right, you need to satisfy the following rules: 

• You must have spent the money and were not reimbursed;
• It must be directly related to earning your income, and not of a private nature;
• You must have a record to prove it

To do! Talk to us about any claims you would like to make in your tax return. We can help you ensure you get them right.

myDeductions - a Record Keeping Tool

If you are a sole trader and have simple tax affairs, the ATO's myDeductions tool can help you if you are looking for a quick and easy way to manage your records.

Available through the ATO app, the tool allows taxpayers to use their smart devices to capture and record business income, expenses and vehicle trips and in doing so minimise the need for paper receipts.

Taxpayers can also use the tool to record a range of personal and employee work related expenses.

To learn more, visit the ATO website.

We also recommend Xero as it is by far the best product available on the market. If you are interested in using Xero, come in and talk to us about setting up an account and training. 

Tip! While the online tools for lodging tax returns are improving for individuals, we are more experienced in preparing and lodging tax returns. For specialist advice and to ensure you claim the right deductions for you, please book an appointment with us. Getting your tax return wrong could be costly for you.

Housing Tax Deductions: Disallowing Travel Deductions and Limiting Depreciation Deductions

The Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures the Government announced in the 2017-18 Budget.

The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.

It appears that significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions. This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.

 To do! If you own a rental property, have a chat with us about whether these changes affect you in any way.

ATO Warning on Holiday Rental Properties

The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.

Claiming deductions for your holiday home? 

Make sure it is genuinely available for rent by answering these four questions: 

• How do you advertise your rental property?
• What location and condition is your rental property in?
• Do you have reasonable conditions for renting the property and charge market rate?
• Do you accept interested tenants, unless you have a good reason not to? 

Changes to Capital Gains Withholding Rules for Foreign and Australian Residents

The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:

• For real property disposals where the contract price is $750,000 and above (previously $2 million);
• The FRCGW withholding tax rate is now 12.5% (previously 10%).

The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.

Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.

The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Main Residence Exemption

From the 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident's main residence will need to be recognised.

Principal Asset Test

From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity's underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

Housing-Related Superannuation Measures

The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing" contribution into superannuation.

The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.

The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.

Superannuation - Key Rates and Thresholds

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions. 

For the 2017-18 income year, the: 

• Concessional contribution cap is $25,000
• Non-concessional contribution cap is $100,000 (conditions apply)
• CGT cap amount is $1,445,000
• Div 293 tax threshold amount is $250,000
• Low rate cap amount is $200,000
• ETP cap for life benefit termination payments is $200,000
• ETP cap for death benefit termination payments is $200,00. 

The full list of rates and thresholds can be found on the ATO website.

Do the Super Changes Affect You?

Most of the changes to the superannuation system commenced on 1 July 2017.  

The ATO has released a breakdown of the new super changes. The changes are categorised by the situation they apply to. Check the ATO website to see if you are directly affected.

Superannuation Changes to be Aware of

i)                     Change to Personal Super Contributions Deductions

In 2016-17, an individual (mainly those who are self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition. 

From 1 July 2017, the 10% work test for claiming a deduction for personal super contributions will be removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

ii)                   Changes to Concessional Contributions – Constitutionally Protected and Unfunded Defined Benefit Funds

From 1 July 2017, there are changes to the definition of concessional contributions for constitutionally protected funds (CPFs) and unfunded defined benefit funds. These contributions will count towards your concessional contributions cap. 

The ATO has released information on the following topics, which can be accessed on the ATO website. 

• What are CPFs and unfunded defined benefit funds?
• What are the changes?
• New rules for accumulation interests
• New rules for defined benefit interests
• Excess concessional contributions.

iii)                 Removal of Election to Treat Super Income Streams as Lump Sums

From 1 July 2017, the Government will remove the ability to treat super income stream benefits as super lump sums for tax purposes. 

