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ATO data regarding Super Guarantee non-compliance

Editor: The ATO has provided some information about Superannuation Guarantee (SG) non-compliance in its recent submission to a Senate inquiry into the impact of the non-payment of the Superannuation Guarantee.

In addition to marketing and education activities to re-enforce the need for employers to meet their SG obligations, the ATO conducts audits and reviews to ascertain SG non-compliance, with 70% of cases stemming from employee notifications (the remaining 30% of cases are actioned from ATO-initiated strategies).

On average, the ATO receives reports from employees which relate to approximately 15,000 employers each year, although the ATO finds that nearly 30% of these employers have in fact paid the required SG to their employee.

However, an SG shortfall is identified in the remaining 10,000 cases (this represents approximately 1% of the estimated 880,000 employers who make SG payments).

The top four industries from which reports are received by the ATO are from:

  • Accommodation and Food Services;
  • Construction;
  • Manufacturing; and
  • Retail Trade.

These four industries represent approximately 50% of the audits and reviews undertaken.

The ATO also noted that the proposed Single Touch Payroll (‘STP’) will help overcome certain limitations in the data currently provided to the ATO (as well as simplify taxation and superannuation interactions for employers, by aligning the reporting and payment of PAYG withholding and SG with a business’s natural process of paying their employees).

Use of STP is mandated for businesses with 20 or more employees from 1 July 2018, and a pilot program will be undertaken in 2017 to identify the nature of STP benefits for small businesses.

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Easier GST reporting for new small businesses

The ATO has notified taxpayers that, from 19 January 2017, newly registered small businesses have the option to report less GST information on their business activity statement (BAS).

Therefore, if you plan to register for GST after receiving this Update, we can help you access the reporting benefits of the simpler BAS early.

Editor: From 1 July 2017, small businesses generally will only need to report GST on sales, GST on purchases, and Total sales on their BAS.

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Deductibility of expenditure on a commercial website

The ATO has released a public taxation ruling covering the ATO’s views on the deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a website for use in the carrying on of a business.

Importantly, if the expenditure is incurred in maintaining a website, it would be considered ‘revenue’ in nature, and therefore generally deductible upfront.

This would be the case where the expenditure relates to the preservation of the website, and does not: alter the functionality of the website; improve the efficiency or function of the website; or extend the useful life of the website.

However, if the expenditure is incurred in acquiring or developing a commercial website for a new or existing business, or even in modifying an existing website, it would generally be considered capital in nature (in which case an outright deduction cannot be claimed).

Editor: Please contact us if you want any guidance about the ATO’s latest views on this important issue.

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Can a UPE be written off and claimed as a bad debt?

Editor: A ‘UPE’ (or ‘unpaid present entitlement’) arises where a trust makes a beneficiary entitled to an amount of the trust’s income (and therefore the beneficiary may have to pay tax on their share of the trust’s taxable income that year), but that amount has not been physically paid to the beneficiary.

If the beneficiary never receives payment from the trust, they may want to write their entitlement off as a bad debt, and claim a tax deduction.

The ATO has released a Taxation Determination explaining their view that there is no ability to claim a ‘bad debt’ deduction where a beneficiary of a trust writes off as a bad debt an amount of a UPE.

This is because of the technical wording of the tax legislation regarding claiming deductions for ‘bad debts’, which requires the debt (e.g., the UPE) to have been previously included in the beneficiary’s taxable income – however, a beneficiary is not taxed on the UPE itself. Instead, the amount of the UPE is used to calculate the amount to include in their assessable income (and this may be different to the actual amount of the UPE).
Example
Archie Pty Ltd (‘Archie’) is a beneficiary of the Linus Family Trust (‘Linus’), which rents out a property.
In the 2014 income year, Linus’s trust income (made up of net rent) was $25,000, but its net (taxable) income was actually $20,000 (thanks to a ‘capital works deduction’ of $5,000).

Archie was made presently entitled to 100% of the trust income (i.e., $25,000). As a result, it was also assessed on 100% of the net (taxable) income of the trust (i.e., $20,000).

The $25,000 was not paid to Archie (i.e., it was recorded as a UPE) and was invested by Linus in a related entity, but during the 2017 income year it was clear the investment had failed and was now worthless.

Archie was now well aware that Linus was no longer in a position to satisfy the UPE and wrote the $25,000 off as a bad debt.No. While the debt is clearly bad and has been written off as such, no part of Archie’s UPE (of $25,000) was included in its assessable income. Rather, Archie included its share of Linus’s net (taxable) income of the trust (i.e., the $20,000) in its assessable income.

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Ride Sourcing data matching program

The Ride Sourcing data matching program has been developed to address the compliance risk of the registration, lodgement and reporting of businesses offering ride sourcing services as a driver.

Editor: ‘Ride sourcing’ = Uber (basically).

It is estimated that up to 74,000 individuals (‘ride sourcing drivers’) offer, or have offered, this service.

