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Practice Update August 2019

Welcome to the Davenports Practice Update for August 2019


Tax cuts become law

The Government has announced that more than 10 million Australians will receive immediate tax relief following the passage of legislation through the Parliament, which increases the top threshold for the 19% tax rate from $41,000 to $45,000 and increases the low income tax offset from $645 to $700 in 2022/23.

In combination with the legislated removal of the 37% tax bracket in 2024/25, the Government is also “delivering structural reform to the tax system” by reducing the 32.5% tax rate to 30%.

Low and middle income tax offset also now law

In addition, from the 2018/19 income year (i.e., last income year):

  • The low and middle income tax offset (‘LAMITO’) has been increased from a maximum amount of $530 to $1,080 per annum and the base amount increased from $200 to $255 per annum; and
  • Taxpayers with a taxable income:
    • of $37,000 or below can now receive a LAMITO of up to $255;
    • above $37,000 and below $48,001 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080;
    • above $48,000 and below $90,001 are now eligible for the maximum LAMITO of $1,080; and
    • above $90,000 but is no more than $126,000 are now eligible for a LAMITO of $1,080, less an amount equal to 3% of the excess.

The ATO is implementing the necessary system changes so taxpayers that have already lodged their 2018/19 tax return will receive any increase to the LAMITO they are entitled to (any tax refund should be deposited in the taxpayer’s nominated bank account).  There will not be any need to request an amendment.

Those who are yet to lodge their tax return will have any offset they are entitled to taken into account during the normal processing of their return.

 


ATO “puts the brakes” on dodgy car claims

The ATO is making work-related car expenses a key focus again during Tax Time 2019.

Assistant Commissioner Karen Foat said over 3.6 million people made a work-related car expense claim in 2017/18, totalling more than $7.2 billion.

“We are still concerned that some taxpayers aren’t getting the message that over-claiming will be detected and if it is deliberate, penalties will apply,” she said.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make, and car expenses their employer paid for or reimbursed them for.”

One in five car claims are exactly at the maximum limit that doesn’t require receipts.

Under the cents per kilometre method, taxpayers don’t need to keep receipts, but they do need to be able to demonstrate how they worked out the number of kilometres they travelled for work purposes.

The ATO’s sophisticated analytics compares taxpayer claims with others earning similar amounts in similar jobs.

Where the ATO identifies questionable claims, they will contact taxpayers and ask them to show how they have calculated their claim, and in some cases the ATO may even contact employers to confirm whether a taxpayer was required to use their own car for work-related travel.

Case studies

The ATO’s sophisticated data analytics found a range of unsupported claims in 2018, including:

  • When the ATO asked a taxpayer to provide the logbook to support a claim of $4,800, they found the taxpayer was referring to a car service logbook rather than a logbook kept for calculating their work use car percentage (the taxpayer had not undertaken any work-related car travel during the year).
  • Another claim was flagged by the ATO’s analytics indicating a taxpayer, a retail worker, had incorrectly claimed $350 for the cost of public transport to and from work.
  • The ATO also identified an office worker claiming $3,300 for 5000 kilometres of work-related travel using the cents per kilometre method, but it turned out the taxpayer’s claim was based on trips he made from home to work.


Private health insurance statements now optional

Taxpayers with private health insurance should be aware that insurance providers are no longer required to provide statements to their members.

Taxpayers lodging their tax returns using a registered tax agent should have their health insurance details ‘pre-filled’ into their return (but they will need to contact their health insurer if they cannot get this information for some reason).


FBT and taxi travel

Taxi travel by an employee is an exempt benefit for FBT purposes if the travel is a single trip beginning or ending at the employee’s place of work (or if it is a result of sickness or injury in certain circumstances).

However, the ATO is reminding taxpayers that this exemption is limited to travel undertaken in a vehicle that is licensed to operate as a taxi by the relevant State or Territory, and does not extend to travel undertaken in a ride-sourcing vehicle or other vehicle for hire that do not hold such a licence.


ATO rates and thresholds

Editor: The ATO has updated a number of rates and thresholds on their website, including the following.

Division 7A – benchmark interest rate

The Division 7A benchmark interest rate for the 2020 income year is 5.37% (up from the rate for the 2019 income year of 5.20%).

Car cost limit for depreciation

The maximum value taxpayers can use for calculating depreciation of cars is the car limit in the year in which they first used or leased the car.

In the 2019/20 income year, the car limit is $57,581, unchanged from the 2018/19 year.

Capital improvement threshold

The improvement threshold for the 2019/20 income year is $153,093, up from $150,386 for the 2018/19 income year.

SMSF LRBA interest rates

An interest rate of 5.94% charged by an SMSF in the 2020 income year under a limited recourse borrowing arrangement (‘LRBA’) to acquire real property would be consistent with the ATO’s safe harbour terms (or 7.94% for listed shares or units).


ATO Data Matching Program: HELP, VSL and/or TSL debts

The ATO is conducting a data matching program for the 2019/20, 2020/21 and 2021/22 financial years to identify individuals with an existing Higher Education Loan Program (‘HELP’), Vocational Education and Training Student Loan (‘VSL’) and/or Trade Support Loans (‘TSL’) debt who may not be meeting their registration, lodgment and/or payment obligations.

