Tag: ATO

Superannuation Amnesty is back on the table!

The Government’s superannuation amnesty for employers is now back on the table! 

The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 was introduced into the House of Representatives on 18 September 2019. It seeks to legislate the super guarantee amnesty that the Government failed to pass into law before the Federal Election. The legislation provides for a one-off amnesty to encourage employers to self-correct historical SG non-compliance. 

Specifically, an employer that qualifies for the amnesty in relation to their SG shortfall for a quarter: 

  • Will have the administrative penalty waived ($20 per employee, per quarter) 
  • Will have Part 7 penalties waived (this can be an additional penalty of up to 200% of the shortfall owed) 
  • Will be able to deduct the late shortfall contribution (under current law, late payments cannot be deducted). 

The beneficial treatment provided by the amnesty is available for a quarter that ends at least 28 days before the start of the amnesty period. This means that the beneficial treatment provided by the amnesty is available in relation to the quarter starting on 1 July 1992 (which is the day that Superannuation Guarantee commenced) and all subsequent quarters until and including the quarter starting on 1 January 2018. An employer will not be able to benefit from the amnesty for SG shortfalls relating to the quarter starting on 1 April 2018 or subsequent quarters. 

To qualify for the amnesty, a disclosure must be made by an employer during the amnesty period. The amnesty period is the period that started on 24 May 2018 and ends 6 months after the day the legislation is passed (therefore, at least until March next year if the legislation passes next month). 

On releasing the legislation, the Assistant Treasurer said.   

Since the one-off amnesty was announced, over 7,000 employers have come forward to voluntarily disclose historical unpaid super. The ATO estimates an additional 7,000 employers will come forward due to the extension of the amnesty. This means around $160 million of superannuation will be paid to employees who would otherwise have missed out. 

The amnesty reinforces recent changes to the superannuation system to improve the visibility employees have over their superannuation. We have given the ATO greater powers to ensure employers meet their obligations, and to help ensure employees receive their superannuation entitlements. The Government’s legislated package of integrity measures – part of the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 – includes up to 12 months jail for employers who continue to do the wrong thing by their workers, and gives the ATO near real-time visibility of how much SG employees are owed and the contributions they actually receive. 

This is a practical measure that is all about reuniting hardworking Australians with their super. My message to employers who owe super is: come forward now. Do not delay. This is a one-off opportunity to set things right, and going forward the ATO has the tools to spot unpaid super. 

Irrespective of whether the amnesty passes into law, all employers should strongly consider getting their superannuation affairs in order. There is now real time, and more granular reporting of superannuation liabilities and payments – down to the employee level. The ATO will now know in close to real time if an employer is not paying superannuation in respect of any employee. Therefore, it will be in a position to immediately follow up late payers. 

 

ATO Announces Motor Vehicles Data Matching Program

 

One of the largest claims made by business and by employees for that matter is the use of a vehicle for business or work related purposes.  Much of the claim relates to depreciation on the cost of the vehicle.  As technology continues to advance and with data sharing amongst authorities becoming more prevalent, the ATO together with each of the State motor vehicle registry departments have announced that they have developed a data matching program to assess the overall taxation compliance of individuals and businesses when buying or selling vehicles.

 

Details will be requested by the ATO from the States when a vehicle has been transferred or has been newly registered and where the purchase or transfer price exceeds $10,000.

This data is going to allow the ATO to do a range of compliance audits on taxpayers in relation to Fringe Benefits Tax, fuel scheme claims as well as legal ownership of vehicles impacting the entitlement to make a claim for a tax deduction or under declaring income if a vehicle is sold.  The ATO advised in their press release that they anticipate this will impact around 2 Million taxpayers per year that acquire or transfer vehicles.

The takeaway this week is to ensure that if you are purchasing, selling or having a vehicle transferred for business or work related purposes that you ensure the correct entity is the registered owner of the vehicle and that any cost base used for making a claim uses the true cost of the vehicle adjusted for the luxury car tax limit or that the selling price is accurately recorded with any GST correctly accounted for. 

Does Your SMSF Investment Strategy Meet Diversification Requirements?