This change means that, if you are receiving a super income stream, and normally would have made this election, you will no longer have access to the super lump sum low rate cap for payments from your income stream. Therefore, the amount of tax you have to pay on your super income stream may change. 

iv)                 New Transfer Balance Cap – Child Death Benefit Recipients

From 1 July 2017, the Government has introduced a new transfer balance cap for retirement phase accounts. Different rules apply for child recipients of death benefit income streams. 

Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017-18). 

The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent's super interests.

v)                   New Transfer Balance Cap – Death Benefit Income Streams

From 1 July 2017, there is a $1.6 million cap on the total amount that can be transferred and held in the tax-free retirement phase. Special rules apply to death benefit income streams. 

If you start to receive a death benefit income stream, a credit will arise in your transfer balance account. The amount of the credit and when it counts towards your transfer balance cap will depend on whether the death benefit income stream is reversionary or non-reversionary: 

• Reversionary – the income stream reverts to you automatically upon the member's death
• Non-reversionary – the trustee has the power to choose between paying you a lump sum or an income stream (or a combination of these). 

vi)                 Transfer Balance Account – Credits and Debits

From 1 July 2017, the Government introduced a new transfer balance cap for retirement phase accounts. Your transfer balance account tracks the amounts you transfer into or out of retirement phase and allows you to see whether you have exceeded your transfer balance cap.

Note! There have been a lot of changes to the superannuation rules recently. It is worth booking an appointment with us to discuss how these changes might affect you.

Tax Incentives for Early Stage Investors

From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives. 

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

• Non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
• Modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

Stop! Scammer Time!

The ATO is reminding Australians to stop and think before giving their personal details or hard-earned money to scammers this tax time. 

Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year. 

For tips on how to avoid tax time traps, visit the ATO website. 

Claiming the HECS-HELP Benefit

If you have graduated from studies in early childhood education, math, science, education or nursing, you may be eligible to apply for the HECS-HELP benefit. 

This benefit is an incentive for these graduates to take up related occupations or work in specified locations to reduce their compulsory HELP repayments. 

The HECS-HELP benefit is coming to an end and the 2017 income year is the last year your clients can claim the benefit.

Notice of an Update to ATO Data Matching Program

On 5 June 2017, the ATO released a notice of an update to a data matching program – Ride-sourcing 2015-16 to 2018-19 financial years in Gazette – C2017G00611. 

This data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program. 

The ATO will acquire data to identify individuals that may be engaged in providing ride-sourcing services during the 2015-16 to 2018-19 financial years. 

Changes to Medicare Levy and Medicare Levy Surcharge

The Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Act 2017 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:

• The Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the consumer price index (CPI);
• The Medicare levy low-income threshold for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
• The Medicare levy surcharge low-income threshold in line with movements in the CPI. 

In addition:

• The singles threshold will increase from $21,335 to $21,655.
• The family threshold will increase from $36,001 to $36,541 plus $3,356 for each dependent child or student.
• The single seniors and pensioners threshold will increase from $33,738 to $34,244.
• The family threshold for seniors and pensioners will increase from $46,966 to $47,670 plus $3,356 for each dependent child or student.

GST on Low Value Imported Goods – Summary of Reforms

The Government has passed the Treasury Laws Amendment (GST Low Value goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018. 

Businesses that meet the registration threshold of A$75,000 will need to take action now to review their business systems to ensure that they are able to comply. 

The existing processes to collect GST on imports above $1,000 at the border are unchanged. 

In summary, the reforms: 

• Make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier; 
• Treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator; 
• Treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer; 
• Allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and 
• Prevent double taxation. 

More information on the new GST on low value imported goods can be found on the ATO website.

ATO Announcements

Certainty for Stakeholders Who Rely on ATO Systems

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO's IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking. 

Affected by Recent Company Payroll Issues?

If you have used the services of payroll company Plutus Payroll Australia Pty Ltd and associated entities, the ATO has applied a range of support measures to help you meet your tax and super obligations. 