The ATO will request details of all payments made to ride sourcing providers from accounts held by a ride sourcing facilitator’s financial institution for the 2016/17 and 2017/18 financial years, and match the data provided against their records.

This will identify ride sourcing drivers that may not be meeting their registration, reporting, lodgement and/or payment obligations.
Where the ATO is unable to match a driver’s details against ATO records, it will obtain further information from the financial institution where the driver’s account is held.

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Changes to the ‘backpacker tax’

From 1 January 2017, tax rates changed for working holiday makers who are in Australia on a 417 or 462 visa (these rates are known as ‘working holiday maker tax rates’).

If a business employs a working holiday maker in Australia on a 417 or 462 visa, from 1 January 2017, they should withhold 15%from every dollar earned up to $37,000, with foreign resident tax rates applying from $37,001.

Businesses must register with the ATO by 31 January 2017 to withhold at the working holiday maker tax rate.
If they don’t register, they will need to withhold at the foreign resident tax rate of 32.5% (and penalties may aply to businesses employing holiday makers that don’t register).

Editor: Therefore, if this affects you and you haven’t registered by the time you read this, please contact us immediately!
Also, note that businesses already employing working holiday makers will need to issue two payment summaries (with different rates) this year – one for the period to 31 December 2016, and a second for any period from 1 January 2017.

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Superannuation changes passed by Parliament

The government’s extensive changes to the taxation laws regarding superannuation were passed by Parliament on 23 November 2016.

According to the Treasurer, Mr Scott Morrison:
“The superannuation reform package better targets tax concessions to make our superannuation system fair and sustainable, as the population ages and fiscal pressures increase.

“The reforms include the introduction of a $1.6 million transfer balance cap, which places a limit on the amount an individual can transfer into the tax ­free earnings retirement phase and the introduction of the Low Income Superannuation Tax Offset”.

The amendments also include the following two new measures to provide more flexibility to help Australians save for their retirement:

  • the removal of the ‘10% rule’, allowing anyone (including employees) to claim a deduction for personal contributions into superannuation from 1 July 2017 which will particularly help contractors who also draw income from salary and wages); and
  • the ability for individuals with superannuation balances below $500,000 to make ‘catch up’ concessional contributions from 1 July 2018 allowing them to ‘tap into’ unused amounts of their contributions cap from prior years, which will help those with broken work patterns – the overwhelming number of whom are women – better save for their retirement).
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Personal income tax cuts are law!

The government has finally legislated the tax cuts originally announced in the May 2016 Budget, so that the marginal tax rate of 37% now starts at $87,000.
The following are the rates for adult residents for the 2016/17 income year (i.e., from 1 July 2016).

Taxable income:
Tax on this income 0 – $18,200: Nil
$18,201 – $37,000: 19c for each $1 over $18,200
$37,001 – $87,000: $3,572 plus 32.5c for each $1 over $37,000 $87,001 – $180,000: $19,822 plus 37c for each $1 over $87,000 $180,001 and over: $54,232 plus 45c for each $1 over $180,000

The above rates do not include the temporary budget repair levy (due to expire on 30 June 2017), nor the Medicare levy of 2%.
The ATO has updated the tax tables and PAYG withholding tax schedules (and their online tax withheld calculator) to reflect these changes.

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ATO Data matching programs

The ATO has announced it is embarking on the following three (major) data matching programs.

Share transactions data matching program
Editor: The share transactions data matching program has been conducted since 2006 to ensure compliance with taxation obligations on the disposal of shares and similar securities. The collection of transaction history data dating back to 20 September 1985 (the introduction of the CGT regime) is used to enable cost base and capital proceeds calculations.

The ATO will continue to acquire details of around 61 million share transactions (in relation to 3.3 million individuals) for the period 20 September 1985 to 30 June 2018 from various sources, including share registries (such as Link Market Services, Computershare, Advanced Share Registry Services, and Automic Registry Services), and the Australian Securities Exchange Limited.

Credit and debit card data matching program
The ATO will continue to annually acquire data relating to credit and debit card payments to merchants, in this case acquiring data for the 2015/16 and 2016/17 financial years from the big four banks, as well as other banks (such as the Bank of Queensland and the Bendigo and Adelaide Bank) and others involved with credit and debit card payments (including American Express, First Data Merchant Solutions, Diners Club Australia and Tyro Payments Limited).
It is estimated that around 950,000 records will be obtained, including 90,000 matched to individuals.

Online selling data matching program
The ATO will continue to acquire online selling data, with an estimated 20,000 to 30,000 records obtained relating to registrants who sold goods and services to an annual value of $12,000 or more during the 2016, 2017 and 2018 financial years, from eBay Australia and New Zealand Pty Ltd (which owns and operates www.ebay.com.au). It is estimated that around half of the matched accounts will relate to individuals.

 

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Last chance for non­arm’s length related party LRBAs

The ATO has released a taxation determination regarding how it will apply the non­arm’s length income (‘NALI’) rules to income generated from assets purchased by an SMSF using a related party ‘limited recourse borrowing arrangement’ (or ‘LRBA’).