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Practice Update April 2019

Welcome to the Davenports Practice Update for April 2019


Continued focus on the cash economy

ATO Assistant Commissioner Peter Holt has announced that, in the 2019/20 financial year, the ATO will be visiting a further 10,000 small businesses across the country, including up to 500 small businesses in Tasmania.

He further said that businesses that advertise as ‘cash only’ and businesses that are operating outside of the ATO’s performance benchmarks for their industry will be especially targeted for a visit from the ATO.

“Businesses that pay cash in hand, or fail to lodge income tax or business activity statements, get an unfair advantage and make it harder for other businesses who are doing the right thing.  By detecting and addressing this behaviour, we’re helping ensure a level playing field for honest small businesses.”

Businesses in the following industries are most likely to get a visit from the ATO:

  • Restaurants and cafes;
  • Vehicle repairers;
  • Personal care businesses including hairdressers and nail salons;
  • Pharmacies;
  • Construction businesses;
  • Clothing stores;
  • Grocery stores / small supermarkets; and
  • Butchers.

Whilst on the road, ATO officers will also be available to help those businesses that are trying to do the right thing.

Mr Holt said the ATO will not hesitate to take strong enforcement action against those deliberately avoiding their tax and super obligations and the visits may uncover this deliberate non-compliance.

“If businesses know they have made mistakes we encourage them to let us know and work with us or their tax professional.”


Common errors with new GST withholding rules

The ATO has noticed some common errors made in activity statements since the introduction of “GST at settlement” on 1 July 2018.

Editor: These new laws require purchasers to withhold GST on settlement (and pay it to the ATO directly) generally when buying ‘new residential premises’ from developers.

In particular, the new “GST at settlement” law does not affect a supplier’s obligation to lodge their activity statement and report their GST liabilities on taxable supplies in the activity statement period in which settlement occurred.

In addition, suppliers are advised not to report GST that has been withheld at settlement and paid to the ATO by the purchaser.

Instead, a credit for the amount the purchaser withheld and paid will appear on the supplier’s activity statement account once the activity statement is processed.


Latest ATO benchmarks released

The ATO has released updated benchmark data drawn from over 1.5 million small businesses around the country to “help small businesses across the country . . . gauge the strength of their business and keep an eye on their competition”.

Updated benchmarks for more than 100 industries are now available for the following categories:

  • Accommodation and food;
  • Building and construction trade services;
  • Education, training, recreation and support services;
  • Health care and personal services;
  • Manufacturing;
  • Automotive electrical services;
  • Machinery and equipment repair and maintenance;
  • Architectural services;
  • Veterinary services;
  • Retail trade; and
  • Transport, postal and warehousing.

The benchmarks are one of the tools the ATO uses to crack down on the black economy, along with data matching and referrals from the community.

“Businesses operating outside the benchmarks may trigger a red flag for businesses we suspect could be engaging in the black economy,” Mr Holt said.

“A frequent red flag is a business reporting minimal profit while the business owner seems to be maintaining a lifestyle far exceeding their personal income.”

“If you use a registered tax professional, it’s also a good idea to have a chat with them about where your business sits in comparison with our benchmarks.  They might have some advice about steps you can take to improve your performance.”


ATO warning regarding annual leave loading and OTE

The ATO has recently warned employers that it considers that annual leave loading should normally be part of ordinary time earnings (‘OTE’) for superannuation guarantee (‘SG’) purposes, unless it is referrable to a “lost opportunity to work overtime”.

Therefore, if employers have self-assessed on the basis that their annual leave loading is not OTE, and there is a lack of evidence to demonstrate the purpose of the entitlement, there is a risk that they may have historical SG shortfalls and be liable for the SG charge.

However, the ATO acknowledges the uncertainty around this topic, and the evidentiary difficulties in identifying the purpose for annual leave loading entitlements, and will apply a concessional compliance approach where certain requirements are met.

Editor: If this is a concern for your business, please contact our office and we can help with your SG obligations and (if necessary) determine whether you will be eligible for the ATO’s concessional compliance approach.


Taxpayer living in serviced apartments overseas not a resident

The Full Federal Court has found that a taxpayer had a “permanent place of abode” in Bahrain, even though he lived in temporary accommodation, and therefore allowed his appeal against a decision that he was a resident of Australia.

This decision confirms that the correct focus of the “permanent place of abode” residency test is whether there has been an abandonment of Australian residence (i.e., to live permanently outside of Australia), rather than whether a person actually lives in permanent accommodation overseas.

In particular, the Full Court considered that the phrase “place of abode” is not a reference to a person’s house or flat or other dwelling but rather the town or country in which a person is physically residing permanently.


Mostly vacant property still an ‘active’ asset

The AAT has held that a block of land next door to a taxpayer’s main residence, which they used to store materials, tools and other equipment for their business, was still an ‘active asset’ for the purpose of the small business CGT concessions.

Editor: The small business CGT concessions can reduce, or completely eliminate, the tax payable on the sale of an ‘active asset’ (basically, a business asset).


ATO to crackdown on home office claims

An Australian Financial Review (AFO) article has provided a warning for home offices, with the Australian Taxation Office (ATO) set to crackdown on overinflated expenses and understated income relating to home offices.

The warning comes after a rapid increase in the popularity of home offices. According to the ATO, one in three taxpayers are now making claims for work away from their employer’s workplace. Around $8 billion was claimed for home office deductions during the 2016-17 tax year alone.

The article states that as part of the crackdown the ATO will be monitoring tax agents, due to a concern that people are shopping around for tax agents who are “amenable to greater deductions and bigger claims”.

The AFO article encourages those who work from home to claim everything they are entitled to, but not a cent more. Importantly, make sure you can substantiate all claims, through receipts, written evidence, itemised accounts, diary entries, etc. These expenses may include:

  • Occupancy expenses (e.g. rent, mortgage interest, rates, house insurance). Generally, you can only claim occupancy expenses if your home is your place of business and you have an area used exclusively for your work.
  • Home office equipment.
  • Work-related phone and mobile phone rental.
  • Heating, cooling and lighting.
  • Costs of repairs to furniture and fittings in the home office.

Posted in Practice Update

Practice Update March 2019

Welcome to the Davenports Practice Update for March 2019


Changes to the small business instant asset write-off

On 29 January 2019, the Prime Minister announced that legislation will be introduced to:

  • extend the small business instant asset write-off by 12 months to 30 June 2020; and
  • increase the write-off threshold from less than $20,000 to less than $25,000 (effective immediately).

The current threshold of $20,000 has applied since 7.30pm AEST on 12 May 2015 and was due to revert to $1,000 on 1 July 2019.

Under the proposed changes, from 29 January 2019 until 30 June 2020, small businesses with an aggregated annual turnover of less than $10 million may claim an immediate deduction for the business-use portion of each depreciating asset costing less than $25,000.

Example

To illustrate, assume an individual acquires a van for $22,000 (excluding GST entitlements) on 1 February 2019.

The individual is a small business entity and estimates the van will be used 90% for the business and 10% for private purposes.

Under the current rules, while the business-use portion of the cost of the van is less than $20,000 (i.e., $22,000 x 90% = $19,800), an immediate deduction is not available because the entire cost is $20,000 or more. 

However, the van may be depreciated as part of the taxpayer’s SBE small business pool.

In contrast, an immediate deduction of $19,800 may now be claimed under the proposed changes, as the entire cost of the van is below the new threshold of $25,000.

This measure is expected to benefit more than 3 million eligible small businesses.

Editor: On 13 February 2019, the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was introduced in the House of Representatives.

Once this Bill becomes law, it will open up opportunities for small businesses to claim an immediate deduction for depreciating assets (where they cost less than $25,000) up until 30 June 2020.


Tax scammer alert

The ATO has again warned taxpayers to be alert for scammers impersonating the ATO, as it appears they have changed tactics in 2019.

Specifically, the ATO is seeing the emergence of a new tactic where:

“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 received reports of scammers maliciously manipulating the calling line identification so the phone number that appears is different to the number from which the call originated.

This is referred to as “spoofing” and is a common technique used by scammers to appear legitimate.

It appears these scams aim to steal taxpayers’ personal details and identities.

The ATO has advised it 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;
  • use aggressive or rude behaviour, 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 owed to taxpayers.

Editor: If you are unsure about a call, text message or email purportedly received from the ATO, the best advice is not to reply.

Should you have any concerns, please contact our office directly, or alternatively you can call the ATO on 1800 008 540 to check if the contact was legitimate or to report a scam.


Non-compliant payments to workers

The rules for claiming deductions for payments to workers are changing.

From 1 July 2019, businesses can only claim deductions for certain payments made to workers where they’ve met the Pay As You Go (‘PAYG’) withholding obligation for that payment.

Specifically, a business can only claim a deduction for the following payments if it complies with the relevant PAYG withholding rules:

  • Salary, wages, commissions, bonuses or allowances to an employee.
  • Directors’ fees.
  • Payments to a religious practitioner.
  • Payments made under a labour hire arrangement.
  • Payments made for a supply of services (except from supplies of goods and real property) where the contractor has not provided their ABN.

Where the PAYG withholding rules require an amount to be withheld, the business must:

  • withhold the amount from the payment before they pay their worker; and
  • report that amount to the ATO.

Importantly, a deduction will not be lost if an incorrect amount is withheld (or reported) by mistake.


What’s new for Australian business

The ATO has recently reminded small businesses of the expanded tax concessions potentially available to them, as outlined below:

The pending increase in the small business instant depreciating asset write-off to less than $25,000 (as discussed in further detail above).

  • Accelerated depreciation deductions for primary producers for eligible fodder storage assets, as well as for fencing and water facilities.
  • Assistance for primary producers impacted by drought at Drought Help, or by contacting the ATO on 1800 806 218.
  • A lower company tax rate of 27.5% for companies qualifying as a Base Rate Entity (‘BRE’).
  • Increased Small Business Income Tax Offset (‘SBITO’) for eligible sole traders and individual partners and beneficiaries.

Finally, the ATO has reminded taxpayers that more businesses are now eligible for most small business tax concessions.

Specifically, from 1 July 2016, a range of small business tax concessions became available to all businesses with an aggregated turnover of less than $10 million (i.e., the turnover threshold).

Previously the turnover threshold was less than $2 million.  The $10 million turnover threshold applies to most concessions, except for:

  • the SBITO – which has a $5 million turnover threshold from 1 July 2016; and
  • the small business CGT concessions – which continue to have a $2 million turnover threshold.

Note: The relevant turnover threshold for accessing the lower company tax rate is $50 million from  the 2019 income year (increased from $25 million in the 2018 income year).


Single Touch Payroll Update

Understanding STP obligations

Single Touch Payroll (‘STP’) is a Government initiative aimed at cutting red tape for employers and improving visibility of compliance with business obligations such as:

  • salary and wages and similar payments;
  • Pay As You Go (‘PAYG’) withholding; and
  • certain superannuation related information;

by requiring ‘real time’ reporting of payroll information directly to the ATO.

Importantly, STP is designed to extract information that already exists in an employer’s payroll system.

As such, it is not intended to impose any additional burden on employers, other than requiring them to report the information to the ATO sooner.

From a practical perspective, businesses must use STP compliant software to comply with the new obligations.  This will necessitate updating or changing their current payroll software.

Generally, most payroll software providers will have already adapted their software to ensure the required reporting capability has been incorporated.

Once a business has adopted the appropriate software, ongoing reporting obligations should be dealt with as part of an automated software function.

Effectively, employers will send their employees’ relevant payroll information required under STP to the ATO each time they run their payroll and pay their employees.

Crucially, in complying with their STP obligations employers will not change their payroll cycle.

When a business reports to the ATO via STP, the relevant employees will be able to view their year-to-date tax and super information through myGov.

As a result of STP reporting, a number of ongoing compliance obligations for employers will be streamlined, and/or removed.  Some benefits for employers under STP include the following:

  • The removal of the need to issue an annual ‘Payment Summary’ to employees  for payments reported to the ATO via STP, provided an employer lodges a ‘finalisation declaration’ (i.e., generally by 14 July, although extensions are in place for the first year of STP implementation).
  • The removal of the need to lodge a ‘Payment Summary Annual Report‘ for payments reported through STP.
  • From 1 July 2019, STP will enable the pre-filling of BAS Labels W1 (gross salary and wages and other payments) and W2 (amounts withheld from salary, wages and other payments) for employers that are small or medium withholders.
  • The streamlining of employee documentation such as the lodgment of  ‘TFN Declarations’ and ‘Withholding Declarations’ via enabled software.

Editor: It is important to understand that STP does not impact or change when employers must actually remit PAYG withholding amounts to the ATO or make super contributions.  The new STP obligations simply affect when employers must report these payments to the ATO.


Original commencement date

STP commenced from 1 July 2018, for employers with 20 or more employees (i.e., substantial employers).

When determining whether or not the 1 July 2018 start date applied, an employer was required to do a headcount of the number of employees they had on 1 April 2018.

Broadly included in the headcount were all full-time and part-time employees, casual employees who worked at any time during March 2018, overseas employees, any employees absent or on leave (paid or unpaid) and seasonal employees.


Pending STP commencement date for small employers now law

Small employers (being those with less than 20 employees) are now technically required to commence their STP reporting obligations from  1 July 2019.

The intended STP obligations on small employers has only recently become law, with the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 finally being passed by both houses of Parliament on 12 February 2019.

This means that from 1 July 2019 all employers, no matter their size, will generally be required to comply with the STP reporting obligations.

The ATO says it will be writing to small employers who have 19 or less employees and already use payroll software to tell them about STP, and remind them that if their payroll software offers STP, they can update their software and start reporting now.


Solutions for micro employers

For micro employers (generally defined as businesses with one to four employees) who do not currently have payroll software, a range of simple, low-cost solutions are expected to be available from early 2019.

These solutions may include mobile apps, simple reporting solutions and portals.

An alphabetical list of the companies intending to offer these solutions has been published on the ATO website (and reproduced for your reference below).

The ATO does not (and nor does our firm) specifically endorse any of the suppliers listed below:

  • AccXite Pty Ltd
  • BAS Off Pty Ltd
  • Catsoft
  • Easy Pay Slip Pty Ltd
  • Employment Hero Pty Ltd
  • e-PayDay Pty Ltd
  • ePayroll
  • Etax Accountants Pty Ltd
  • Free Accounting Software
  • Globe BD
  • GovReports
  • Intuit Australia Pty Ltd
  • LodgeiT Pty Ltd
  • Ironbark Software
  • Myaccountant Technology Pty Ltd
  • MYOB Australia Pty Ltd
  • OB Secure Messaging
  • Sodapay
  • PwC Australia
  • Reckon Australia Pty Ltd
  • Single Touch Pty Ltd
  • SRI Enterprise Software Pty Ltd
  • Xero Australia Pty Ltd

Flexible ATO implementation

The Commissioner of Taxation, Chris Jordan,  recently made a personal guarantee that the ATO’s approach to STP will be “flexible, reasonable and pragmatic”.

In particular, despite the 1 July 2019 start date for small employers, the Commissioner has stated that they can start STP reporting any time from 1 July 2019 to 30 September 2019.

This effectively provides a three-month implementation reprieve for small employers.

The ATO has also indicated that there will be no penalties for mistakes, missed or late reports for the first year and exemptions will be provided from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.

Posted in Practice Update