Latest News

Practice Update October 2017

Welcome to the Davenports Practice Update for October 2017


No small business tax rate for passive investment companies

The Government has released draft tax legislation to clarify that passive investment companies cannot access the lower company tax rate for small businesses of 27.5%, but will still pay tax at 30%.

The amendment to the tax law will ensure that a company will not qualify for the lower company tax rate if 80% or more of its income is of a passive nature (such as dividends and interest).

The Minister for Revenue and Financial Services said the policy decision made by the Government to cut the tax rate for small companies was meant to lower taxes on business, and was not meant to apply to passive investment companies.


ATO to be provided with more super guarantee information

The Government has released draft tax legislation to clarify that passive investment

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

The Government will also provide the ATO with additional funding for a SG Taskforce to crackdown on employer non-compliance.

The package includes measures to:

  • require superannuation funds to report contributions received more frequently (at least monthly) to the ATO, enabling the ATO to identify non-compliance and take prompt action;
  • require employers with 19 or fewer employees to transition to single touch payroll (‘STP’) reporting from 1 July 2019;
  • 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 SG liabilities.

Editor: Following extensive consultation when STP was originally announced, it was decided that employers with 19 or fewer employees would not be required to comply.

Given the backflip here, the business community will be hoping the Government does not introduce compulsory real-time payments of SG and PAYG withholding, as well as real-time reporting.


ATO: Combatting the cash economy

The ATO has reminded taxpayers that it uses a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations. Through ‘data matching’, it can identify businesses that do not have electronic payment facilities.

These businesses often advertise as ‘cash only’ or mainly deal in cash transactions. When businesses do this, they are more likely to make mistakes or do not keep thorough records.

The ATO’s ability to match and use data is very sophisticated. It collects information from a number of sources (including banks, other government agencies and industry suppliers), and also obtains information about purchases of major items, such as cars and real property, and then compares this information against income and expenditure reported by businesses and individuals to the ATO.

Example: Unrealistic personal income leads to unreported millions

The income reported on their personal income tax returns indicated that a couple operating a property development company didn’t seem to have sufficient income to cover their living expenses.

The ATO found their company had failed to report millions of dollars from the sale of properties over a number of years.

They had to pay the correct amount of tax (of more than $4.5 million) based on their income and all their related companies, and also incurred a variety of penalties.

Example: Failing to report online sales

A Nowra court convicted the owner of a computer sales and repair business on eight charges of understating the business’s GST and income tax liabilities.

The ATO investigated discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts, and found that the business had failed to report income from online sales.

The business owner was ordered to pay over $36,000 in unreported tax and more than $18,400 in penalties, and also fined $4,000 (and now has a criminal conviction).

Get it in writing and get a receipt

The ATO also notes that requesting a written contract or tax invoice and getting a receipt for payment may protect a consumer’s rights and obligations relating to insurance, warranties, consumer rights and government regulations.

Consumers who support the cash economy, by paying cash and not getting a receipt, risk having no evidence to claim a refund if the goods or services purchased are faulty, or prove who was responsible in case of poor work quality.


Higher risk trust arrangements targeted

The ATO’s ‘Tax Avoidance Taskforce – Trusts’ continues the work of the Trusts Taskforce, by targeting higher risk trust arrangements in privately owned and wealthy groups.

The Taskforce will focus on the lodgment of trust tax returns, accurate completion of return labels, present entitlement of exempt entities, distributions to superannuation funds, and inappropriate claiming of CGT concessions by trusts.

