Tag: 1 July 2017

Non-Resident CGT Withholding Rules…. REBOOTED!

Are you buying or selling property? If so, you need to be aware of the newly adjusted withholding rules, which are now set to impact a much wider range of property sales.

Background
Last year Federal Parliament passed legislation designed to collect gapital gains tax (CGT) from non-residents selling certain Australian property from 1 July 2016.
Although the law is targeted at foreign Sellers, given the way the legislation was drafted, all Sellers of property (resident or non-resident) may be impacted. The new law required that for all property sales of $2 million or more, the Buyer was required to withhold 10% of the sale proceeds and remit that amount to the ATO without delay – unless the Seller obtains a Clearance Certificate from the ATO before settlement.
The legislation doesn’t just apply to individuals but also Companies, Trusts, and Superfunds. Further to this, it is the Buyer that can then be penalised by the ATO for failing to withhold and remit the withholding tax.

What’s Changed?
In the May 2017 Federal Budget, the Government made the following two changes:
  • Increasing the CGT withholding rate for non-residents from 10% to 12.5% from 1 July 2017, and
  • Reducing the real property exemption threshold from $2 million to $750,000 from 1 July 2017.
These changes mean that many more txpayers will be impacted by the new regime. Given this, we now examine the law in detail.

Conditions
The new withholding regime applies to contracts entered into on or after 1 July 2016 where the following three conditions are met:

1. THE BUYER ACQUIRES CERTAIN ‘TAXABLE AUSTRALIAN PROPERTY’
This includes
  • Real property in Australia – land, buildings, residentail and commercial property
  • Lease premiums paid for the grant of a lease over real property in Australia
  • Mining, quarrying or prospecting rights
  • Interests in Australian entities whose majority of assets consist of the above such property or interests (e.g. shares in a company or units in a trust) or
  • Options or rights to acquire the above property or interest.

2. THE SELLER IS A NON-RESIDENT OR HASN’T PROVIDED A CLEARANCE CERTIFICATE FROM THE ATO
Note that where there are multiple Sellers in the one tansaction, this condition will be met where any of the Sellers is a non-resident.
This condition is the ‘kicker’. The rules can catch Australian resident Sellers if they do NOT obtain a Clearance Certificate from the ATO.

3. NONE OF THE FOLLOWING EXCLUDED TRANSACTIONS ARE THE SUBJECT OF THE SALE
(a) Real property transactions with a market value of less than $750,000 (downd from $2 million). As well as sales of real property, this exemption………..

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Buying or Selling Property? Beware of the Capital Gains Tax Withholding Rules

If you are buying or selling real estate situated in Australia for $750,000 or more, it is important to be aware of the the Capital Gains Tax Withholding rules.


With effect from 1 July 2017, for any real estate transactions of $750,000 or above, the vendor must provide to the purchaser, prior to settlement, a  “clearance certificate” obtained from the ATO. Without this, the purchaser is required to withhold 12.5% of the price and pass this on to the ATO. The vendor would then need to wait until lodgement of their income tax return before they could recover the withheld amount.

The laws were introduced to tackle the problem of foreign residents selling real estate and avoiding their capital gains tax liabilities. In practice, however, it means that the vast majority of real estate transactions not involving foreign residents are also impacted. The ATO recommend applying for a clearance certificate at least 14 days before you require it.

The following tax changes commence 1 July 2017 and may impact you or your clients:

Happy New Financial Year!

Income Tax

Deficit Levy to be abolished – thus resulting in a 2% tax cut for individuals with taxable income in excess of $180 000.

Minimum Wage

On 6 June 2017, the Fair Work Commission handed down its annual wage review. The decision varied the following:

  • Minimum wage rates in Modern Awards – increased by 3.3% from first full pay period commencing on or after 1 July 2017 (rounded to the nearest 10 cents)
  • National minimum wage – increased by 3.3% to $694.90 per week, or $18.29 per hour
  • Wages for juniors, apprentices – most rates are expressed as a percentage of nominated adult rate so they receive a proportionate increase to the adult rate
  • Wages for trainees and piece workers – most trainees are covered by the National Training Wage system that is included as a schedule in most awards. National Training Wages will also be increased by 3.3% from the first pay period on or after 1 July 2017. Piece rates will increase in accordance with the relevant provisions in the modern award, pay scale or transitional award.
  • Supported wage system – employees with a disability: these employees are paid a percentage of the relevant adult wage, based on their assessed capacity. The 3.3% increase will also flow through to these employees.

