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Practice Update August 2018

Welcome to the Davenports Practice Update for August 2018


ATO to clamp down on company car claims

An Australian Financial Review article claims that employers should be careful not to claim expenses on company cars that are used for private travel, with an increase in compliance checks expected after fringe benefit tax rule changes.

In the past, the ATO has had a more relaxed attitude on the private use of salary-packaged benefits such as vehicles, but this will change in the 2019 fringe benefits tax year. From then, the AFR article states, employees will be able to use work vehicles for up to 1000 kilometres of private travel each year, provided no single return trip is longer than 200 kilometres. Usage over these guidelines will see an FBT charge of 20 per cent on the cost of the car.

The change is in line with the ATO’s crackdown on work expense claims. “The change coincides with the ATO preparing to crack down on dodgy work expense claims, part of efforts to close the $8.7 billion gap for the country’s 9.6 million taxpayers,” says the AFR article.

The crackdown is not expected to affect tradespeople and others who use utes the most, as utes meeting ATO required criteria are exempt from private use regulations and can be provided as an FBT tax-free perk. However, passenger vehicles, including four wheel drive and utes not meeting the legislative requirements that are supplied by an employer is a fringe benefit and may incur fringe benefit tax.

In regard to vehicles subject to FBT, Public Accountants tax expert Tony Greco is quoted in the article as saying, “I think there is a rude awakening that is yet to happen. Employers have to rein in private use by their employees for these cars, which are supposed to have a work duty connection.

“The ATO has been threatening to monitor use. They have already gone to sporting events and taken down license plate numbers and things like that,” he said.

An ATO spokesman said where non-compliance was identified officials will work with employers to help them get it right.


Further company tax cuts deferred (for now . . .)

The Government has decided not to put the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 to a vote in the Senate … for the present point in time (it had already passed the House of Representatives without amendment).

The Bill aims to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023/24 financial year, and further reduce the corporate tax rate in stages so that, by the 2026/27 financial year, the corporate tax rate for all entities would be 25%.

Editor: Parliament resumes on 13 August 2018, coincidentally after some by-elections have taken place on 28 July . . .

Opposition confirms it won’t repeal already legislated company tax cuts

Editor: Just in case the tax cut situation wasn’t confusing enough, the leader of the Opposition, Bill Shorten, announced at a doorstop interview that, if elected, Labor would repeal the existing company tax cuts for companies with turnover between $10 and $50 million.

However, a few days later, after a Shadow Cabinet meeting, Mr Shorten confirmed that a Labor government would not touch business tax cuts that have already been legislated, due to the uncertainty that would generate. 

However, he reiterated that Labor does not support the further tax cuts for larger companies that may be legislated in the future.


ATO guide to the 5 most common Tax Time mistakes

As Tax Time 2018 has ‘kicked off’, the ATO has profiled the five most common mistakesthey see, including taxpayers who are:

  • leaving out some of their income (e.g., forgetting a temp or cash job, capital gains on cryptocurrency, or money earned from the sharing economy);
  • claiming deductions for personal expenses (e.g., home to work travel, normal clothes or personal phone calls);
  • forgetting to keep receipts or records of their expenses (around half of the adjustments the ATO makes are because the taxpayer had no records, or they were poor quality);
  • claiming for something they never paid for – often because they think everyone is entitled to a ‘standard deduction’; and
  • claiming personal expenses for rental properties – either claiming deductions for times when they are using their property themselves, or claiming interest on loans used to buy personal assets like a car or boat.

ATO Assistant Commissioner Kath Anderson reiterated the three ‘golden rules’ for work-related expenses: “You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it.”


Single Touch Payroll Update

Editor: Single Touch Payroll (STP) officially commenced for larger employers on 1 July 2018, and the ATO has provided some further guidance for affected entities.

The ATO is writing to employers who started reporting through STP before 1 July 2018, providing them with information about how their employees’ payment summary for 2017/18 may change with STP, including the following:

  • They are not required to provide their employees with payment summaries for the information they report through STP (although they may choose to provide payment summaries for the first year of STP reporting).
  • ‘Income statements’ will replace payment summaries.
  • Employees’ income statements are available through pre-filling and myGov.
  • The income statement has three categories: ‘Tax ready’, ‘Not tax ready’ and ‘Year-to-date’.  Only ‘tax ready’ income statements are complete and will be available through pre-filling.
  • Income statements may not be tax ready until 14 August this year.  Employers have until this date to finalise their STP data.

Editor: The ATO has also recognised that some employers may not have been ready to start STP reporting from 1 July 2018, and these employers (or their tax agent) may be able to apply for a deferral.

For example, employers that live in an area where there is no internet connection, or where the connection or service is intermittent or unstable, can apply for a deferral or even (in very limited circumstances) an exemption.

Please contact our office if you would like our assistance in this regard.


Cents per Km Deduction Rate for Car Expenses from 1 July 2018

The Commissioner of Taxation has determined that the rate at which work-related car expense deductions may be calculated using the cents per kilometre method is 68 cents per kilometre for the income year commencing 1 July 2018 (up from 66 cents per kilometre).


Suburban scammers pushing illegal early access to super

The ATO has become aware of people in some suburban areas of major cities attempting to encourage others to illegally access their super early (generally for a fee) to help them to purchase a car, to pay debts, to take a holiday, or to provide money to family overseas in need.

The ATO advises that anyone approached by someone telling them that they can access their super early, or anyone hearing about it from family, friends or work colleagues:

  • should not sign any documents nor provide them with any personal details;
  • stop any involvement with the scheme, organisation or the person who approached them; and
  • seek advice from a professional advisor or the ATO.

Transacting with cryptocurrency

Editor: With interest in cryptocurrencies (such as Bitcoin) increasing, the ATO has issued guidance regarding various tax consequences of transactions involving cryptocurrencies.

Any capital gains made on the disposal of a cryptocurrency (including using the cryptocurrency or converting it to Australian dollars) may be taxed, although certain capital gains or losses from disposing of a cryptocurrency that is a ‘personal use asset’ are disregarded.

Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption (but the longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset).

Note: If the cryptocurrency is held as an investment, the taxpayer will not be entitled to the personal use asset exemption but, if they hold the cryptocurrency as an investment for 12 months or more, they may be entitled to the CGT discount.

If the disposal is part of a business the taxpayer carries on, the profits made on disposal will be assessable as ordinary income and not as a capital gain.

Editor: The ATO has also provided guidance regarding the tax consequences of the loss or theft of cryptocurrency, as well as of ‘chain splits’.

Posted in Client Alert

Practice Update July 2018

Welcome to the Davenports Practice Update for June 2018


New amnesty period a chance to wipe the slate clean

A proposal by the Federal Government would see businesses granted a one year amnesty to address historic under-payment of superannuation. The proposal is currently before the Federal Senate having passed through the Lower House.

Institute of Public Accountants (IPA) Chief Executive Andrew Conway sees the proposal as an opportunity for businesses and clients alike to wipe the slate clean.

Any non-payment of this worker entitlement represents wage theft; a practice never to be condoned. However, we acknowledge that small businesses can sometimes experience cash flow issues, making them vulnerable when it comes to meeting their SG obligations by the required due date.

“The IPA supports this amnesty period as it incentivises employers to come forward and do the right thing by their employees by paying any unpaid superannuation in full,” Mr Conway said.

Non-payment of superannuation has been one of the focusses of a broader package by the Federal Government aimed at ensuring on-time payment and regular reporting by superannuation funds. Another part of the package will see the Australian Tax Office (ATO) having the power to apply for court-ordered penalties, which can include up to one-year in jail.

The ATO will use their highly sophisticated data gathering methods to access information about the amounts of superannuation that employers owe their employees.


Personal Income Tax Cuts passed!

Parliament has passed the Government’s Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.

According to the Prime Minister, taxes “will now be lower, fairer and simpler”.

The Government’s plan has three steps:

  • The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year).
  • The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.
  • Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:
    • From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
    • From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.
    • The low income tax offset will also be lifted to $645.
  • The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.

Early release of super on compassionate grounds: ATO

From 1 July 2018, responsibility for the administration of the early release of superannuation benefits on compassionate grounds will be transferred from the Department of Human Services (DHS) to the ATO.

Since the ATO is responsible for most of an individual’s interactions with the superannuation system, this change will enable the ATO to build on these existing relationships and provide a more streamlined service to superannuation fund members.

A key improvement under the new process is the ATO providing electronic copies of approval letters to superannuation funds at the same time as to the applicant, which will mitigate fraud risk and negate the need for superannuation funds to independently verify the letter with the Regulator.

Individuals will also upload accompanying documentation simultaneously with their application, rather than the current ‘two-step process’.

Since DHS will accept early release applications up until 30 June 2018, there will be a short transition period where DHS will continue to process those existing applications and complete any necessary reviews.

Nonetheless, from 1 July 2018 the ATO will process all new applications.


ATO putting clothing claims through the wringer

A focus on work-related clothing and laundry expenses this Tax Time will see the ATO “more closely examine taxpayers whose clothing claims don’t suit them”.

According to Assistant Commissioner Kath Anderson, around 6 million people claimed work-related clothing and laundry expenses last year, with total claims adding up to nearly $1.8 billion.

She went on to say:

“While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing.”

With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming.

Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.

“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”

Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims.  However, far too many are claiming for normal clothing, such as a suit or black pants.  Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line.  Others think they can claim normal clothes because they bought them just to wear to work.

“Unfortunately they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.


Tax time tips for small business

The ATO claims that it is committed to supporting small businesses and making it as easy as possible for them to understand and meet their tax obligations at tax time.

Consequently, Assistant Commissioner Mathew Umina has some tips to help small business in the lead up to and during tax time, including:

  • keeping up-to-date records, which will help small businesses to complete and lodge their tax returns, manage cash flow, meet their tax obligations and understand how their business is doing;
    • consider small business tax concessions, such as:
    • simplified trading stock rules (if the estimate of the difference between opening and closing trading stock is $5,000 or less, the small business doesn’t need to do a stocktake);
    • concessions that allow new small businesses to claim an immediate deduction for start-up costs like professional, legal and accounting advice;
  • simplified depreciation rules, including the $20,000 instant asset write-off for assets costing less than $20,000 bought and installed by 30 June 2018.

Please contact our office if you need any advice as to how any of the abovementioned small business tax concessions may be relevant to your business.

Posted in Client Alert