Arrangements that attract the attention of the Taskforce include those where:

  • trusts or their beneficiaries who have received substantial income are not registered, or have not lodged tax returns or activity statements;
  • there are offshore dealings involving secrecy or low tax jurisdictions;
  • there are agreements with no apparent commercial basis that direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others;
  • changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, with such changes not credibly explicable for other reasons;
  • there are artificial adjustments to trust income, so that tax outcomes do not reflect the economic substance (e.g., where someone receives substantial benefits from a trust but the tax liability on those benefits is attributed elsewhere, or where the full tax liability is passed to entities with no capacity/intention to pay);
  • transactions have excessively complex features or sham characteristics (e.g., round robin circulation of income among trusts);
  • revenue activities are mischaracterised to achieve concessional CGT treatment (e.g., by using special purpose trusts in an attempt to re-characterise mining or property development income as discountable capital gains); and
  • new trust arrangements have materialised that involve taxpayers or promoters linked to previous non-compliance (e.g., people connected to liquidated entities that had unpaid tax debts).

Posted in Client Alert

Practice Update September 2017

Welcome to the Davenports Practice Update for September 2017


ATO flags SG compliance

The ATO will increase its superannuation guarantee casework by around one-third in the 2017/18 financial year. There’ll also be more reviews and audits.

Employers who have breached their obligation will be subject to penalty notices. Penalty notices can be up to 200% per employee where a superannuation guarantee (SG) payment has not been met.

The announcement comes after the ATO revealed that the SG gap (the difference between the value of SG contributions required to be paid under the law and actual SG contributions made) has grown. The gap was 5.2% or $2.85 billion of the total estimated $54.78 billion in SG payment that employers were required to pay in 2014/15. The estimated gap was $1.53 billion or 3.8% in 2009/10.

“While our analysis shows that 95 per cent of the estimated superannuation guarantee is paid to employees, the gap exists because some employers appear not to be meeting their super guarantee obligations either by not paying enough or not paying it at all. Superannuation has a vital role in providing for people’s retirement, and any non-payment is of concern,” Deputy Commissioner James O’Halloran said.

Mr O’Halloran said the ATO has improved its analysis of data to detect patterns in non-payment, and are working more closely with other government agencies to exchange information.

Single Touch Payroll (see article below) will further improve visibility on reporting and simplify tax and super interactions for employers, allowing the ATO to better identify non-compliance over time.


ACCC warn on credit card payment surcharges

The ACCC has warned businesses not to charge more for card payment surcharges than what it costs them.

A new law that bans excessive payment surcharges came into force on 1 September 2017. The purpose of the ban is to stop payment surcharges that are more than the actual cost of accepting the payment method, also called ‘cost of acceptance’. A payment surcharge will be considered excessive if it exceeds this cost of acceptance.

As an example, if it costs your business 1% to accept a Visa credit card, you can only surcharge 1% on any Visa payment made by a customer.

A business can choose not to impose payment surcharges if it wishes.

The new law covers all typical card payment methods, including Eftpost (debit and prepaid), MasterCard and Visa (credit, debit and prepaid).

For full details see this ACCC document.


ALP announces massive (potential) changes to trust taxation

Editor: Although we don’t normally report on Opposition tax policies, this policy change is so fundamental, and the existing state of the Federal Parliament is so chaotic, that we believe it’s worth bringing this to your attention.

The Leader of the Opposition, Bill Shorten, has announced that a Labor Government (should they be elected) will introduce a standard minimum 30% tax rate for discretionary trust distributions to “mature beneficiaries” (i.e., people aged 18 and over).

Although the ALP acknowledges that individuals and businesses use trusts for a range of legitimate reasons, such as asset protection and business succession, “in some cases, trusts are used solely for tax minimisation.”

Labor’s policy will only apply to discretionary trusts, so other trusts – such as special disability trusts, deceased estates and fixed trusts – will not be affected by this change.

Labor’s policy will also not apply to farm trusts and charitable trusts, and other exemptions will apply, such as for people with disability (the Commissioner of Taxation will be given discretionary powers to manage this).

Their announcement also reiterated their other policies regarding tax reform, including further changes to superannuation, changes to negative gearing and CGT, and limiting deductions for managing tax affairs.


Single Touch Payroll update

A limited release of ‘Single Touch Payroll’ began for a small number of digital service providers and their clients on 1 July 2017, with Single Touch Payroll operating with limited functionality for a select number of employers.