On the 9th August, the ATO announced it will contact, at the end of August, about 17,700 self-managed super fund (SMSF) trustees and their auditors where their records indicate the SMSF may be holding 90% or more of its funds in one asset or a single asset class.  

They are concerned some trustees haven’t given due consideration to diversifying their fund’s investments; this can put the fund’s assets at risk.  

Lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.  

They will ask trustees to review their investment strategy and clearly document the reasons behind the investment decisions.  

They will also ask trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements

Record Keeping is King

From an income tax standpoint, it’s in your interests to keep good records of your transactions and activities. Keeping good records is not only required by law, but it makes your accountant’s job easier – this can result in both decreased fees (an accountant will take less time in preparing returns etc.) and increased deductions (claims cannot be made without having the required records). Aside from this, by keeping good income tax records: 

*                     You can demonstrate your financial position – this is particularly important where a business wishes to obtain finance from banks, or the business is being sold 

*                     You can better monitor the overall health of your business, especially its true cash position, and 

*                     You can more easily complete paperwork, including Activity Statements. 

The ATO last year issued contemporary guidance – in the form of Taxation Ruling TR 2018/2<https://www.ato.gov.au/law/view/document?docid=TXR/TR20182/NAT/ATO/00001> – which deals with electronic records. This is welcome, as the ATO’s previous ruling was issued some 23 years ago and carries reference to cheque butts and receipt books! 

You should also utilize the ATO’s Record Keeping Evaluation Tool.<https://www.ato.gov.au/Calculators-and-tools/Record-keeping-evaluation/> After asking you a series of questions, the tool culminates in a report which details to you how well your business is keeping records. Suggestions for improvement are also made if appropriate. 

 

Low and Middle Income Tax Offset Now Law

The Federal Government’s Personal Income Tax Plan is now officially law. For 2018/2019 (the financial year just gone) the centrepiece of this plan was an increase to the low and middle income tax offset (LMITO) from a maximum $530 to $1,060. 

Taxpayers with a taxable income:  

  *   of $37,000 or below can now receive a LMITO of up to $255  

  *   above $37,000 and below $48,000 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080  

  *   above $48,000 and below $90,000 are now eligible for the maximum LMITO of $1,080  

  *   above $90,000 but is no more than $126,000 are now eligible for a LMITO of $1,080, less an amount equal to three per cent of the excess.  

With Tax Time 2019 just over a week old, 810,000 individual tax returns have now been lodged, an 88% increase from the same time last year – an increase largely attributable to anticipated refund as a result of the increased LMITO. 

Despite the increase, ATO commissioner Chris Jordan has sought to reassure taxpayers that returns will begin flowing through from the end of this week. 

“We were able to work over the weekend to make changes to our systems once the legislation was passed last week,” Mr Jordan said on Tuesday. 

“All safety nets have been lifted from our processing, so our processing is now working absolutely full bore, 100%.” 

“People do not need to do anything special; they just put their return in, and we will calculate their offsets and money will be hitting people’s bank accounts by Friday this week.” 

Now the law has been passed, you may wish to get your 2018/2019 records to your Tax Agent and instruct them to lodge early rather than in the first part of next year (which is the normal lodgement time if lodging with a Tax Agent). By doing so, all other things being equal, you will bring forward your LMITO entitlement with a potential additional refund of up to $1,080 (subject to the above income limits, and subject to not otherwise having underpaid tax during the year). 

If you lodge your own tax return, then remember you do not need to claim the LMITO separately – rather the ATO will process your claim automatically upon lodgement. 

Single Touch Payroll for Micro Employers

If as an employer you are not ready for Single Touch Payroll (STP) don’t panic!   Although 1 July has rolled around, smaller employers (those with less than 19 employees) have three months from this date (until 1 October 2019) to be STP-compliant. Furthermore, no penalties will be imposed during the initial 12 months of STP, therefore there is no need to be worried. 

While for many employers, their STP solution will be to adopt STP-compliant software or outsource their payroll to their registered Accountant or Bookkeeper, many very small employers may be eligible for the micro-employer concessions including: 

  • Reporting quarterly through their registered accountant or bookkeeper for two-years until 30 June 2021 (instead of reporting each time you pay your employees) 
  •  Adopting a free or low-cost, simplified STP solution (as opposed to payroll software). 