The ATO has developed some scenarios that they are aware of for Plutus payroll and associated companies. Whether your situation falls within a particular scenario will depend on your circumstances.  For more information, go to the ATO website.

What's New for Small Businesses

i)              Tax Concessions

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return. 

Find out about:

• Expanded access to small business concessions
• Increased small business income tax offset
• Company tax rate cut for small businesses
• Simpler depreciation rules – instant asset write-off

a)            Expanded Access to Small Business Concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

• The small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
• Capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

b)         Increased Small Business Income Tax Offset

You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

• Increased to 8%, with a limit of $1,000 each year
• Applies to small businesses with turnover less than $5 million.

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

c)         Company Tax Rate Cut for Small Businesses

For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

If you lodged your 2016–17 company tax return early:

• If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
• If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.

Tax rate cuts – “not meant to apply to passive investment companies”

On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O'Dwyer MP, issued a statement on the tax rate cuts for small companies.

Minister O’Dwyer said, “Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Minister O’Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.

d)         Instant Asset Write-Off Extension

Australia's 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off immediately thanks to legislation passed by the Senate on 15 June 2017, advised Small Business Minister Michael McCormack recently. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

The Small Business Minister said recent tax cuts for small business – which delivered a 27.5% tax rate – also redefined ‘small business', meaning more Australian businesses are now eligible for the instant asset write-off. 

More businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately after this legislation passed the Senate. Multiple claims can be made under the program. 

‘Small business’ has also been redefined for tax purposes as having a turnover less than $10 million, up from $2 million. 

For more information on support for small business, please visit the Small business website.

To do! If you are confused about how the recent changes for small businesses apply to you or your business, come in and have a chat with us. 

Taking Care of Business

The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO's tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

ATO Protecting Honest Business

The ATO acknowledges that most business owners are honest, but that there are some businesses that operate in the cash and hidden economy, gaining an unfair advantage over those who declare their income and do the right thing. 

The ATO has been running information sessions on this. More information about the ATO’s work focusing on ‘cash-only’ businesses, including visiting these businesses and what the ATO will be doing where these businesses are not compliant can be found on the ATO's website.

GST

i)          Simpler BAS

From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. 

The ATO automatically transitioned eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.

Treasurer's press release on GST low value goods

The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017. 

The Treasurer said, “Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018." 

Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia. 

iI)           Buy Services or Digital Products from Overseas?

From 1 July 2017, GST will apply to imported services and digital products. 

Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST. 

Reminder from the ATO re Applying GST to imported services and digital products

The ATO has issued a reminder that if overseas suppliers sell imported services or digital products to Australian consumers and they meet the GST registration turnover threshold, they need to register for GST. They will meet the registration turnover threshold if their taxable sales to Australian consumers in a 12-month period are A$75,000 or more. Once registered, they will need to report and pay GST on sales to the ATO.

iII)           GST - Simplified Accounting Methods Determination for Food Retailers

The Goods and Services Tax: Simplified Accounting Methods Determination for Food Retailers - Business Norms, Stock Purchases and Snapshot Methods determination will repeal and replace Simplified GST Accounting Methods Legislative Instrument (No 1) 2007 - F2007L02577, registered on 14 August 2007.

This draft determination is substantially the same as the previous determination that it replaces. If you were eligible to use a particular simplified accounting method (SAM) specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

IV)            GST Input Tax Credits Disallowed – Tax Invoices Not Enough

Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer, evidence from various sources, including third parties, showed that all relevant development works were completed prior to the dates of the purported invoices, and the taxpayer had already claimed the input tax credits in its BASs for previous tax periods.

The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.

The Tribunal observed that the mere existence of a “tax invoice" is not, by itself, sufficient to establish that a “taxable supply" (under s 9-5 of the GST Act) and corresponding “creditable acquisition" (under s 11-5 of the GST Act), had, in fact, occurred.

V)           GST – Removing the Double Taxation of Digital Currency

On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money. 

Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST. 

This measure will ensure purchases of digital currency are no longer subject to the GST. 

No changes to the income tax treatment of digital currency are proposed.  

Note! There are a number of changes to GST which may have an impact on your business. You should sit down with us to discuss if any of these changes affect you or your business.

Changes for Employers of Working Holiday Makers

On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO. 

Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register. 

Superannuation Matters for Businesses

SuperStream Roadmap

The SuperStream roadmap provides a picture of the changes for the next 18 months. The information on this web page details the changes impacting the superannuation industry up until the end of 2018. The ATO will update the information on this page every quarter. If your business has transitioned to SuperStream, it is worth keeping an eye on this web page for the latest information. You can always talk to your tax agent or adviser about this too.

Streamlined Reporting with Single Touch Payroll

In previous newsletters, we have covered Single Touch Payroll in more details.  A quick recap- employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018. The ATO will help and support you to transition during the first year of reporting.

More information can be found on the ATO website.

Changes to Tax Withholding Amounts

i)              Withholding on Salary and Wages

The way tax is calculated on salary and wages has changed.

From 1 July 2017, the:

• Temporary budget repair levy has been removed
• Medicare levy low-income threshold increased

ii)            TFN Withholding for Closely Held Trusts

Beneficiaries need to quote their tax file number (TFN) to the trustee to avoid having amounts withheld from their payments or unpaid entitlements.

If a beneficiary doesn't quote their TFN before a payment or entitlement occurs, the trustee must withhold from the payment or entitlement, pay the withheld amount to the ATO, and lodge an annual report with details of all withheld amounts.

iii)           Withholding in Business Transactions

Any business or organisation carrying on an enterprise should quote their Australian business number (ABN) when supplying goods or services to another enterprise. If the supplier does not quote their ABN, the general rule is that the payer must withhold 47% (from 1 July 2017) from their payment and send the withheld amount to the ATO.

iv)           Withholding from Unused Leave Payments on Termination of Employment

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments. Information on how to work out the amount to withhold from payments of unused annual and unused long service leave when an employee leaves can be found on the ATO website.

v)            Withholding from Dividends Paid to Foreign Residents

If you pay dividends to a foreign resident, the unfranked component of each of those payments is subject to a final withholding tax. Information on when and how much to withhold from dividends you pay to foreign residents can be found on the ATO website.

Tip! Businesses need ensure their withholding obligations are correct. If you are unsure if your business is meeting its withholding requirements or are unsure how any of these changes may affect your business meeting its withholding obligations, you should make an appointment to come in and see us.

The ATO's Compliance Approach to Employers

The ATO has provided details of its approach to compliance by employers with their obligations.

The ATO says that its compliance approach supports employers who engage with the ATO and want to get things right. The ATO takes firmer action against those unwilling to meet their obligations. The approach is based on the relevant facts and circumstances of each case.

For more information, see the ATO website. 

Changes to PAYG Instalment Conditions

From 1 July 2017, changes to administrative rules about who needs to pay PAYG instalments may affect your clients. 

The ATO will automatically remove companies, superannuation funds, and self-managed superannuation funds from the PAYG instalment system if their notional tax is less than $500. This will apply even if their instalment rate is greater than zero percent, and includes those registered for GST. 

Taxable Payments Annual Report was Due

If you are in the building and construction industry and you paid contractors during 2016-17, your Taxable Payments Annual Report was due by 28 August 2017.

DISCLAIMER: The purpose of this newsletter is to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice; this is generalised information, not specific to your personal needs and requirements.  Readers are encouraged to consult us for advice on specific matters.

Acknowledgement: The material contained in this document has been adapted, with permission from The Tax Institute, from the following publications:

The Tax Institute. 2017. ‘Taxwise Business News, September 2017’, Tax Wise Business News e-newsletter, September.

The Tax Institute. 2017. ‘Taxwise Individual News, September 2017’, Tax Wise Business News e-newsletter, September.