This data collection is expected to involve approximately 3 million individuals each year.

Posted in Practice Update

Practice Update July 2019

Welcome to the Davenports Practice Update for July 2019


‘Cash in hand’ payments to workers no longer tax deductible

The ATO has reminded employers that any ‘cash in hand’ payments made to workers from 1 July 2019 will not be tax deductible.

‘Cash in hand’ refers to cash payments to employees that do not comply with pay as you go (‘PAYG’) withholding obligations.

Payments made to contractors where the contractor does not provide an ABN and the business does not withhold any tax will also not be tax deductible from 1 July.

In addition to the loss of a tax deduction, employers caught not complying with their PAYG withholding obligations may be penalised for failing to withhold and report amounts under the PAYG withholding system.

However, employers who mistakenly classify their employee as a contractor will not lose their deduction where their worker provides them with an ABN.


Uber drivers not employees

The Fair Work Ombudsman has completed its investigation relating to Uber Australia Pty Ltd and its engagement of drivers, concluding that the relationship between Uber Australia and the drivers is not an employment relationship.

The investigation found that Uber drivers are not subject to any formal or operational obligation to perform work.

Instead, Uber drivers have control over whether, when, and for how long they perform work, on any given day or on any given week, and, in particular, Uber Australia does not require drivers to perform work at particular times.

As a consequence, the FWO will not take compliance action in relation to this matter.


Making a Division 293 election

The ATO is reminding taxpayers and tax practitioners that the process to release money from super fund accounts to pay additional tax on concessional contributions (referred to as ‘Division 293’) changed on 1 July 2018.

Since then, practitioners or their clients must send the Division 293 election form to the ATO, not to the super fund (if the election form is sent to the fund it will be rejected and returned to the sender).

When the ATO receives the election form, they will have the client’s nominated super fund release and send the money to the ATO, which will then be offset against any outstanding tax or other Australian Government debts before they refund any remaining balance to the client.


ATO targeting false laundry claims

The ATO will target false clothing and laundry work-related expense claims this Tax Time.

In 2018, around six million people claimed work-related clothing and laundry expenses totalling nearly $1.5 billion.

Assistant Commissioner Karen Foat said although many Australians can claim clothing and laundry expenses, it’s unlikely that half of all taxpayers are required to wear uniforms, protective clothing or occupation-specific clothing to earn their income.

“Last year a quarter of all clothing and laundry claims were exactly at the record-keeping limit”, Ms Foat said.

“But don’t think that we won’t scrutinise a claim because we don’t require receipts”.

She also said the ATO does not ignore incorrect claims “just because they are small, because small amounts add up”.

The ATO is also concerned about the number of people claiming deductions for conventional clothing, such as retail workers claiming normal clothes “because their boss told them to wear a certain colour, or items from the latest fashion clothing line”, or others claiming normal clothes because they only wear them to work.

The ATO’s sophisticated data analytics is constantly improving and can identify unusual claims by comparing taxpayer claims to others in similar occupations.

Taxpayers who can’t substantiate their claims should expect to have them refused, and may be penalised for failing to take reasonable care when submitting their tax return.


Lifestyle assets data matching program

The ATO has released details of their “Lifestyle assets 2013-14 and 2014-15 financial years data matching program protocol”.

They will obtain information on insurance policies for certain classes of assets, including marine vessels, enthusiast motor vehicles, thoroughbred races horse, fine art and aircraft to improve their profiling of taxpayers and provide a more comprehensive view of their assets and accumulated wealth.


Tax time tips for small business

To lend a ‘helping hand’ to small businesses to get their tax right this Tax Time, the ATO has identified the top 3 issues they see when small businesses lodge their tax returns:

  • Failing to report all of their income;
  • Not having the necessary records to prove small business expenses claims; and
  • Claiming private expenses as business expenses (such as travel expenses).


Fixing incorrectly issued excess NCCs determinations

The ATO has recently identified a system error that inadvertently led them to issue incorrect pre-dated excess non-concessional (superannuation) contributions (‘NCCs’) determinations to clients.

The ATO will extend the election due dates for all affected clients, so this issue will not disadvantage them, and will not take default action in relation to these affected clients who do not make their election by the due date.

Amended determinations will automatically issue on a case-by-case basis in coming weeks to any clients that will have a modified excess NCC amount due once their income tax return is processed.


Car parking threshold for 2020 FBT year

The car parking threshold for the FBT year commencing on 1 April 2019 is $8.95(replacing the amount of $8.83 that applied in the previous year commencing 1 April 2018).


Trustee obligations on the ATO’s radar: TFN reports

The ATO is currently reviewing adherence to certain trustee obligations, including the lodgment of Tax File Number (‘TFN’) reports for TFN withholding for closely held trusts.

Beneficiaries are required to quote their TFN to trustees to avoid having tax withheld from payments or unpaid present entitlements, and trustees must lodge a TFN report for any quarter in which a beneficiary quotes their TFN to the trustee.

If beneficiaries have not quoted their TFN to the trustee, the trustee must:

  • withhold tax at the rate of 47% from the distribution;
  • pay this tax to the ATO; and
  • report, in an annual report, details of all withheld amounts.
Posted in Practice Update