Micro employers are those with less than five employees at the time of application. Virtually all employees are counted (including casuals, those on leave, and employees working overseas), however closely-held payees are excluded – namely, family members of a family business, directors or shareholders of a company, and beneficiaries of a trust. 

In the event that a business is currently a micro employer but later no longer qualifies as it puts on extra staff, the ATO adopts a different approach in respect continued eligibility for the above concessions. While eligibility for quarterly reporting will be unaffected by an increase in staff above four, the ATO expects employers to cease using the simplified, low cost STP reporting solutions if they later cease to qualify as a micro employer. This would then generally mean adopting STP-compliant software, or lodging via your registered accountant or bookkeeper. 

In respect of the low-cost, simplified STP solutions, an updated list of products now available and currently in development is maintained on the ATO website.  <https://www.ato.gov.au/business/single-touch-payroll/in-detail/low-cost-single-touch-payroll-solutions/> There are a wide range of products available including free solutions such as apps to install on your phone that allow employers to simply key in employee payroll information (gross amounts per pay, and tax withheld etc.) and send it to the ATO (and thereby maintain your manual payroll systems if you so choose). 

Of course, micro employers can opt to disregard these free or low-cost solutions and instead adopt STP-compliant software and, in doing so, enjoy the advantages of computerizing your payroll processes. 

 

 

 

FBT

FBT Issues on ATO Radar

With the date for lodging and paying FBT approaching (21 May), on Wednesday 1st May, the ATO reminded employers that the following mistakes attract the ATO’s attention:

*         failing to report car fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits

  *   mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return

  *   claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising

  *   incorrectly calculating car parking fringe benefits

  *   not applying FBT to the personal use of an organisation’s assets provided for the personal enjoyment of employees or associates (e.g. spouses) and

  *   not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.

The New Importance of Tax Compliance

New legislation could see businesses lose tax deductions for payments to employees and contractors. This article details this new law, and provides a checklist of how to be compliant…

BASICS

In March, legislation was passed which will deny an income tax deduction for certain payments if the associated withholding obligations are not complied with by the business making the payment. This new law commences on 1 July 2019, and provides a very strong incentive for employers to comply with their withholding obligations. Under current law, employers are entitled to a deduction for actually having made a payment to an employee or contractor – irrespective of whether they have correctly met the withholding requirements in respect of these payments. This is, the payment itself is sufficient to claim a deduction.

NEW RULES

From 1 July 2019, a deduction will no longer be allowed in relation to the following payments:

  • Of salary, wages, commissions, bonuses, or allowances to an employee
  • Of directors’ fees
  • To a religious practitioner
  • Under a labour-hire arrangement
  • For a supply of services – excluding supplies of goods and supplies of real properyt – where the recipient of the payment has not quoted their Australian Business Number (ABN)

….if withholding applied to the payment, and the payer was required to withhold an amount from the payment and did not withhold an amount OR did not notify the ATO when required. To be clear, deductions will only be denied where no amount has been withheld at all from the payment that attracts withholding or no notification is made to the ATO. Withholding an incorrect amount (such as from an allowance etc.) or reporting the withholding incorrectly will not result in a deduction being denied.

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90% Error Rate in Rental Property Claims

The ATO Commissioner, Mr Chris Jordan, earlier this year stated that following ATO efforts, for the first time in almost 25 years, the average work-related claim decreased over the past 2 years.

The Commissioner said the ATO’s next focus is rental income and deductions. To this end, as part of the ATO’s broader random enquiry program, ATO auditors have now completed over 300 audits on rental property claims and “found errors in almost 9 out of 10 tax returns reviewed”. He said the most common errors the ATO is seeing are:

1.     incorrect interest claims for the entire investment loan where it has been refinanced for private purposes

2.     incorrect classification of capital works as repairs and maintenance, and

3.     taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.