GST

Rental Property Deduction Crackdown

First Home Saver Scheme to Commence

Voluntary super contributions made from 1 July 2017, will be able to be withdrawn as a deposit for a first home. More information.

Superannuation

Single Touch Payroll

Available for some employers

ATO Debt Alert

From 1 July 2017 the ATO is cracking down on businesses with large debts owed. This could have far-reaching consequences for affected businesses. As a result, action may need to be take before this deadline.

BACKGROUND
The ATO is currently owed more than $19 billion in overdue tax. Of this, approximately two-thirds is owed by small businesses (those with a turnover of less than $2 million). This presents a delicate balance for the ATO and Government with the need to protect Government revenue coming up against the desire not to send businesses ‘to the wall’ and the flow-on costs that come with that (unemployed staff etc).
However, in the Mid-Year Economic and Fiscal Outlook (MYEFO) it would seem that the Government has had enough, announcing a rather dramatic debt measure that all business taxpayers should take note of.

DETAILS
In MYEFO,which is the Government’s mid-year Budget update in December, it was announced that where an entity meets the following criteria in relation to an ATO debt, the ATO will be permitted to disclose this debt to Credit Reporting Bureaus:
  • You or your business has an ABN
  • Your debt is more than $10,000
  • Your debt is more than 90 days old and
  • You have not engaged the ATO in respect of repaying the debt.

This is a big shift from current practice where the consequences of not paying ATO debt have no real tangible impact on your day-to-day operations other than the incurring of a General Interest Charge (currently 8.75% compounding daily) and the issuance of a Director Penalty Notice requiring company directors to personally pay outstanding PAYG Withholding and Superannuation Guarantee Charge. By contrast, the implementation of this new policy (which at the time of writing (March) is set to go ahead) could have profound effects for a small business. Credit default ‘black marks’ last for five years. In the worst of cases, support from financiers may be withdrawn and supplier credit stopped.

ACTION POINTS

This change does not require legislative passage through the Parliament. As such the ATO is free to implement this policy from 1 July without Parliamentary approval. Given the profund consequences of a 5-year credit ‘black mark’ on a business (potentially drying up finance) we would strongly recommend that businesses who meet the above criteria with respect to a current ATO debt either (a) repay the debt to at least below the $10,000 threshold or (b) enter into a payment arrangement with the ATO before 1 July 2017. Indeed, irrespective of whether the above conditions are met, it’s always best practice to engage with the ATO by entering into a payment arrangement. Having a record of cooperation and compliance can assist in future ATO dealings in respect of extensions/leniency etc.

The good news is that the ATO is very flexible with payment arrangements – they will generally make every effort to accommodate your requirements. The ATO can also offer interest-free repayment plans to some small businesses in relation to Activity Statement debt. To enter into a payment arrangement, you should phone the ATO on 13 28 66 or get your Accountant to contact them on your behalf.
The ATO provide further guidance on help with paying debts at https://www.ato.gov.au/general/paying-the-ato/help-with-paying/ 

To read this entire article log into the ATR members area here //mytaxsavers.com.au/wp/wp-login.php see Bi Monthly update May/June page 9.

https://www.ato.gov.au/general/new-legislation/in-detail/other-topics/improve-the-transparency-of-tax-debts/

New Year Issues and Strategies

The New Year is a time to reflect, but also look ahead. Following are some of the issues business owners and individuals may turn their minds to as we enter 2017.

STAFFING LEVELS
Employing – If you determine you need additional staff – perhaps you are adding additional services/product lines to your business; you have a shortfall in the number of staff required to undertake current work in your business; or are replacing staff who have left your business – there is a myriad of obligations and procedures to be followed, both at a State and Federal level. To assist employers, the Government in conjunction with small business owners, Tax Agents, and industry associations, has created a Taking on Employees Checklist www.business.gov.au/info/run/employ-people. Irrespective of which State or Territory you are located, this comprehensive checklist covers off on all the Federal and State laws that apply when taking on a new employee – from pay entitlements, superannuation, insurance, withholding tax, and more. It’s a one-stop shop.
Redundancy – On the other hand, if your year-end review of staffing levels determines that there is excess staff, an employee may be made redundant. From a taxation perspective, a redundancy occurs when the employee is dismissed because the job they are doing no longer exists in your business – it has become redundant, and nobody is required to perform that specific role. Where this is the case, the employee is afforded concessional tax treatment on payments such as: payments in lieu of notice, severance payments of a number of weeks’ pay for each year of service, and gratuities or golden handshakes. Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit based on the employee’s years of service with you. The tax-free limit is a flat dollar amount ($9,936 for 2016/2017), plus an amount for each year of completed service ($4,969) with the employer. Indexation changes the tax-free limit on 1 July each year. Note that for this concessional tax treatment to apply, the employee must be less that 65 years of age a the time the redundancy payment is made.
The following payments are not included in a genuine redundancy payment – salary/wages/allowances owing for work already done or leave already taken for work completed; lump sum payments of unused annual leave or leave loading paid on termination of employment; lump sum payments of unused long service leave paid on termination of employment under a financial arrangement; or payments made in lieu of superannuation benefits.

SUPERANNUATION CHANGES
Upcoming superannuation changes will impact many thousands of Australians in 2017, and may require some forward planning on your part. The changes which have now been passed by Parliament are:
  • From 1 July 2017, only those with a superannuation account balance below $1.6 million will be able to make non concessional contributions
  • If you are eligible to make no-concessional contributions from 1 July 2017 (i.e. have an account balance below $1.6 million) you will be limited to $100,000 per annum (or $300,000 over three years using existing bring-forward rules). Up until this date, the cap remains at $180,000 or $540,000 over 3 years. Thus over the coming months taxpayers, who are contemplating making large non-concessional contributions may wish to consider bringing forward those contributions to before 1 July. If making a large contribution (e.g. you may have received an inheritance, or sold a property) this will enable you to deposit more money into the concessionally  taxed superannuation environment sooner, and enjoy those tax concessions from an earlier date.
  • Concessional contributions limit will from 1 July 2017 be reduced to $25,000 for all taxpayers. Currently, the limit is $30,000 (or $35,000 for taxpayers aged over 49)
  • Allowing all individuals eligible to contribute to superannuation a deduction for their personal contributions up to the concessional contributions limit, from 1 July 2017.
  • Taxing the earnings in respect of Transition to Retirement Income Streams (TRIS) at 15% (up from 0%) from 1 July 2017.
  • Reducing the income threshold at which taxpayers are charged an extra 15% tax on the concessional contributions from $3000,000 to $250,000 from 1  July 2017. 
INSTANT ASSET WRITE-OFF
With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularity in this current low interest-rate environment. Up until 30 June 2017, Small Business Entities (SBE’s) can claim an immediate write-off for the acquisition of most depreciating assets used in their business if the asset cost less that $20,000.

PENSION AND ALLOWANCES CHANGES
On 1 January 2017, new rules for pension access will be applied. It is estimated more than 300,000 Australian will have their benefits reduced as a result Some forward planning may be required to replace any lost income. To be clear, these changes will affect all pensioners who are assets tested, or who are currently income tested but become asset tested including recipients of the Age Pension, Carer Payment, Disability Support Pension, Widow B Pension, and Wife Pension. The Asset Test Free Area is the amount of assets above which allowances are not paid and pensions are reduced. From 1 January 2017, the Full Pension Thresholds will increase. Only if your assets are below the thresholds will you be eligible for a full pension under 2017 assets test.

For the complete article, including case studies, please see your Jan/Feb 2017 ATR BiMonthly Update magazine, or log into your exclusive Members Area to read this article online. www.mytaxsavers.com.au/login