Editor: Single Touch Payroll will effectively require some employers to report information regarding payments to employees (or to their super funds)in ‘real time’, via their payroll software.

The following timeline sets out what is happening in the lead-up to the mandatory commencement of Single Tough Payroll next year.

September 2017 – the ATO will write to all employers with 20 or more employees to inform them of their reporting obligations under Single Touch Payroll.

1 April 2018 – employers will need to do a headcount of the number of employees they have, to determine if they need to report through Single Touch Payroll.

From 1 July 2018 – Single Touch Payroll reporting will be mandatory for employers with 20 or more employees.


Keeping ABN details up to date

The ATO finds that businesses tend to forget to update their Australian business number (ABN) details in the Australian Business Register (ABR) when their circumstances or details change, so they have asked that we contact our clients to help keep your ABN details up to date and reduce unnecessary contact from the ATO.

In particular, the ATO says that many partnership and trust ABNs are not in operation, or their business structures have changed, so please let us know if:

  • your business is no longer in operation (so we can cancel the ABN); or
  • if your business structure has changed (so we can cancel the ABN for the old
    structure before applying for a new one).

The ATO also recommends that we add alternative contacts to clients’ ABN records (so please provide us with alternative contact information, if possible), and to update the ABN records where any contact details have changed.

Register trading names with ASIC

By 31 October 2018, businesses will need to register any existing or old trading names as a business name with the Australian Securities & Investments Commission (ASIC) in order to continue operating with it.

The ABN Lookup website will reflect these changes and will only display business names registered with ASIC from this date.


Limited opportunity to avoid ‘transfer balance cap’ problems

If the total value of a superannuation fund member’s pensions exceeded $1.6 million on 1 July 2017, they may face adverse tax consequences.

However, there is a transitional provision that permits a minor excess over $1.6 million to be ignored, subject to certain conditions being met.

Basically, this will be satisfied if the value of their pension interests on 1 July 2017 exceeded $1.6 million by no more than $100,000 (i.e., their total value did not exceed $1.7 million), but the member is able to commute the pension(s) by an amount that is at least equal to that excess no later than 31 December 2017.

This will mean that no ‘transfer balance cap’ consequences arise (e.g., no ‘excess transfer balance earnings’ will accrue on the excess and no ‘excess transfer balance tax’ will become payable).

Therefore, it is important that this issue is identified and, if applicable, dealt with promptly.

Editor: Please contact us if you believe this may affect you and you need more information.


New Approved Occupational Clothing Guidelines 2017

The government has issued new guidelines to set out criteria for tax deductible non-compulsory uniforms.

Editor: The taxation law only allows a deduction to employees for expenditure on uniforms or wardrobes where either:

  • the clothing is in the nature of occupation specific, or protective clothing; or
  • the wearing of the clothing is a compulsory condition of employment for employees and the clothing is not conventional in nature; or
  • where the wearing of the clothing is not compulsory, the design of the clothing is entered on the Register of Approved Occupational Clothing.

 The new guidelines outline (among other things):

  • the steps that need to be undertaken by employers to have designs of occupational
    clothing registered; and
  • the factors that will be considered in determining whether designs of occupational
    clothing may be registered.

The guidelines commence on 1 October 2017, and the previous Guidelines are revoked with effect from the same day.


Ability to lodge nil activity statements in advance

The ATO generally issues activity statements by the end of the relevant month under their normal processes, allowing the statement to be lodged by 21 days after the end of the month, or 28 days after the end of the relevant quarter (as appropriate).

However, the ATO recognises that there may be a specific reason for a taxpayer to access their activity statements early, so activity statements can be generated early in some cases, such as where the taxpayer is going to be absent from their place of business before the end of the reporting period (and the business will not be trading during that period), or if the taxpayer’s entity is under some form of administration, or the business has ceased.

Editor: There are certain eligibility requirements to take advantage of this service, so please contact us if this is of interest to you.

Posted in Client Alert