Regarding the first category of incorrect claims, interest can still be claimed where a loan has been refinanced. However, the borrowed funds must still be used for a deductible purpose (i.e. in relation to the rental property). Where the refinanced amount is used for a non-deductible purposes (for example, to buy a boat or car, or to make repayments towards the family home), the interest that relates to that portion of the refinanced amount will no longer be deductible.

In respect of repairs and maintenance, in a rental property context, repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing worn or damaged curtains, blinds or carpets. Maintenance generally involves keeping the property in a tenantable condition, for example repainting faded or damaged interior walls. By contrast examples of capital expenditure include:

*         replacing an entire structure or unit of the property (e.g. an entire fence, kitchen cupboards, stove etc.)

*         improvements, renovations, extensions

*         initial repairs to defects that existed when you first purchased the property.

These types of capital expenses are not immediately deductible, but rather must be claimed over a number of years.

The finally category of mistakes, involves claiming a deduction for expenditure relating to the property, even though it is not being rented out, or it is not genuinely available for rent. During these periods, expenses cannot be claimed. To be clear, expenses may be deductible for periods when the property has no tenants and you are not occupying it, providing it is genuinely available for rent. To evidence this, you would need to show that it is being given broad exposure to potential tenants, such as online or newspapers advertisements etc.

Legislation Update 26/02/2019

The first sitting of Parliament for 2019 wrapped up last week. While legislation to extend the Single Touch Payroll reporting regime to all employers passed into law (just awaiting Royal Assent), there are a couple of other measures that remain unlegislated which could impact your business. With the full Parliament only expected to sit for three more days (April 2 – 4) until an Election is called, there are now serious doubts surrounding whether these measures will pass into law. In view of this, we put forward the following suggested approach in the meantime: 

  1. Superannuation Amnesty 

The legislation to enact this measure is still before the Senate. To recap, the Superannuation Guarantee Amnesty was to be available for the 12-month period from 24 May 2018 to 23 May 2019. To get the benefits of the Amnesty (set out below) employers must during this 12-month period voluntarily disclose any Superannuation Guarantee underpayments that exist in the past (going back to when Superannuation Guarantee commenced in 1992). 

For an employer, the tax benefits of the Amnesty are: 

* The administration component of the Superannuation Guarantee Charge (SGG) is not payable (this is a $20 per employee, per quarter, for whom there is an SG Shortfall) 

*  Part 7 penalties will not be applied. This can be up to 200% of the SG Charge that is payable (note that SG Charge includes the SG Shortfall that you owe to employees) 

* All catch-up payments that you make during the 12-month Amnesty period will be tax deductible. 

By contrast, under the current law, when superannuation has been underpaid or paid late Superannuation Guarantee Charge that must paid to the ATO is not deductible, and late contributions that an employer has made to an employee’s superannuation and has elected to offset against their SG Charge liability are also not deductible. 

If an employer is contemplating disclosing past superannuation shortfalls specifically to get the benefits of the Amnesty (including claiming a deduction for your late contributions) then it may be prudent to hold off until such time that the Amnesty actually becomes law (if at all). We will keep you apprised of the passage of the legislation through Parliament. However, with only a few sitting days remaining for this Parliament, and with the Opposition opposed to this measure, there are serious doubts about it becoming law. 

Irrespective of the Amnesty however, all employers should consider coming forward to disclose and pay past shortfalls to get their Superannuation Guarantee affairs in order. The Government is committing more resources to this area – including requiring Superannuation Funds to report more regularly to the ATO (at least once each month) – therefore non-complying employers may be more easily detected going forward. 

  1. Enhancing the Instant Asset Write-Off 

Legislation to expand and extend the Small Business Instant Asset Write-Off is still before the House of Representatives. This Bill seeks to extend the write-off by 12 months until 30 June 2020 (currently set to expire on 30 June 2019) and increase the threshold by $5,000 to $25,000; with the increase backdated to 29 January 2019. If passed into law, this would mean that there would be two thresholds for 2018/2019 as follows: 

* $20,000 (for assets installed ready for use between 1 July 2018 and 28 January 2019), and 

* $25,000 (for assets installed ready for use between 29 January 2019 and 30 June 2019. 

Irrespective of the whether the legislation passes into law, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off threshold was $1,000  You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner. Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan.