Tag: TAx Compliance

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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2019 May/June – Page 17

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it’s essential that your company, via an 

appropriately worded minute, makes an 

unconditional resolution in a shareholders’ 

meeting; making the company “definitely 

committed” to making the payment. The 

resolution must not be conditional (i.e. subject 

to cash-flow considerations etc.).

FLU VACCINATIONS 

As we move into Winter and flu season, have 

you considered paying for your employees to 

have flu vaccinations? As well as decreasing 

workforce absences (which in the case of the 

flu can be anything up to a week or more per 

employee which can dramatically impact 

overall productivity), flu vaccinations receive 

generous tax treatment.

FBT
If an employer provides an employee with 

a flu vaccination by paying for the cost of 

the vaccination this is an exempt benefit 

which will not attract FBT. Section 58M 

of the FBT Assessment Act exempts from 

FBT any 'work-related preventative health 

care’ of an employee. This term is defined 

to basically mean any form of care provided 

by, or on behalf of a medical professional to 

prevent work related trauma provided it is not 

excluded from those employees who:
a.  Are likely to be at risk from similar work-

related trauma 

b.   Work in close proximity to employees 

who are suffering from the trauma, or

c.   Perform similar duties to those employees 

who are suffering from the trauma.

‘Work-related trauma' is defined to include the 

contraction of a disease that is related to the 

employment of the employee. Because of the 

nature of flu, all members of a workplace are 

susceptible to contracting it, and therefore it 

qualifies as ‘work related trauma’. Although 

not every employee may take up the offer of 

free flu vaccinations, it must be offered to all 

employees in order to be exempt from FBT.

DEDUCTIONS 
Flu vaccinations, although generally not 

deductible when paid for by employees, are 

deductible when paid for by employers on 

behalf of their workers. Medical expenses 

incurred by an employer to vaccinate 

employees who are at risk of contracting a 

fever are regarded as arising directly from 

the employer's income earning activities. 

Consequently, the medical expenses are 

of a business nature, and are an allowable 

deduction. 
As we near flu season and financial year-end, 

by offering flu vaccinations and having them 

done and paid for/invoiced by 30 June, you 

can optimise your 2018/2019 tax position – as 

well as providing a benefit that is typically 

much appreciated by employees and reduces 

the risk of sick leave. 

EXAMPLE RESOLUTION 
COMPANY ABC PTY LTD 
Minutes of Shareholders Meeting  

Venue: Brisbane St, Brisbane  

Date: 30 June 2019  

Present John Smith, Sue Jones 
Directors’ Fees:  

It was resolved to pay directors’ fees 

to the directors for their services to the 

company during the 2018/2019 income 

year. The following amounts are payable:

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My Tax Savers

2019 May/June – Page 7

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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. That 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 

property – 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 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. 
In summary, provided an amount is withheld 

(even if it is incorrect) and a notification 

to the ATO is made (i.e. a BAS is lodged 

before the mistake / non-lodgement is picked 

up by the ATO) there is an opportunity to 

correct mistakes relating to the amount or 

the payment of the amount, and therefore a 

deduction is allowed.  
Note also that the new rules apply equally to 

non-cash benefits provided in lieu of a cash 

payments in respect of one of the earlier-

mentioned payments. While there may, in 

this scenario be no obligation to withhold, an 

amount must be paid and then reported to the 

ATO by the required lodgement time. 

EXCEPTION 1 

Where an ABN is quoted by an employee, 

and no amounts have been withheld from 

the payments because the employer believes 

they are a contractor, a deduction will still be 

allowed for the payments. Therefore, honest 

employee/contractor classification mistakes 

are not caught by the new rules. This is 

sensible, as this distinction can be difficult to 

make in some cases, and is not always assisted 

by the ATO’s Employee/Contractor Decision 

Tool which can, in some cases, provide the 

incorrect result. If however, the worker did 

not provide you with an ABN, and no amount 

was withheld, a deduction will be denied. 

This is because, if you classified the worker 

as a contractor, and they did not provide an 

ABN, then 47% of the payment should have 

THE NEW

 

IMPORTANCE OF

 

TAX COMPLIANCE

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2019 May/June – Page 18

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1. AVOID PANIC ACTION

Recently, there has been much commentary around purchasing or 

selling property or shares based on various theories about what might 

happen as a result of the upcoming Federal Election. Such talk is 

troubling. 
Doing anything as drastic as buying or selling assets based on tax and 

tax alone, is generally unwise. This is especially so where the decision 

to buy or sell is being made in the context of what may happen as a 

result of an Election. 
Firstly, it is not at all certain who is going to win the Federal Election. 

Elections in Australia are normally close (anything more than 52% of 

the preferred vote is rare). The composition of the Senate – with many 

minor parties in existence – is even less certain. 
Secondly, the detail around tax measures that have been announced is 

still scarce. For example: 
•  In relation to proposed negative gearing restrictions, how will 

‘new residential property’ be defined? 

•  In relation to proposals to tax discretionary trust distributions 

at a minimum rate of 30%, how will discretionary trusts be 

defined? In particular, will an exclusion be carved out for discre-

tionary trusts which hold farm assets irrespective of who are the 

members of the discretionary class of beneficiaries? Or will all 

the discretionary beneficiaries need themselves to be involved in 

farming? 

•  In respect of the denial of excess franking credit refunds, there 

are also question marks. For example, what’s the start date – par-

ticularly if the legislation is delayed by Parliament? Will there be 

more exemptions for low-income earners? 

Finally, any legislation must pass through the Parliament. Even if a 

proposal does become law, it is almost always subject to fine-tuning 

(and in some cases significant change) in order to appease crossbench 

or Opposition senators. 
All of this reinforces the point that acting now by buying or selling 

assets is in most cases not prudent. 

2. PREPARE FOR SINGLE TOUCH PAYROLL

This is one of the largest ATO reporting changes for employers since 

the GST was introduced back in 2000. Talk with your Accountant 

about the best solution for your business, and read our article on page 

4 for all your unanswered questions. There is no need to panic leading 

up to the start date, as the ATO has advised that it will not impose any 

penalties for incorrect reporting in the first year of this new system. 
That said, it’s important to get your STP solution bedded down and 

adapt to this new change in good time. 

3. SUPER AND TAX COMPLIANCE 

It’s now more important than ever as an employer to lodge and pay on 

time. 
Under recent changes, superannuation funds are now reporting (at 

least monthly) to the ATO. Therefore, employers who are not making 

the required Superannuation Guarantee contributions for employees 

on time, are much more likely to be detected. 
Also, detailed on page 6, deductions for payments made to workers 

may from 1 July 2019 be denied where lodgement and withholding 

obligations have not been met. 

Tax Take-aways  

for May and June

MY TAX SAVERS

May/June  2019

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2019 May/June – Page 8

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been withheld under the ‘No ABN Withholding Rule’. An exception 

would be where no ABN was provided, but the recipient provided 

your business with a Statement by Supplier form detailing the reason 

why no ABN was provided (such as the payment was for a hobby etc.). 

EXCEPTION 2

The other exception is where the business voluntarily notifies the 

ATO of its mistake in the approved form (such as by amending your 

BAS) before the ATO commences an audit or other compliance 

activity. 

OBSERVATIONS

1. INNOCENT MISTAKES CAUGHT 

These new rules were the recommendation of the Government’s Black 

Economy Taskforce. The black economy refers to people who operate 

entirely outside the tax and regulatory system or who are known to 

the authorities, but elect to not correctly report their tax obligations. 

Despite originating from this tax avoidance taskforce, these new rules 

can actually catch out businesses that are attempting to comply, but 

have simply made an innocent mistake.

For instance, in the above example, there is no suggestion that 

Caleb is not acting in good faith – he simply was not aware that 

apprentice wages attracted withholding. While it may be argued that 

a reasonable business owner would not make such a basic mistake, 

consider the quite common instance of employers incorrectly 

determining that certain motor vehicle allowances do not attract a 

withholding obligation. If this involved several employees (or even 

just one) over a three-month quarterly BAS period…then none of 

the allowance payments would be tax deductible unless the mistake 

was picked up before it came to the attention of the ATO. Therefore, 

despite making a quite common mistake, and lodging BAS on time, 

and reporting and remitting all other withholding to the ATO for 

the period, no deduction would be allowed for the motor vehicle 

allowance payments. 
Therefore, it’s important for employers to review their payroll systems 

and ensure that amounts are being withheld correctly from salary, 

wages, allowances etc. 
2. ALWAYS REPORT  
Even if you’ve spent the withholding and don’t have the cash on hand 

to pay the ATO, always report it on your BAS. Failing to report the 

withholding means you are unable to claim a deduction even if you 

did actually withhold. If you do not have the cash on hand, you can 

always enter into a payment arrangement with the ATO and pay 

the amount owing in instalments. This will preserve your right to a 

deduction, which will be forfeited if you don’t report the withholding. 
3. LODGE ON TIME
Even if you do the right in terms of (a) withholding the tax required 

and (b) reporting the withholding on the BAS and (c) lodge your 

BAS…you can still be denied deductions if that BAS is lodged 

late! This is because, the failure to notify the ATO of a withholding 

obligation when required (i.e. by the due date of your BAS) can itself 

result in the denial of a deduction. The ATO’s data collection systems 

are highly developed and can pick up non-compliance in real time. 

Therefore, where you lodge a BAS late (and therefore fail to notify the 

ATO of a withholding obligation on time) this can itself trigger the 

disallowing of deductions. Always lodge on time, where possible.  

MY TAX SAVERS

May/June  2019

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TREASURY EXAMPLE

Caleb carries on a business as a mechanic. Caleb does not 
have any employees until he hires an apprentice, Bianca, in 
May 2020. 

Caleb is not aware that he must withhold an amount from 
Bianca’s wages. 

Caleb visits his accountant in September 2020 to prepare his 
2019/2020 income tax return. He mentions his expenditure 
to pay Bianca’s wages. Caleb’s Accountant advises Caleb he 
should have been withholding from the wage payments. 

Caleb notifies the ATO of his mistake. Caleb may still be 
subject to penalties for his failure to withhold. However, he is 
entitled to claim the deduction for the cost of Bianca’s wages 
in his 2019/2020 income tax return. This is because, although 
no amount was withheld, Caleb notified the ATO before it came 
to their attention.

2019 May/June – Page 19

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In this edition we detail a new, affordable mechanism 
to resolve disputes with the ATO, warn of the latest tax 
scams, outline the criteria for accessing superannuation on 
compassionate grounds, and more. 

WHAT THE 

TAXMAN IS 

THINKING

SMALL BUSINESS DISPUTES  

WITH THE ATO

From 1 March 2019, a new small business 

tax division was created within the 

Administrative Appeals Tribunal (AAT) 

offering a low-cost avenue for small 

businesses who dispute the ATO’s assessment 

of their tax position. Generally, these hearings 

will be without lawyers, but if lawyers are 

required, the ATO will cover the cost of 

equivalent legal representation for the small 

business. Applicants will also have a case 

manager to support them, pay a reduced 

application fee and, after the hearing process 

is concluded, have a decision finalised within 

28 days.
WHO CAN APPLY?
Any person affected by a small business 

taxation decision can apply for review of that 

decision by the AAT. A small business is 

any business with a turnover of less than $10 

million (including the turnover of connected 

entities and affiliates). 
FEES?
While any legal representation you require 

will be provided to you free of charge, there 

is a standard application fee of $500. The 

AAT may dismiss your application if you do 

not pay the application fee within six weeks 

after lodging your application. While your 

application fee remains unpaid, the AAT may 

not process your application.  
You may pay a reduced fee of $100 in any of 

the following concessional circumstances: 
•  You have been granted legal aid for your 

application 

•  You hold a health care card, a pensioner 

concession card, a Commonwealth 

seniors health card or any other card 

issued by the Commonwealth that 

certifies entitlement to Commonwealth 

health concessions

•  You are in prison or lawfully detained in 

a public institution

•  You are under 18 years of age 
•  You are receiving youth allowance, 

Austudy or Abstudy or

•  Having regard to your income, assets, 

expenses and liabilities, the registrar 

decides that payment of the fee has 

caused or would cause you financial 

hardship.

Also, a reduced application fee of $91 is 

payable for review of certain small business 

taxation decisions if: 
•  You state in writing that the amount of 

tax in dispute is less than $5,000

•  The ATO has refused your request 

to be released from paying a tax debt 

(regardless of the amount involved) 

•  The ATO has refused to extend the time 

for you to lodge a taxation objection.

HOW TO APPLY
Applications to the AAT must be made 

in writing and give brief reasons for the 

application. An easy way to do this is through 

the Application for Review of Decision form 

on the ATT’s website. You can also download 

an application form from their website, 

write a letter or send an email to the AAT. 

If you are seeking a review of an objection 

decision, your application must be lodged 

within 60 days after you receive notice of the 

Commissioner’s decision.

All told, the small business taxation division 

is designed to make the process to dispute an 

ATO objection decision at the AAT easier, 

faster and cheaper for small businesses.

STILL SCAMMING…

Fresh tax scams have continued to emerge. 

The ATO is warning that you should be 

on alert for scammers impersonating the 

ATO, as they have changed tactics in 2019. 

Specifically, a new tactic is being employed 

whereby scammers are using an ATO number 

to send fraudulent SMS messages to taxpayers 

asking them to click on a link and hand over 

their personal details in order to obtain a 

refund. The ATO has also detected scammers 

manipulating the calling line identification. 

This ensures that the phone number that 

appears on the receiver’s device is different 

to the number from where the call is made 

(otherwise known as ‘spoofing’). The ATO 

has advised that it does not project its number 

onto your caller ID. If a number appears on 

your caller ID, you can be confident that it is 

not the ATO calling. The ATO has warned 

that:
The scam is not just targeting your money, 

but is after your personal information in 

an attempt to steal your identity. Taxpayers 

should be wary of any phone call, text 

message or email asking you to provide login, 

personal or financial information. The ATO 

will not:
•  Send an email or SMS asking a taxpayer 

to click on a link to provide login, 

personal or financial information, or to 

download a file or open an attachment

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Don't fret 

on tax debt

This article examines the growing issue of debts owed to the ATO. We look at ways to 
minimize the chances of slipping into debt, as well as the deductibility of interest on loans 
taken out to repay these debts, and more. 

FIRMER APPROACH

The latest ATO annual report highlighted that 

collectable tax debt had grown to more than 

$23.7 billion for 2017/2018 — up from $20.9 

billion the previous year. The majority ($15.1 

billion) is owed by small business. Almost 

$10 billion of the $23.7 billion in debt owed is 

subject to objection or appeal, $1.1 billion is 

"uneconomical to pursue" and $3.7 billion is 

"irrecoverable at law".
In the recent times, the Government and the 

ATO have signaled their intent to crackdown 

on debt that is owed:
•  The Government recently provided the 

ATO with an additional $133 million 

over four years for it to continue a raft of 

measures that will sustain and increase 

debt collections and the timeliness of 

those collections.

•  Legislation is currently before Federal 

Parliament to extend the Director Penalty 

Notice (DPN) regime to make directors 

personally liable for unpaid GST, luxury 

car tax, and wine equalisation tax. Under 

the DPN regime they are already liable 

for unpaid Superannuation Guarantee, 

and PAYG withholding

•  Last year, we flagged a Government 

proposal that would allow the ATO to 

report certain overdue (by 90 days or 

more) undisputed tax debts of $10,000 

(not covered by a formal ATO payment 

arrangement) to Credit Reporting 

Bureaus (CRBs). As we noted, the effect 

of this on a business could be quite 

devastating, as CRBs may include the tax 

debt information in their credit reports 

which are available for purchase by 

parties who wish to use this information 

to make an informed decision on the 

credit worthiness of a business. This 

could have profound effects on the 

reported business such as support from 

financiers being withdrawn, and supplier 

credit stopped. Early in 2018, the ATO 

released Exposure Draft legislation on 

this measure for public consultation. The 

consultation period closed on 9 February 

2018, and this measure has not proceeded 

any further. The only development that 

has taken place is that in its Mid-Year 

Economic Statement in December 2018, 

the Government raised the debt threshold 

to $100,000 – making this potential 

measure irrelevant for many taxpayers 

who would likely have smaller overdue 

ATO debts.

•  While the ATO has in the past waited 

for a company’s outstanding debt to 

reach more than $340,000 before taking 

firmer action, in recent times the ATO 

has reduced this threshold down to 

$93,000. For individuals, the threshold 

has been reduced to $35,000 (down from 

$300,000).

PAYMENT PLANS

The ATO recognises that taxpayers (including 

individuals and businesses) sometimes 

experience short-term cash-flow issues that 

prevent them from paying on time. To assist, 

they offer payment plans tailored to your/

your business’s circumstances. You can use 

the ATO’s online “Payment Plan Estimator” 

(search this term at 

www.ato.gov.au

) to work 

out a plan that meets your circumstances, 

taking into account the payment plan 

conditions and how quickly you can pay off 

the debt, including how much interest you'll 

be charged.  The advantage of entering into 

a payment plan is that if you comply with 

its terms, no further more serious action 

will be taken by the ATO. It also gives you 

peace of mind that the debt is under control 

and is being dealt with. Payment plans can 

be organised by taxpayers themselves or by 

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•  Use aggressive or rude behavior, or 

threaten taxpayers with arrest, jail, or 

deportation

•  Request payment of a debt via iTunes or 

Google Play cards, pre-paid Visa cards, 

cryptocurrency or direct credit to a 

personal bank account, or

•  Request a fee in order to release a refund 

to taxpayers. 

If you are uncertain about a call or text 

message or email received, the best advice 

is simply to do nothing. The ATO advises 

that you should slow down and phone them 

on 1800 008 540 to check if the contact was 

legitimate or to report a scam. The latest 

ATO monthly scam statistics are somewhat 

alarming:
•  25,473 phone scams were officially 

recorded

•  1,625 phishing scam emails reported to 

reportemailfraud@ato.gov.au 

•  $542,456 reported as being paid to 

scammers (with payments via Google 

Play, iTunes and Bitcoin accounting for 

the majority of losses), and 

•  Up to 56% of taxpayers targeted had 

provided scammers with their personal 

identifying information. 

ACCESSING SUPER ON 

COMPASSIONATE GROUNDS

Commencing 1 July 2018, the ATO assumed 

responsibility for the early release of your 

superannuation on compassionate grounds. 

Since that time, the ATO advises that there 

has been an increase in applications – with 

superannuation funds correctly directing 

their members to the ATO. However, in the 

vast majority of cases, the applications were 

denied. The ATO advises that members 

should be directed to the ATO if they are 

requesting release of their funds for any of the 

following expenses (all of which are grounds 

for compassionate release):
•  Medical treatment and medical transport 

for the member of the fund or their 

dependants

•  Palliative care for the member of a 

dependant

•  Payment of a loan or Council rates so the 

member does not lose their home

•  Modifications to their home or vehicle, 

or buying disability aids due to a severe 

disability of the member or a dependant

•  A death, funeral or burial for a dependant. 

ORDINARY TIME EARNINGS AND 

ANNUAL LEAVE LOADING

Annual leave loading is paid by many 

employers to workers covered by certain 

Modern Awards. An employee’s  Award, 

enterprise agreement or contract will state 

if they are entitled to leave loading. It is a 

17% extra payment payable on an employee’s 

base rate of pay while they are on annual 

leave. In most circumstances, annual leave 

loading is paid out on accrued annual leave 

balances upon termination. The loading is 

not payable on other types of leave, such as 

personal leave and long service leave. Leave 

loading is designed to compensate employee’s 

who normally are entitled to overtime, but 

are denied that opportunity while they are on 

annual leave. A common question asked by 

employers, is whether leave loading attracts 

superannuation. The answer is somewhat 

complex.  
Last month, the ATO restated its view 

that annual leave loading will be ordinary 

time earnings (OTE) and therefore attract 

superannuation unless it is referable to a lost 

opportunity to work overtime. Most awards 

do not specifically state the reason the annual 

leave loading entitlement is provided.
If employers have self-assessed on the basis 

that their annual leave loading is not OTE 

(and therefore does not attract superannuation) 

and there is a lack of evidence to demonstrate 

the purpose of the entitlement, there is a risk 

that they may have historical superannuation 

shortfalls and be liable for the Superannuation 

Guarantee Charge (SGC).
The ATO acknowledges the uncertainty 

around this topic, and the evidentiary 

difficulties in identifying the purpose for 

annual leave loading entitlements. For this 

reason, the ATO will not apply compliance 

resources to scrutinising the reason why 

annual leave loading was paid in past 

quarters, where:
•  the employer self-assessed that the 

annual leave loading was not OTE, with 

the reasonable position that their annual 

leave loading was for a notional loss of 

opportunity to work overtime

•  there is no evidence that is less than five 

years old that suggests the entitlement 

was for something other than lack of 

opportunity to work overtime.

Going forward employers should take note 

of the general rule that annual leave loading 

does not attract superannuation if it is 

compensation for a lost opportunity to work 

overtime. If it is not paid for this reason, then 

superannuation will apply. 

‘DODGY’ FINANCIAL PRODUCTS

The ATO has advised that it is on the look 

out for those entering into “dodgy” financial 

products. 
The ATO counsels investors to carefully 

review any material – such as product 

disclosure statements – before deciding 

whether to invest in the product. While 

acknowledging that the majority of financial 

products are within the law and are legitimate 

investments, the ATO is concerned with a 

small number of products that promise to 

provide investors with tax benefits that are 

not available to some or all investors in the 

product. Issues that concern the ATO include 

advice that
•  Suggests investors draw certain 

conclusions about positive tax outcomes 

from investing in certain products that 

most taxpayers would not receive in their 

individual circumstances (i.e. statements 

such as “generally, deductions will be 

available, however for certain taxpayers a 

deduction will not be available’);

•  Includes inappropriate statements such as 

when discussing the possible application 

of the tax avoidance provisions to the 

arrangements, stating that ‘no other 

economic alternative to this transaction 

exists’. The ATO warns that simply 

making this statement does not make it 

true. 

The ATO recommends that you seek 

independent tax or legal advice about the 

tax consequences of investing in complex 

financial products. This advice should be from 

an advisor who is not themselves involved 

in the selling of the product. That tax advice 

should be separate from any advice you 

receive from a financial planner about the 

merits of the investment itself. You should 

also check to see if the ATO has issued a 

product ruling on the investment.

TAX TIP

Members should take note that if you 
have any of these expenses, you may be 
able to discharge them by releasing your 
superannuation savings. This may come 
in particularly handy for unexpected, 
large expenses such as the funeral of a 
dependant.   

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their Accountant or registered bookkeeper 

on their behalf, simply by calling the ATO’s 

automated self-help numbers and following 

the prompts – there is no need to talk with a 

Tax Officer. To set up an arrangement, call the 

ATO on:
•  Business - 13 72 26 (and enter 2), or
•  Individual - 13 28 65 (and enter 3).
If you are ineligible to enter into an automated 

payment plan, you should contact the ATO 

directly. 

RANGE OF ACTION

The ATO takes a tailored approach to debt. 

A taxpayer/business’s behavior, individual 

circumstances, lodgment and payment history 

are used to determine the most appropriate 

action for a tax debt. A three-tiered approach 

is taken:
1. EARLY ACTION
•  Post due date SMS debt reminders
•  Reminder letters
•  Pre-referral to external debt collection 

agency warning letter

•  Phone call from the ATO
•  External debt collection agency
2. FIRMER ACTION
•  Firmer action warning letter
•  Garnishee 
•  Director Penalty Notice (see earlier).
51,000 garnishee notices were issued in 

2017/2018. Furthermore, in the most recent 

12 months, there is anecdotal evidence from 

business bankers that there has been an 

increase in the number of garnishee notices 

received by banks from the ATO in relation to 

outstanding debts. These notices require the 

recipient (bank) to pay available funds from 

an individual or business’s account to reduce 

the debt owed to the ATO. This can create 

both cash-flow problems and/or financial 

problems for the individual or business that 

has been targeted. Firstly, you can be left 

without funds in your bank account to pay 

commitments to ensure the ongoing operation 

of your business (e.g.  payments of wages 

to your employees and payments to key 

suppliers). Secondly, the receipt of a garnishee 

order by a bank typically constitutes a 

breach of borrowing conditions which can 

have a detrimental effect on continued 

funding.  A copy of garnishee notices issued 

to banks is forwarded by the ATO to your 

registered address. This will typically be your 

Accountant if you use one.

3. STRONGER ACTION
•  Notice of intended legal action
•  Summons
•  Judgement
•  Bankruptcy notice
•  Creditor’s petition
•  Statutory demand
•  Application for winding up
There were more than 1,800 bankruptcies and 

company wind-ups in 2017/2018. 

SERIOUS HARDSHIP

In certain circumstances, the ATO will 

release you from some or all of your tax debt. 

This is only possible if you're experiencing 

serious hardship – that is, when payment of 

your debt would leave you unable to provide 

food, accommodation, clothing, medical 

treatment, education or other necessities 

for yourself, family, or other people you are 

responsible for. 
You can apply for release of your tax debt if 

you are:
•  An individual (including if you are self-

employed or a sole trader who is no longer 

trading) 

•  The trustee of the estate of a deceased 

person, if payment of the debt would 

cause serious hardship for the dependants 

of the deceased estate. 

Companies, trusts, and partnerships cannot 

apply for release from tax debt. If your 

company, trust or partnership has a tax debt 

and you are having difficulty paying, phone 

the ATO on 13 11 42 to discuss your options. 

Alternatively, speak with your Accountant 

and get them to contact the ATO. 

PREVENTION

The best way of managing this issue is to not 

incur a tax debt in the first place! Strategies to 

help minimise the chances of this include:
GST AND PAYGW TO BE KEPT 

SEPARATE
GST that you charge on the goods and 

services you provide should be quarantined. 

Unlike income tax on your income, all of 

the GST you receive is payable to the ATO. 

Likewise, all of the PAYGW taken from 

payments such as salary, wages, allowances, 

directors’ fees etc. must be remitted to the 

ATO. For this reason, both amounts should be 

kept separate from other finances. 

PROVISION FOR PAYG INSTALMENTS 
Be sure to keep sufficient income aside to 

meet your PAYG instalment obligations 

on your Activity Statement. The PAYG 

instalment system is a tax collection system 

which is designed to ensure that tax is 

paid on business and investment income at 

various points throughout the financial year 

(typically quarterly). The tax instalments paid 

during the year are based on the business and 

investment income recorded in your most 

recent income tax return. Because it is merely 

a tax collection system, taxpayers (companies, 

sole traders and individuals) within the system 

must still lodge annual income tax returns at 

the end of the financial year.
If you pay instalments by a set amount given 

to you by the ATO, then you will know how 

much income to keep aside. On the other 

hand, if you pay by reference to an instalment 

rate/percentage of your business income 

provided by the ATO, then you may wish 

to speak to your Accountant in regards to 

how much money to keep aside. It is worth 

noting that if your business is in its first year 

of operation, it will not be in the instalment 

system. This is because an instalment rate 

or amount is based on your most recent tax 

return. However, a business in this situation 

can opt to make voluntary payments to the 

ATO as provision for their first year tax bill. 

Again, your Accountant should be able to 

guide you on the amounts to keep aside. 
VARYING PAYG INSTALMENTS
Businesses are also at risk of going into debt 

with the ATO if they vary the ATO-provided 

dollar instalment amount downwards, and 

therefore pay a lesser amount than the ATO 

recommends per Activity Statement towards 

your year-end income tax liability. Businesses 

should only look at varying the amount where 

you are certain that you will receive less 

income during the year than last year, 
On the other hand, if you pay via an 

instalment rate, only look at varying the rate 

where there is a change (as compared to last 

year) in the percentage of your business and 

investment income that will be paid as tax at 

the end of the year. For example, a business 

may have many more deductions that can be 

claimed this year (as compared to last year). 

Therefore, all other things being equal, the 

percentage of that business’s business and 

investment income that will be paid as tax 

will be less. 
Variation decisions should always be made 

with the assistance of your Accountant, 

because an inaccurate variation can lead to 

tax debts, and penalties may also apply. If the 

varied amount or rate is based on an estimate 

that proves to be less than 85% of the actual 

tax payable on your  business and investment 

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TAX REDUCTIONS

The Government is offering individuals 

personal income tax relief in the following 

two ways:
1. INCREASING TAX OFFSET
Subject to the passage of legislation, tax relief 

will be granted to individuals via the non-

refundable low and middle income tax offset 

(LMITO). The LIMTO will increase from a 

current maximum of $530 per year to $1,080. 

Further, the base rate will increase from 

$200 to $255 per year for 2018/2019 through 

to 2021/2022. Depending on your level of 

income, the changes will benefit individuals 

as follows:
•  The LMITO will now provide a reduction 

in tax of up to $255 for taxpayers with a 

taxable income of $37,000 or less.

The 2019 Federal Budget was handed down on 2 April. In 
this first of a three-part article series we examine how the 
Budget may impact individuals. 

2019 Federal Budget –  

Individuals

•  Between taxable incomes of $37,000 

and $48,000, the value of the offset will 

increase at a rate of 7.5 cents per dollar to 

the maximum offset of $1,080.

•  Taxpayers with taxable incomes between 

$48,000 and $90,000 will be eligible for 

the maximum offset of $1,080.

•  For taxable incomes of $90,000 to 

$126,000 the offset will phase out at a rate 

of 3 cents per dollar.

The LMITO will be enjoyed straight after 

individuals lodge their income tax returns for 

the above years. It is automatically worked out 

for you by the ATO – you do not need to make 

a claim for it. 
2. TAX CUTS
The following changes are slated for future 

income years:

•  From 1 July 2022, an increase to the top 

threshold of the 19% personal income tax 

bracket to $45,000.

•  From 1 July 2022, an increase in the low 

income tax offset (LITO) from $645 to 

$700.

The following table reflects how the 

thresholds would change should these 

proposals be legislated:

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